**College Cost Reduction and Access Act**

**(DCL GEN-08-01 and FP-08-01)**

**TABLE OF CONTENTS**

**Page**

**Student Loan Programs -- Borrower Benefits**

Interest Rate Reductions **3**

Military Service Deferment **4**

Active Duty Student Deferment **6**

Economic Hardship Deferment **8**

Income-based Repayment (IBR) for FFEL and Direct

Loan Borrowers **9**

*Borrower Eligibility* **9**

> *Application of Borrower Payments/Unpaid Interest*
>
> *and Principal* **10**
>
> *Payment Amount when Borrower Leaves IBR* **11**
>
> *Loan Forgiveness Related to IBR* **11**
>
> Graduate/Professional PLUS Borrower Eligibility
>
> for Income Contingent Repayment (ICR) in the
>
> Direct Loan Program **12**
>
> Maximum Repayment Period under ICR **13**

Loan Forgiveness for Public Service Employees **14**

**Grants to Students**

Federal Pell Grant Increases **16**

Elimination of Tuition Sensitivity **17**

TEACH Grants **18**

**College Cost Reduction and Access Act**

**(DCL GEN-08-01 and FP-08-01)**

**TABLE OF CONTENTS**

**Page**

**FFEL Lender and Guaranty Agency Provisions**

Reduction of Special Allowance Payments **22**

Increased Loan Fees from FFEL Lenders **25**

Lender Insurance Percentages **26**

Elimination of Exceptional Performer Status **26**

Guaranty Agency Account Maintenance Fees **26**

Guaranty Agency Retention of Default Collections **27**

Loan Auction Pilot Program for FFEL Parent PLUS

Loans **27**

**Needs Analysis**

Income protection allowance **30**

> Simplified Needs Test (SNT) and Automatic
>
> Zero Expected Family Contribution (EFC) **30**

Professional Judgment **31**

Definitions **31**

*Total Income* **31**

*Untaxed Income and Benefits* **32**

*Independent Student* **32**

*Excludable Income* **33**

*Assets* **33**

*Estimated Financial Assistance* **33**

**Upward Bound 34**

**Partnership Grants**

College Access Challenge Grant Program **34**

Investments in Historically Black Colleges and

Universities and Minority-serving Institutions **38**

**[Student Loan Programs -- Borrower Benefits]{.underline}**

**§§427A(l), 428(b), 428C(a), 435(o), 455(b)(7), 455(d)(1),**

**455(e), 455(f)(2), 455(m), 464(c)(2), 493C, and 493D**

Program participants are encouraged to notify current borrowers who are
not completing new promissory notes, or receiving subsequent loans, of
the changes made by the CCRAA to loan terms and conditions (for example,
the new military deferment). Existing processes should be used to notify
borrowers of these changes, including annual letters to borrowers, and
information provided through web sites and publications.

**Interest Rate Reductions**

Over a four-year period beginning July 1, 2008, the CCRAA reduces the
interest rate on subsidized Stafford loans made to undergraduate
students in the Federal Family Education Loan (FFEL) Program and the
William D. Ford Federal Direct Loan Program. The applicable interest
rates for loans made during this period are as follows:

  ------------------------- ---------------------- ----------------------
  **First disbursement of a                        **Interest rate on the
  loan:**                                          unpaid balance**

  **Made on or after**      **And made before**    

  July 1, 2008              July 1, 2009           6.0 percent

  July 1, 2009              July 1, 2010           5.6 percent

  July 1, 2010              July 1, 2011           4.5 percent

  July 1, 2011              July 1, 2012           3.4 percent
  ------------------------- ---------------------- ----------------------

The amendments to §§427A(l) and 455(b)(7) of the Higher Education Act of
1965, as amended (HEA) apply to undergraduate, subsidized Stafford loans
first disbursed on or after July 1 of each year through June 30 of the
next year. This change does not affect any prior loans made to these or
any other borrowers as the terms and interest rates of those prior loans
remain unchanged. These reduced interest rates apply only to subsidized
loans; any unsubsidized Stafford Loan for the same undergraduate
borrower would continue to be made at the current fixed interest rate of
6.8 percent.

**Military Service Deferment**

The CCRAA modifies the military service deferment for borrowers in the
FFEL, Direct Loan and Federal Perkins Loan programs who are called to
active duty during a war or other military operation or national
emergency. This deferment was originally added to the HEA by the Higher
Education Reconciliation Act of 2005 (HERA). Under the HERA, the
military service deferment had a maximum time limit of three years and
was available only for loans first disbursed on or after July 1, 2001.

*Effective October 1, 2007, the CCRAA eliminates the three-year limit
for this deferment, and removes the provision that limited the
availability of the deferment to loans first disbursed on or after July
1, 2001.* Eligible borrowers may now receive the deferment on all
outstanding title IV loans in repayment on October 1, 2007, for all
periods of active duty service that include that date or begin on or
after that date. A borrower whose deferment eligibility had expired due
to the prior three-year limitation and who was still serving on eligible
active duty on or after October 1, 2007, may receive the deferment
retroactively from the date the prior deferment expired until the end of
the borrower's active duty service.

Lenders and schools may apply these changes to an eligible borrower who
is currently receiving the military deferment or received the deferment
for a period that included October 1, 2007 without receiving a new
deferment request from the borrower or the borrower's representative. If
expanded deferment benefits are granted in this manner, however, the
lender or school must send a notice to the borrower explaining the
additional benefits and providing the borrower an opportunity to decline
the deferment. The Department will implement this practice in the Direct
Loan Program.

Lenders and schools are reminded that the military service deferment is
available only to borrowers who are called to active duty during a war
or other military operation or national emergency. Moreover, the
military service deferment may not be granted for a period that will
result in a refund to the borrower of payments previously paid on the
loan.

