FFEL and Direct Loan Policy Update

1
Session 20

• FFEL and Direct Loan Policy Update
• Pamela Moran
• Office of Postsecondary Education

2
Agenda

• Higher Education Reconciliation Act of 2005
• Other Legislation
• Policy Guidance
• HEA Reauthorization

3
Recent Legislation

• Higher Education Reconciliation Act of 2005
• P.L. 109-171, February 8, 2006 (HERA)
• Emergency Supplemental Appropriations Act for
• Defense, the Global War on Terror, and
  Hurricane
• Recovery, 2006 P.L. 109-234, June 15, 2006
• Higher Education Act Extension P.L. 109-292
• through June 30, 2007

4
Not-So-Recent Legislation

• Student Loan Interest Rates
• P.L. 107-139, February 8, 2002
• Taxpayer-Teacher Protection Act of 2004
• P.L. 108-409, October 30, 2004
• Higher Education Relief opportunities for
  students
• (HEROES) P.L. 109-78 extended through
  September 30, 2007

5
Regulatory Outlook

• Academic Competitiveness and SMART Grants
• Interim Final with Public Comment - July 3, 2006
• Effective Date August 2, 2006
• Deadline for Public Comment August 17, 2006

6
Regulatory Outlook

• Academic Competitiveness and SMART Grants
• Revised Rule for Year Two - November 1, 2006
• Negotiated Rulemaking for Year Three
• Nov. 1, 2007

7
Regulatory Outlook

• Student Loans, Eligibility, General Provisions
• Interim Final with Public Comment
• August 9, 2006
• Effective Date September 8, 2006
• Deadline for Public Comment
• September 8, 2006

8
Regulatory Outlook

• Student Loans, Eligibility, General Provisions
• Revised Regulations November 1, 2006
• Negotiated Rulemaking if Issues Identified
• November 1, 2007

9
Regulatory Outlook

• Notice of Negotiated Rulemaking
• August 18, 2006
• Comments Due November 9, 2006
• Four Regional Hearings

10
Regulatory Outlook

• Up to four negotiating committees
• Deadline for negotiator
• nominations November 9, 2006
• Negotiating Sessions December 2006 March 2007

11
Higher Education Reconciliation Act of 2005 FFEL,
Direct Loans, Perkins Loans

• Active Duty Military Deferment
• Beginning July 1, 2006, up to three years
  military deferment on loans first disbursed on or
  after July 1, 2001
• Active duty service during war or other military
  operation or during national emergency (including
  qualifying National Guard)

12
Higher Education Reconciliation Act of 2005 FFEL,
Direct Loans, Perkins Loans

• Active Duty Military Deferment
• Military operation defined as contingency
  operation
• Current Examples Operation Enduring Freedom
• (Afghanistan) and Operation Iraqi Freedom (Iraq)
• Consolidation Loan made on/after July 1, 2001
  eligible if all underlying Title IV loans eligible

13
Higher Education Reconciliation Act of 2005 FFEL,
Direct Loans, Perkins Loans

• Active Duty Military Deferment
• Eligibility documentation includes military
  orders or commanding officers written statement

14
Higher Education Reconciliation Act of 2005 FFEL,
Direct Loans, Perkins Loans

• Active Duty Military Deferment
• Statute includes definitions of terms
• No refund of payments made

15
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• Increased annual undergraduate loan limits
• First year students from 2,625 to 3,500
• Second year students from 3,500 to 4,500
• Increased graduate annual unsubsidized loan limit
  from 10,000 to 12,000.
• (Effective Loans First Disbursed on/after 7/1/07)

16
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• Increased annual unsubsidized preparatory limits
• Pre-Grad/Prof and Teacher Cert. 7,000 (formerly
  5000)
• No change to aggregate loan limits
• (Effective Loans First Disbursed on/after 7/1/07)

17
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• Interest Rates
• FFEL PLUS Loans first disbursed on/after July 1,
  2006
• fixed interest rate of 8.5 percent
• Direct PLUS Loans
• fixed rate of 7.9 percent
• Stafford Loans first disbursed on/after 7/1/06
• fixed at 6.8 percent
• Consolidation Loans No change

18
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• Origination Fees - FFEL
• 1st disbursement on or after
• July 1, 2006 2
• July 1, 2007 1.5
• July 1, 2008 1
• July 1, 2009 - .5
• July 1, 2010 no fee (1 FDF remains)

19
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• Federal Default Fee (Formerly Insurance Premium
  or Guarantee Fee)
• Requires Collection of 1 for loans guaranteed
  on/after July 1, 2006
• Requires deposit of fee into GA Federal Fund
• GA may collect from borrower or pay from
  non-Federal sources

20
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• Origination Fees Direct Loan
• 1st disbursement on or after
• July 1, 2006 3
• July 1, 2007 2.5
• July 1, 2008 2
• July 1, 2009 - 1.5
• July 1, 2010 1

21
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• PLUS Eligibility for Graduate/Professional
  Students
• Same eligibility criteria as Parent PLUS
  including credit checks and endorsers
• No in-school status or grace period but eligible
  for in-school deferment
• (Effective Loans certified/originated on/after
  7/1/06)

22
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• PLUS Eligibility for Graduate Professional
  Students
• FAFSA Required
• Stafford eligibility determination required
• Stafford application not required
• (Effective Loans certified on/after 7/1/06)

23
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• PLUS Eligibility for Graduate Professional
  Students
• No direct disbursement to student
• Initial and Exit counseling strongly recommended
• (Effective Loans certified on/after 7/1/06)