The CCRAA also extended the time period covered by military service
deferments. *Effective October 1, 2007, the deferment period for any
borrower whose qualifying active duty service includes October 1, 2007,
or begins on or after that date, is extended for an additional 180 days
following the date the borrower is demobilized from that active duty
service.* This additional 180-day deferment period is available each
time a borrower is demobilized at the conclusion of an eligible active
duty service that supports the military deferment.

Lenders and schools may grant this additional deferment period based on
any documentation received supporting the borrower's military service
deferment that identifies an end-of-military service date for the
borrower. The additional 180-day deferment period cannot be granted
unless the lender or school has documentation of that date since the
lender or school would not otherwise have a basis for establishing the
beginning of the 180-day period. The Department will be implementing
these requirements in the Direct Loan Program.

**Active Duty Student Deferment**

The CCRAA created a new deferment in the FFEL, Direct Loan, and Federal
Perkins Loan programs for members of the National Guard or Armed Forces
Reserve, and members of the Armed Forces who are in a retired status,
who are called or ordered to active duty service. *Effective October 1,
2007, these borrowers may receive a deferment on repayment of their
title IV loans for up to 13-months following their completion of active
duty military service if they were enrolled in a postsecondary
institution at the time of, or within six months prior to, their
activation.* The deferment period for these borrowers expires at the
earlier of a borrower's re-enrollment in school or the end of the
13-month period.

Unlike a borrower receiving the Military Service Deferment, a borrower
receiving the Active Duty Student Deferment is *not* required to have
been activated during a war or other military operation, or national
emergency, or performing qualifying National Guard service during a war
or other military operation or national emergency. The term "active
duty" has the same meaning as it has in section 101(d)(1) of title 10,
United States Code, but does not include active duty for training or
attendance at a service school.

Under the CCRAA, members of the National Guard may qualify for this
deferment for:

● Title 32 Full-Time National Guard Duty under which a Governor is
authorized, with the approval of the President or the U.S. Secretary of
Defense, to order a member to State active duty and the activities of
the National Guard are paid for by federal funds; or

● State active duty under which a Governor activates National Guard
personnel based on State statute or policy, and the activities of the
National Guard are paid for by State funds.

Until the Department issues regulations implementing this deferment, for
purposes of this deferment the term "enrolled" means at least half-time
enrollment and "active duty" must include at least 30 consecutive days
of service, excluding training. Eligible National Guard service does not
include employment in a full-time, permanent position in the National
Guard unless the borrower employed in such a position is reassigned as
part of a Title 32 call to State active duty.

Many borrowers who are eligible for this deferment may have also
received the Military Service Deferment. If a borrower has already
received the Military Service Deferment, a lender or school may grant
the 13-month deferment to a borrower without an additional request from
the borrower or the borrower's representative if the lender has
documentation that: (1) demonstrates that the borrower was a member of
National Guard or reserves or was in a retired status from the Armed
Forces when entering active duty military service; (2) establishes an
end-of-military service date; and (3) establishes the borrower's
enrollment status at an eligible institution prior to the borrower's
military activation. If the 13-month deferment is granted without a
separate request from the borrower, the lender must send a notice to the
borrower advising the borrower of the deferment and providing the
borrower the opportunity to decline the deferment. The 180-day extended
military service deferment period and 13-month post-active duty service
deferment periods will run concurrently for such a borrower. The
Department will apply these policies in the Direct Loan program.

**Economic Hardship Deferment**

Under the HEA, a FFEL, Direct Loan, or Federal Perkins Loan borrower may
qualify for an economic hardship deferment if the borrower's income does
not exceed the greater of an amount tied to the poverty line standard or
the minimum wage rate. *Effective for all economic hardship deferment
requests made on or after October 1, 2007, the definition of economic
hardship in section 435(o)(1) of the HEA is amended to change the
poverty line standard from 100 percent for a family of 2 to 150 percent
of the poverty line applicable to the borrower's family size*.

In addition, the CCRAA eliminates the provision of the HEA under which a
borrower could be considered to have an economic hardship if the
borrower was working full-time and had a Federal educational debt burden
that equaled or exceeded 20 percent of the borrower's adjusted gross
income. However, the CCRAA did not eliminate the Secretary's authority
to establish, by regulation, additional criteria for an economic
hardship deferment based on the borrower's income and debt-to-income
ratio. Accordingly, until the Department issues new regulations to
implement the CCRAA, the regulations at 34 CFR 674.34(e)(4) and (5) and
682.210(s)(6)(iv) and (v) that establish an income and debt-to-income
criteria for the economic hardship deferment remain in effect. The
applicable poverty line standard for purposes of these regulatory
provisions, however, is the new poverty line standard (150 percent of
the poverty line applicable to the borrower's family size).

An economic hardship deferment may be granted for a maximum of three
years with a re-evaluation of the borrower's eligibility every 12
months. A borrower currently receiving an economic hardship deferment
may continue to receive the deferment, but is subject to the new poverty
line standard at the borrower's next scheduled re-evaluation of
eligibility.

**Income-based Repayment for FFEL and Direct Loan Borrowers**

*Effective July 1, 2009, the CCRAA establishes a new income-based
repayment (IBR) plan for borrowers in the FFEL and Direct Loan
programs.* The income-sensitive repayment plan in the FFEL program and
the income-contingent repayment plan in the Direct Loan program will
continue to be available to borrowers. The Department will be developing
regulations to implement the new IBR plan through a negotiated
rulemaking process.

*[Borrower Eligibility]{.underline}*

The IBR repayment plan is available to all borrowers who have a partial
financial hardship, except for a FFEL or Direct Loan parent PLUS Loan
borrower or a FFEL or Direct Loan Consolidation Loan borrower who repaid
a parent PLUS loan through the Consolidation Loan.

Under the CCRAA, a "partial financial hardship" means a situation in
which the annual amount due on all of the borrower's eligible FFEL and
Direct Loans (as calculated under a standard repayment plan based on a
10-year repayment period) exceeds 15 percent of the result obtained by
calculating, on at least an annual basis, the difference between the
borrower's (and spouse's, if applicable) adjusted gross income and 150
percent of the poverty line applicable to the borrower's family's size.

If a borrower meets this threshold, the borrower may elect to pay the
loan under an IBR plan and have his or her monthly loan payments limited
to no more than 15 percent of the amount by which the borrower\'s (and,
if applicable, the borrower's spouse's) adjusted gross income exceeds
150 percent of the poverty line applicable to the borrower's family
size, divided by 12. The maximum repayment period for a borrower with a
partial financial hardship may exceed 10 years.

*[Application of Borrower Payments and Treatment of Unpaid Interest and
Principal under IBR]{.underline}*

A loan holder is required to apply a borrower's monthly payments first
to the accrued interest due on the loan, then to fees due on the loan,
and then to loan principal.

Any accrued interest on a subsidized Stafford Loan that is not covered
by the borrower's payment is paid by the Secretary for a period not to
exceed three years from the date the borrower elects IBR, excluding any
period during which the borrower receives an economic hardship deferment
on the loan. Any interest accruing on unsubsidized Stafford Loans or on
subsidized Stafford Loans after the expiration of the three-year subsidy
period is capitalized at the time the borrower elects to leave IBR or no
longer has a partial financial hardship. Any unpaid principal not
covered by the borrower's payment is deferred.

*[Payment Amount when a Borrower Leaves IBR or No Longer has a Partial
Financial Hardship]{.underline}*

A borrower who is paying under IBR may elect to stop paying under this
plan at any time and repay under the FFEL or Direct Loan standard
repayment plan. If a borrower elects to leave IBR or no longer has a
partial financial hardship, the borrower's monthly repayment amount is
recalculated. The maximum monthly amount that the borrower can be
required to repay as a result of this recalculation is the amount a
borrower would have paid under a FFEL or Direct Loan standard repayment
plan based on a 10-year repayment period on all the borrower's
non-parent PLUS, FFEL and Direct Loans that were outstanding in
repayment at the time the borrower elected IBR. The borrower's total
repayment period based on the recalculated payment amount may exceed 10
years.

*[Loan Forgiveness Related to IBR]{.underline}*

The CCRAA authorizes the Secretary to repay or cancel any outstanding
balance of principal and interest on a borrower's non-parent PLUS, FFEL
or Direct Loans after a period prescribed by the Secretary not to exceed
25 years if the borrower elected to participate in IBR at any time, and
the borrower meets one of the following requirements:

● The borrower has paid a reduced monthly payment amount under a partial
financial hardship, or a reduced recalculated monthly payment amount
after leaving IBR or after the borrower no longer has a partial
financial hardship.

● The borrower paid a monthly payment amount that was not less than the
amount the borrower would have paid under a FFEL or Direct Loan standard
repayment plan based on a 10-year repayment period on all the borrower's
non-parent PLUS FFEL and Direct Loans that were outstanding in repayment
at the time the borrower elected IBR.

● The borrower paid a monthly payment amount that was not less than the
amount required under a FFEL or Direct Loan standard repayment plan with
a 10-year repayment period on all the borrower's non-parent PLUS, FFEL
and Direct Loans.

● The borrower paid Direct Loans under an income-contingent repayment
plan.

● The borrower has been in deferment due to an economic hardship.

Finally, the CCRAA requires the Secretary to establish procedures for
making an annual determination of the borrower's eligibility for IBR,
including verification of annual income, the annual amount due on the
total amount of loans made, and other procedures needed to implement
this plan.

**Graduate/Professional PLUS Borrower Eligibility for Income Contingent
Repayment in the Direct Loan Program**

*Effective July 1, 2009, graduate and professional student PLUS
borrowers in the Direct Loan program will be eligible to use the
income-contingent repayment (ICR) plan.* Direct Loan parent PLUS
borrowers will not be eligible for the ICR repayment plan.

**Maximum Repayment Period under Direct Loan Income-Contingent
Repayment**

*Effective October 1, 2007*, the CCRAA amended section 455(e) of the HEA
to modify the maximum period of time for which an income-contingent
repayment plan may be in effect for a borrower. As amended, the HEA now
specifies that in calculating the maximum 25-year period a borrower may
repay under ICR, as provided under section 455(d)(1)(D) of the HEA, the
maximum repayment period will include any period in which the borrower
is:

● Repaying a loan under ICR and is not in default on that loan;

● Repaying under ICR and is in an economic hardship deferment;

● Making a reduced monthly payment under the new IBR plan or a
recalculated reduced monthly payment after electing to leave IBR or
after the borrower no longer has a partial financial hardship;

● Making monthly payments that are not less than an amount the borrower
would pay under a standard repayment plan based on a 10-year repayment
period at the time the borrower elected IBR; or

● Making monthly payments that are not less than the amount required
under a standard repayment plan with a 10-year repayment period.

**Loan Forgiveness for Public Service Employees**

*Effective October 1, 2007, the CCRAA creates a new loan forgiveness
program for public service employees.* Under this program the Secretary
will forgive the remaining outstanding balance of principal and accrued
interest on an eligible Direct Loan for a borrower who is not in default
and who makes 120 monthly payments on the loan after October 1, 2007.
The borrower must be employed full-time in a public service job during
the same period in which the qualifying payments are made and at the
time that the cancellation is granted.

For purposes of the loan forgiveness program, eligible Direct Loans
include Federal Direct Stafford Loans, Federal Direct Unsubsidized
Stafford Loans, Federal Direct PLUS Loans (for parents or
graduate/professional students), and Federal Direct Consolidation Loans.

*Under the CCRAA, effective July 1, 2008, a FFEL borrower may
consolidate his or her FFEL loans into a Direct Consolidation Loan if
the borrower intends to be eligible to use the public service loan
forgiveness program.* However, payments made on those FFEL loans prior
to their consolidation into the Direct Loan Program do not count toward
the 120 month requirement.