24
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• Extends Teacher Loan Forgiveness from
  Teacher-Taxpayer Act
• Makes permanent increased loan forgiveness of
  17,500 for highly qualified math, science, and
  special education teachers at qualified
  low-income schools
• Provides eligibility to private school teachers
  by defining highly qualified for them
• (Effective on date of enactment, retroactive to
  October 1, 2005)

25
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• Disbursement Rule Changes
• Loan disbursement on/after 2/8/06 for school with
  CDR less than 10
• No multiple disbursement for single term or
  four-month loans
• No 30-day delayed delivery

26
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• Disbursement Rule Changes
• Loan disbursement for withdrawals on/after July
  1, 2006
• School must confirm need for/ acceptance of /
  need to repay before crediting or directly
  disbursing
• Document confirmation
• No response to notice no crediting or disbursing

27
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• Disbursement Rule Changes
• Foreign Schools (FFEL only)
• Foreign school must request direct disbursement
  to student otherwise goes to school
• Lender or GA must verify students enrollment
• No direct disbursement of Parent or
  Graduate/Professional PLUS Loans
• For Loans First Disbursed on/after 7/1/06

28
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• Disbursement Rule Changes
• StudyAbroad Programs through Home Institution
  (FFEL only)
• Student may request Direct Disbursement by lender
• Not subject to school request or approval
• Lender or GA must verify students enrollment
• No direct disbursement of Parent PLUS or
  Graduate/Professional PLUS Loans
• For Loans First Disbursed on/after 7/1/06

29
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• Standardized Repayment Plans on FFEL Model
• Direct Loan standard, graduated, and extended
  repayment plans comparable to FFEL Program
• Exception ICR Repayment
• (Effective 7/1/06)

30
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• Consolidation Loans
• Generally no reconsolidation of Consolidation
  Loan
• FFEL- only borrower to Direct Loan only if FFEL
  application denied - SUPERSEDED
• No In-School Consolidations in Direct Loan or
  Early Conversion to Repayment Consolidations in
  FFEL
• No Joint Spousal Consolidations
• (Effective 7/1/06)

31
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• False Certification Discharge
• Based on borrower being victim of CRIME of
  identity theft
• Application in FFEL to lender or guaranty agency
  and in DL to Direct Loan Servicer or Debt
  Collection Services
• Copy of local, State, or Federal court verdict or
  judgment required
• (Effective 7/1/06)

32
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• Rehabilitation of Defaulted Loans
• Number of on-time payments reduced from 12 to 9
• On-time now within 20 days of due date
• Completed within 10 consecutive months
• (Effective New rehab agreements on/after 7/1/06)

33
Higher Education Reconciliation Act of 2005 FFEL
and Direct Loans

• Rehabilitation of Defaulted Loans
• Missed or ineligible payment allowed
• GA OPTION New standard OK on prior agreements
  if at least one scheduled payment of 9 after
  7/1/06
• (Effective New rehab agreements on/after 7/1/06)

34
Higher Education Reconciliation Act of 2005

• Published Guidance See.WWW.IFAP.ed.gov special
  link to HERA information
• Dear Colleague Letters and Announcements
• GEN-06-03 (March 10) HERA Summary for Loans
• FP-06-05 (April 25) FFEL Grad/PLUS Guidance
• ANN (June 23) DL GRAD/PLUS Guidance
• ANN (May 30) HERA Training Opportunities
• GEN-06-10 (June 20) HERA Implementing
  Provisions
• GEN-06-11 (June 21) Foreign Schools and FFEL
• NSLDS HERA updates (April 24, July 7, July 10)

35
Higher Education Reconciliation Act of 2005

• Forms
• FP-06-05 (April 24) FFEL Promissory Note
  Addenda and Plain Language Disclosures
• FP-06-08 (May 23) FFEL Stafford and PLUS MPNs
• FP-06-12 (July 3) FFEL Consolidation
  Application Addendum
• GEN-06-13 (July 3) Teacher Loan Forgiveness

36
Higher Education Reconciliation Act of 2005

• Forms
• Pending
• Revised Stafford and PLUS MPN
• Revised Consolidation Loan App/P-Note
• Military Deferment
• Identity Theft Discharge

37
Emergency Supplemental Appropriations Act
(2006)

• DCL GEN-06-12, June 23, 2006
• Repealed Single Holder Rule in FFEL
  Consolidation Program
• Effective for applications received on or after
  June 15, 2006

38
Emergency Supplemental Appropriations Act (2006)

• Repealed HERA July 1, 2006 changes limiting FFEL
  Stafford or PLUS borrower access to Direct Loan
  Consolidation
• denial of application no longer required
• income-sensitive repayment that meets the
  borrowers needs reinstated as condition

39
Emergency Supplemental Appropriations Act
(2006)

• Impact
• All eligible loans of equal status
• FFEL loan not required in FFEL Consolidation
• Single eligible loan can be consolidated

40
HEA Extension P.L. 109-292

• Limitation on School and School-Affiliated
  Organizations use of Eligible Lender Trustees
  (ELT) in FFEL Program
• Loan Discharge for 9/11 spouses and parents
• Spouse of eligible public servant
• Parent of eligible victim
• Includes portion of Consolidation Loan

41
HEA Reauthorization

• H.R 609 - College Access and Opportunity
• Act of 2006 - passed by
  House
• March 30, 2006
• Senate - ?

42
Technical Slide

• We appreciate your feedback and comments.
• We can be reached at
• Phone [phone]
• Fax [phone]
• Email Pamela.Moran_at_ed.gov