The CCRAA defines the term "public service job" to mean a full-time job
in: emergency management, government, military service, public safety,
law enforcement; public interest law services (including prosecution or
public defense or legal advocacy in low-income communities at a
non-profit organization), public child care, public service for
individuals with disabilities and the elderly, public health, social
work in a public child or family service agency, public education
(including early childhood education), public library sciences,
school-based library sciences and other school-based services; or at a
non-profit organization under section 501(c)(3) of the Internal Revenue
Code that is exempt from taxation under section 501(a)of the Code, or
teaching full-time as a faculty member at a Tribal College or
University, and other faculty teaching in high-needs areas, as
determined by the Secretary.

To qualify for loan forgiveness, the borrower must have made the
required 120 monthly payments on the Direct Loan for which forgiveness
is sought under one of the following repayment plans, or a combination
of these plans. The qualifying repayment plans include:

● An income-based repayment plan;

● An income-contingent repayment plan;

● A Direct Loan standard repayment plan based on a 10-year repayment
period; or

● Any Direct Loan repayment plan or as a Direct Consolidation Loan if
the monthly payment amounts paid are not less than those that would have
been paid under a Direct Loan standard repayment plan based on a 10-year
repayment plan.

While parent PLUS borrowers are eligible for the public service loan
forgiveness, they are NOT eligible for the income-based and
income-contingent repayment plans. Additionally, a borrower who pays
only, or primarily, under a 10-year standard repayment plan or under
another repayment plan in amounts consistent with a 10-year standard
repayment is unlikely to have a remaining balance for loan forgiveness
after making 120 payments on the loan.

**[Grants to Students]{.underline}**

**§§401(a) & (b), 402C(f), and 420L**

**Federal Pell Grant Increases**

The CCRAA extends the authority for Federal Pell Grant funding through
fiscal year 2017, and appropriates mandatory funding for fiscal years
2008 through 2017 (the mandatory funding amounts are in addition to the
discretionary funding amounts that are provided in the annual
appropriations bill for the Department).

The CCRAA requires that the mandatory funds be used to increase the
maximum Federal Pell Grant award, as established in the annual
appropriations act, by the following amounts:

● \$490 for the 2008-09 and 2009-10 award years

● \$690 for the 2010-11 and 2011-12 award years

● \$1,090 for the 2012-13 award year

For the 2008-2009 award year, we anticipate that the maximum Pell Grant
will be \$4,731. This is a combined amount that includes the mandatory
amounts discussed above with the \$4,241 maximum award provided under
the recently enacted appropriations bill. The Department will issue a
payment schedule shortly reflecting this award level.

The annual amount that would be added to the maximum Pell Grant each
award year from mandatory funds as described above may be increased or
decreased. If the mandatory funds provided are insufficient to fund the
specified increase, the amount would be reduced. If, however, the
mandatory funds provided are more than are required, the amount would be
increased. At the time the Secretary publishes the Payment and
Disbursement Schedules for each award year, the Secretary will include
the mandatory funds for that award year in the annual award amounts
provided in the schedules. The schedules will not specify the
proportions of mandatory and discretionary funds in each award year, and
institutions will not be required to differentiate the discretionary or
mandatory portions of a student's Pell Grant award. Institutions will
only need to report a single amount to the Common Origination and
Disbursement (COD) system. The Department will track expenditures and
funding sources at the program level.

**Elimination of Tuition Sensitivity**

*Effective July 1, 2007, the CCRAA eliminated the provision in section
401(b)(3) of the HEA that adjusted downward the scheduled award amount
for Federal Pell Grant recipients at low-cost institutions, such as
community colleges.*

Because this provision is effective retroactively, institutions must
recalculate awards already made to affected students for the 2007-08
award year and adjust their disbursements accordingly. Additional
guidance on implementing this change was provided in Dear Colleague
Letter P-07-02.

**TEACH Grants**

*Effective July 1, 2008, the CCRAA establishes the Teacher Education
Assistance for College and Higher Education (TEACH) Grant Program, which
provides up to \$4,000 a year in grant assistance to students who plan
on becoming teachers and teachers who are obtaining graduate degrees.*
Some technical changes were made to the TEACH Grant Program by Pub.L.
110-153 which was signed by the President on December 21, 2007.

In exchange for the grant, candidates must agree to serve as a full-time
teacher at certain schools and within certain fields for at least four
academic years within eight years after completing the course of study
for which the candidate received a grant. If the candidate fails or
refuses to carry out his or her teaching obligation, the amounts of the
TEACH Grants received are treated as an unsubsidized Direct Loan and
must be repaid with interest.

Applicants for TEACH Grants may be undergraduate students, graduate
students, students enrolled in a post-baccalaureate teacher credential
program, or current or prospective teachers.

To qualify for a TEACH Grant, an applicant must meet certain academic
standards. An applicant who is enrolled as an undergraduate student may
qualify if he or she has a 3.25 grade point average (on a 4.0 scale). If
the student is in the first year of college, the grade point average
standard applies to the student's cumulative high school record.
Alternatively, an applicant qualifies if he or she scores above the
75^th^ percentile on at least one of the batteries in an undergraduate,
post-baccalaureate or graduate school admissions test. In any case, the
student must be completing (or planning to complete) the coursework or
requirements necessary to begin a career in teaching.

The GPA requirements do not apply to certain applicants who are or will
be working on a graduate degree. Those applicants include a current
teacher or retiree from another occupation with expertise in a field
where there is a shortage of teachers (e.g., mathematics, science,
special education, English language acquisition, or another high-need
field).

To receive TEACH Grants, a teacher candidate must agree to:

● Serve as a full-time teacher for a total of not less than four
academic years within eight years of completing his or her course of
study;

● Comply with the requirements for being a highly qualified teacher as
defined in section 9101 of the Elementary and Secondary Education Act;

● Teach at a public or private nonprofit elementary or secondary school
that is eligible for assistance under Title I of the Elementary and
Secondary Education Act, as provided in section 465(a)(2)(A) of the HEA;

● Teach in any of the following fields: mathematics, science, a foreign
language, bilingual education, special education, as a reading
specialist, or in another field designated as high need by the Federal
Government, State Government or local educational agency and approved by
the Secretary;

● Provide evidence of required employment after each year of service in
the form of a certification by the chief administrative officer of the
school; and

● If the candidate fails or refuses to carry out his or her service
obligation, repay as a loan the total amount of TEACH Grants received
plus interest.

A full-time teacher candidate may receive up to \$4,000 each year. The
total amount of TEACH Grants that the candidate may receive for
undergraduate or post-baccalaureate study may not exceed \$16,000. The
total amount that a graduate student may receive may not exceed \$8,000.
If the student is enrolled less than full-time, including less than
half-time, the amount of the annual TEACH Grant that he or she may
receive must be reduced in accordance with a schedule established by the
Secretary in regulations. The amount of the TEACH Grant, in combination
with other assistance the student may receive, may not exceed the cost
of attendance, as provided in section 472 of the HEA. If the TEACH Grant
and other aid exceeds the cost of attendance for an academic year, the
student's aid package must be reduced.

An otherwise eligible institution may award TEACH grants if the
Secretary determines that it satisfies all of the following
requirements:

● The institution provides high quality teacher preparation and
professional development services, including extensive clinical
experience as a part of pre-service preparation;

● The institution is financially responsible;

● The institution provides pedagogical coursework, or assistance in the
preparation of such coursework, including the monitoring of student
performance, and formal instruction related to the theory and practices
of teaching; and

● The institution provides supervision and support services to teachers,
or assistance in the provision of such services, including mentoring
focused on developing effective teaching skills and strategies.

**[FFEL Lender and Guaranty Agency Provisions]{.underline}**

**§§428(b)(1), 428(c)(6), 428I, 435(p), 438(b)(2), 438(d)(2),**

**458(b), and 499**

**Reduction of Special Allowance Payment Rates to FFEL Loan Holders**

*Effective for loans first disbursed on or after October 1, 2007, the
special allowance payment (SAP) rates are reduced.* Different factors
are used to calculate SAP for loans held by eligible not-for-profit loan
holders and loans held by all other eligible lenders.

[For loans held by an Eligible Not-for-Profit Holder the SAP factors are
as follows:]{.underline}

● Stafford Loans during in-school, grace and deferment periods: factor
reduced to 1.34 percent;

● Stafford Loans in repayment status (other than in deferment): factor
reduced to 1.94 percent;

● PLUS Loans: factor reduced to 1.94 percent;

● Consolidation Loans: factor reduced to 2.24 percent.

[For loans held by all other eligible lenders, the SAP factors are as
follows:]{.underline}

● Stafford Loans during in-school, grace and deferment period: factor
reduced to 1.19 percent;

● Stafford Loans in repayment (other than in deferment): factor reduced
to 1.79 percent;

● PLUS Loans: factor reduced to 1.79 percent;

● Consolidation Loans: factor reduced to 2.09 percent.

The CCRAA defines the term "eligible not-for-profit holder." That
definition, and other parts of the CCRAA relating to SAP, were also
amended by the Third Higher Education Extension Act of 2007, Pub.L.
110-109. In this discussion of the changes to SAP, references to
provisions added by the CCRAA include revisions made by the Pub.L.
110-109.

The term "eligible not-for-profit holder" is now defined as an eligible
lender under section 435(d) of the HEA (except for a school lender) that
is:

● A State, or a political subdivision, agency, or other instrumentality
of a State, including those entities that are eligible to issue
tax-exempt bonds described in 26 CFR §1.103-1 or section 144(b) of the
Internal Revenue Code (the Code) of 1986;

● An entity described under section 150(d)(2) of the Code authorized to
issue tax-exempt bonds that has not made an election under section
150(d)(3) of the Code;

● A non-profit entity described in section 501(c)(3) of the Code; or

● A trustee acting as an eligible lender (ELT) on behalf of a
governmental or non-profit entity otherwise described above, regardless
of whether the entity is an eligible lender under section 435(d) of the
HEA in its own right.

An eligible lender that is a governmental or non-profit entity listed
above qualifies as an eligible not-for-profit holder if that entity
acted as an eligible lender on the date of enactment of the CCRAA,
September 27, 2007. A State may elect, in accordance with regulations to
be issued by the Department, to waive this requirement for a new
eligible not-for-profit holder (but not for a trustee for such a holder)
if the State determines that such a waiver is necessary to fulfill a
public purpose for the State.

An ELT may qualify as an eligible not-for-profit holder with respect to
loans it holds on behalf of a governmental or non-profit entity listed
above, regardless of whether that entity qualifies as an eligible lender
in its own right, only if, on September 27, 2007, that entity held sole
beneficial ownership interest in a FFEL program loan eligible for
special allowance payments.

An otherwise eligible not-for-profit that is a governmental or
non-profit entity may not be owned or controlled, in whole or in part,
by a for-profit entity. An ELT acting on behalf of a governmental or
non-profit entity cannot qualify as an eligible not-for-profit holder
with respect to loans held on behalf of such an entity if that entity is
owned or controlled by a for-profit entity. Whether held by a
governmental or non-profit lender or by an ELT, loans qualify for the
higher SAP rate only if a governmental or non-profit entity has sole
beneficial ownership interest in those loans and any income from those
loans. The pledge or grant of a security interest to any party in a loan
or income from a loan to provide security for a debt obligation issued
by a governmental or non-profit entity, does not give beneficial
ownership in the loan to a for-profit entity, nor does such a pledge or
grant of a security interest in a loan give a for-profit entity either
ownership in or control over that governmental or non-profit entity. If
an eligible not-for-profit holder sells a loan on which the Secretary is
paying the higher SAP to an entity that is not an eligible
not-for-profit holder, that loan no longer qualifies for the higher SAP
as of the date of the sale. In this context, the transfer from one trust
to another would be considered a sale for the purposes of determining
eligibility for the higher SAP.  A loan transferred from one trust to
another continues to qualify for the higher SAP rate only if, after the
transfer, the loan continues to be held by an entity that qualifies as
an eligible not-for-profit holder.

On December 28, 2007, the Department published a Dear Colleague Letter
FP-07-12 (<http://ifap.ed.gov/dpcletters/FP0712.html>) which provided
guidance on the procedures that will be used for a loan holder to
request designation as an eligible not-for-profit holder for purposes of
receiving SAP at the rate set for such holders. These procedures will
govern the payment of SAP until the Secretary publishes final
regulations governing the definition of the term "not-for-profit
eligible loan holder", as required by the CCRAA, within one year of
enactment.

**Increased Loan Fees from FFEL Lenders**

The CCRAA increased the amount of the loan fee the Secretary collects
from all FFEL lenders under section 438(d) of the HEA from 0.50 percent
to 1.0 percent of the principal amount of each loan. *The increased fee
applies to all loans for which the first disbursement is made on or
after October 1, 2007.* The CCRAA also specifies that the fee may not be
collected from the borrower.

**Lender Insurance Percentages**

*Effective with loans made on or after October 1, 2012, the CCRAA
reduces the insurance on a defaulted FFEL loan from 97 percent to 95
percent of the loan's unpaid principal*. However, guaranty agencies will
continue to insure 100 percent of the unpaid principal of loans made
under a lender-of-last-resort program under sections 428(j) or 439(q) of
the HEA, and for exempt claims as defined in section 428(c)(1)(G) of the
HEA.

**Elimination of Exceptional Performer Status for FFEL Lenders, Lender
Servicers, and Guaranty Agencies**

*Effective October 1, 2007, the CCRAA eliminates section 428I of the HEA
under which lenders, lender servicers, and guaranty agencies could be
designated as exceptional performers in loan servicing and collection.*
Under §302(c) of the CCRAA, lenders (but not lender servicers) could
retain exceptional performer status for the remainder of the year for
which the designation was made. Only one lender was ever designated as
an exceptional performer as a lender and that lender's designation had
expired prior to October 1, 2007 and thus did not qualify for the
extension.

**Guaranty Agency Account Maintenance Fees**

The CCRAA reduces the amount of the account maintenance fees (AMF) paid
to guaranty agencies under Section 458(b) of the HEA from 0.10 percent
to 0.06 percent of the original principal amount of outstanding loans.
*This reduction is effective for all AMF payments made to an agency on
or after October 1, 2007.*

**Guaranty Agency Retention of Default Collections**

The CCRAA reduced from 23 percent to 16 percent the percentage that
guaranty agencies may retain from payments received on defaulted loans
collected by the agency. *This change applies to all borrower payments
received by a guaranty agency on a defaulted loan on or after October 1,
2007.*

**Loan Auction Pilot Program for FFEL Parent PLUS Loans**

The CCRAA directs the Secretary to undertake a pilot program to
establish a mechanism for an auction of the rights to originate FFEL
PLUS loans to new parent borrowers. *The Secretary is required to
establish an auction mechanism that will allow for the origination and
disbursement of all eligible FFEL parent PLUS loans beginning July 1,
2009.*

In implementing the pilot program, the Secretary is required to consult
with the Federal Communications Commission, the Department of Treasury,
and other federal agencies with knowledge of, and experience with,
auction programs.

The loan origination auction mechanism to be developed by the Secretary
must meet certain requirements. The Secretary must administer a
competitive auction for each State every two years.

Upon meeting pre-qualification requirements, eligible lenders will
submit sealed and confidential bids. Lenders with the winning bids will
be the only FFEL lenders permitted to originate eligible parent PLUS
loans for the cohort of dependent students at institutions within a
State until those students leave or graduate from those institutions.

A bid consists of the amount of the special allowance payment (SAP) that
a lender proposes to accept from the Secretary for the eligible PLUS
loans the lender makes. The winning bids for each State auction are the
2 bids with the lowest and second-lowest proposed SAP.

The lenders with winning bids will enter into an agreement directly with
the Secretary. Under that agreement, the lender must agree to originate
PLUS loans for parents of dependent students who qualify for PLUS loans
and whose dependent students attend institutions of higher education in
the State, and who elect to borrow from that lender. It also must accept
SAP based on the second lowest bid in the State's auction.

The Secretary does not collect a loan fee for any PLUS loan made under
this pilot program. The Secretary guarantees each loan against default
at 99 percent of the amount of unpaid principal and interest due on the
loan. Under the CCRAA, guaranty agencies do not have a role in this
process.

If there are no winning bids in a State, students and institutions in
the State will be served by a lender-of-last resort (LLR) selected by
the Secretary from among lenders indicating an interest to serve in this
capacity. In determining the amount of SAP paid to the LLR, the
Secretary will take into account the lowest bid that was submitted in
that State auction and the lowest bid submitted in a similar State.

A pilot program lender may consolidate a borrower's PLUS loans made
under this program under certain conditions. The borrower must first
notify the pilot lender of his or her intent to consolidate with another
lender and provide in that notice the terms and conditions of the
consolidation loan being offered by the other lender. Within 10 days,
the pilot program lender must agree to match the terms and conditions of
the other lender's loan. Otherwise, the borrower may consolidate with
the other lender.

Similarly, the pilot program lender may also consolidate the borrower's
Direct PLUS or other FFEL PLUS loans. For Direct PLUS loans, the pilot
program lender must agree within 10 days to match the terms and
conditions available under the Direct Consolidation Loan program. In the
case of any other FFEL PLUS loan made on behalf of a dependent student,
the pilot program lender must agree within 10 days to match the other
lender's terms and conditions.

The SAP to pilot program lenders on FFEL Consolidation loans is the
lesser of:

● The weighted average of the SAP on the loans consolidated (excluding
Direct PLUS loans), or

● The 3-month average commercial paper rate plus 1.59 percent.

A pilot program lender who consolidates a PLUS loan under this program
is not subject to an interest payment rebate fee on the Consolidation
Loan.

**[Need Analysis]{.underline}**

**§§475(g)(2), 476(b)(1), 477(b)(4), 478(b)(1), 479(b), 479A(a), and
480**

**Income Protection Allowance (IPA)**

*Beginning with the 2009-10 award year, the CCRAA specifies scheduled
increases in the IPA for dependent students, independent students
without dependents other than a spouse and independent students with
dependents other than a spouse*. After the 2012-13 award year, the
dollar amounts of the student IPAs will increase by a percentage equal
to the Consumer Price Index. The CCRAA did not make any changes to the
IPA for parents of dependent students, but provides that the table of
IPAs for parents of dependent students must be updated based on the
percentage increase in the Consumer Price Index for award years after
2008-09.

**Simplified Needs Test (SNT) and Automatic Zero Expected Family
Contribution (EFC)**

*Beginning with the 2009-10 award year, in addition to meeting the
relevant income criterion, if one of the parents of a dependent student
or if an independent student or his or her spouse is a dislocated
worker, the student qualifies for an SNT or automatic zero EFC
calculation*. The term "dislocated worker" is defined in section 101 of
the Workforce Investment Act of 1988, 29 U.S.C. §2801.

The CCRAA also extends from 12 to 24 months the time that an individual
who received benefits from a means-tested Federal benefit program can
qualify for an SNT or automatic zero EFC calculation.

In addition, the maximum qualifying income level for an automatic zero
EFC calculation is increased from \$20,000 to \$30,000 and requires the
Secretary to update this amount annually based on increases in the
Consumer Price Index.

**Professional Judgment**

*The CCRAA provides additional guidance, effective July 1, 2009, to
financial aid administrators in making professional judgment decisions
by adding three examples of special circumstances that financial aid
administrators may consider as factors in making an adjustment in the
expected family contribution calculation or to the cost of attendance*.
These examples are:

● The loss of employment of an independent student.

● Cases where a family member is a dislocated worker.

● Cases where a change in the student's housing status results in
homelessness.

**Definitions**

The CCRAA made changes to the definitions of total income, untaxed
income and benefits, independent student, excludable income, assets, and
estimated financial assistance. *These definitions are effective for the
2009 -- 2010 award year*.

*[Total Income]{.underline}*

The definition of total income is amended to exclude distributions from
qualified education benefits that are not subject to Federal income tax.

*[Untaxed Income and Benefits]{.underline}*

The CCRAA, as further amended by Pub. Law 110-153, specifically excludes
from consideration as untaxed income and benefits welfare benefits, the
amount of earned income credit, the credit for Federal tax on special
fuels, the amount of foreign income tax excluded from Federal income
taxes, untaxed social security benefits, and the amount of additional
child tax credit claimed for Federal income tax purposes.

*[Independent Student]{.underline}*

The CCRAA adds three additional categories of independent students:

● A student who is an orphan, in foster care, or a ward of the court, at
any time when the student was 13 years of age or older;

● A student who is an emancipated minor or is in legal guardianship as
determined by the court; and

● A student who has been verified during the school year in which the
student applies for financial aid as either an unaccompanied youth who
is homeless or who is at risk of homelessness and is self-supporting.
The verification may be made by a local educational homeless liaison
designated pursuant to the McKinney-Vento Homeless Assistance Act, the
director (or designee) of a program funded under the Runaway and
Homeless Youth Act, the director (or designee) of a program funded under
the McKinney-Vento Homelessness Act (relating to emergency shelter
grants), or a financial aid administrator.

The CCRAA also specifies that financial aid administrators may make
determinations regarding a student's independent student status based on
a documented determination of independence by another financial aid
administrator in the same award year**.**

*[Excludable Income]{.underline}*

The definition of excludable income is expanded to include special
combat pay. Special combat pay is defined as pay received by a member of
the Armed Forces because of exposure to a hazardous situation.

*[Assets]{.underline}*

The CCRAA modifies the definition of assets to include qualified
education benefits. Qualified education benefits are reported as an
asset of the parent of a dependent student regardless of whether the
owner of the account is the student or parent. If the student is
independent, the student's or student's spouse's qualified education
benefit is reported as an asset.

*[Estimated Financial Assistance]{.underline}*

The CCRAA clarifies that distributions (that are not includable in gross
income) from 529 plans, other state prepaid tuition plans, or Coverdell
education savings accounts are not considered to be estimated financial
assistance. In addition, the CCRAA specifically excludes special combat
pay from estimated financial assistance for purposes of determining
financial need.

**[Upward Bound]{.underline}**

*Effective October 1, 2007, the CCRAA provides \$57 million for each of
fiscal years 2008 through 2011 to support 4-year grants to Upward Bound
applicants with an average peer review score above 70 that were not
successful in the fiscal year 2007 Upward Bound competition.* Any
unexpended funds may be used for technical assistance and administrative
costs for Upward Bound programs. The Department has already notified
those projects that will receive funds under this provision.

**[Partnership Grants]{.underline}**

**§§499A and 771**

**College Access Challenge Grant Program**

*Effective October 1, 2007, the CCRAA provides \$66 million for each of
fiscal years 2008 and 2009 for grants to States(and, under certain
circumstances, philanthropic organizations) to pay for the Federal share
of the costs to carry out specific activities intended to increase
college access for low-income students.* These activities are:

● Providing information to students and families regarding the benefits
of a postsecondary education, postsecondary education opportunities,
planning for postsecondary education, and career preparation;

● Providing information on financing options for postsecondary education
and activities that promote financial literacy and debt management among
students and families;

● Conducting outreach activities for students who may be at risk of not
enrolling in or completing postsecondary education;

● Providing assistance in completing the FAFSA;

● Providing need-based grant aid to students;

● Providing professional development for guidance counselors at middle
and secondary schools, aid administrators, and college admissions
counselors at institutions of higher education to enable these
individuals to better assist students and parents with: (1)
understanding entrance requirements for admission to institutions of
higher education, (2) understanding State eligibility requirements for
Academic Competitiveness Grants or National SMART Grants and other
financial assistance that is dependent on a student's coursework, (3)
applying to institutions of higher education, (4) applying for Federal,
State, local, and private student financial assistance and
scholarships,(5) activities that increase a student's ability to
successfully complete the coursework required for a postsecondary
degree, including activities such as tutoring and mentoring, and (6)
activities to improve secondary school students' preparedness for
postsecondary entrance examinations.

● Student loan cancellation or repayment, or interest rate reductions,
for borrowers who are employed in a high-need geographical area or a
high need profession in the State, as determined by the State.

Except for the provision of loan cancellation or repayment or interest
rate reductions noted above, the activities and services must be made
available to all qualifying students and families in the State without
regard for the institution in which the student enrolls, the type of
student loan the student receives, the servicer of the loan, or the
student's academic performance. A grantee cannot charge a student or
parent a fee for any activity or service provided under the grant.
However, in carrying out a service or activity under this grant, the
grantee must give priority to students and families who are living below
the poverty line applicable to the individual's family size under
§673(2) of the Community Service Block Grant Act.

To receive a grant, the State agency with jurisdiction over higher
education, or another agency designated by the Governor of the State,
must submit each year an application that includes:

● A description of the grantee's capacity to administer the grant and
report annually to the Secretary;

● A description of the grantee's plan for using funds to meet the
requirements of the grant including how the grantee will make special
efforts to provide benefits to students who are underrepresented in
postsecondary education, or in the case of a philanthropic organization
that operates in more than one State, provides benefits to such students
in each such State for which it receives funds;

● A description of how the grantee will provide or coordinate the
provision of the non-Federal share from State resources or private
contributions; and

● A description of the structure that the grantee has in place to
administer the activities and services to be provided under the grant or
the grantee's plan to develop such administrative capacity.

Grants are awarded to States by a formula that is based on the number of
persons, between the ages of five and 17, and between 15 and 44, living
below the poverty line applicable to the residents' family size with no
State receiving less than a half of one percent of the funds provided
for a fiscal year.

For every two dollars provided under the program, the State must provide
a dollar in matching funds. If the State fails to meet this matching
requirement, the Federal funds associated with the amount not matched
would be made available to a philanthropic organization that agrees to
provide services in that State. A philanthropic organization can receive
a grant only under these conditions.

For the purposes of this program, a "philanthropic organization" means a
non-profit organization that has as its primary purpose providing
financial aid and support services to students from underrepresented
populations to increase the number of such students who enter and remain
in college. The organization cannot receive other funds under the HEA or
the Elementary and Secondary Education Act of 1965, nor can it be a
local educational agency or an institution of higher education. The
organization must also have a demonstrated record of dispersing grant
aid to underserved populations to ensure access to and participation in
higher education. The organization must also be affiliated with a
consortia of two or more entities that have agreed to work together to
carry out this program. The consortia must include the philanthropic
organization, a State and, at the discretion of the philanthropic
organization, additional partners including other non-profit
organizations, government entities, institutions of higher education,
and other public and private programs that provide mentoring or outreach
services.

The Secretary's authority to make grants expires at the end of FY 2009.

**Investments in Historically Black Colleges and Universities and
Minority-serving Institutions**

The CCRAA provides \$255 million for each of the fiscal years 2008 and
2009 for the Secretary to make grants to HBCUs and minority serving
institutions as follows:

● \$100 million each year to Hispanic-Serving Institutions to carry out
activities under section 503 of the HEA, with priority given to: (1)
efforts designed to increase the number of Hispanic and other low-income
students attaining degrees in science, technology, engineering, or
mathematics (the STEM fields), and (2) to develop model transfer and
articulation agreements between two-year Hispanic-serving institutions
and four-year institutions in the STEM fields.

● \$85 million each year to HBCUs to carry out part B of Title III of
the HEA, with priority given to: (1) purchasing, renting, or leasing
scientific or laboratory equipment; (2) constructing, renovating and
improving institutional facilities; (3) academic instruction in
disciplines in which Black Americans are underrepresented; (4)
purchasing library materials; (5) establishing or enhancing a program of
teacher education; (6) activities designed to prepare students for
careers in the STEM fields, less-commonly taught languages and allied
health professions.

● \$15 million to Predominantly Black Institutions (as described below)
for programs in the following areas: (1) STEM programs; (2) health
education; (3) internationalization or globalization; (4) teacher
preparation; or (5) improving educational outcomes of African American
males.

● \$55 million to other minority-serving institutions to be allocated as
follows:

> ● \$30 million for Tribally Controlled Colleges and Universities to
> carry out activities under section 316 of the HEA;
>
> ● \$15 million for Alaska Native and Native Hawaiian-serving
> institutions to carry out activities under section 317 of the HEA;
>
> ● \$5 million for Asian American and Native American Pacific
> Islander-serving institutions to carry out activities under section
> 311(c) of the HEA; and
>
> ● \$5 million for Native American-serving Nontribal institutions to
> carry out activities designed to improve and expand the institutions\'
> capacity to serve Native Americans which may include the purchase,
> rental, or lease of scientific or laboratory equipment for educational
> purposes, including instructional and research purposes; renovation
> and improvement in classroom, library, laboratory, and other
> instructional facilities; support of faculty exchanges, faculty
> development, and faculty fellowships to assist faculty in attaining
> advanced degrees in the faculty\'s field of instruction; curriculum
> development and academic instruction; the purchase of library books,
> periodicals, microfilm, and other educational materials; funds and
> administrative management, and acquisition of equipment for use in
> strengthening funds management; the joint use of facilities such as
> laboratories and libraries; and academic tutoring and counseling
> programs and support services.

For the purpose of this new funding, a *Predominantly Black Institution*
is an institution of higher education that has not less than 50 percent
of its undergraduate students enrolled in an academic program leading to
a degree who are: (1) Pell Grant recipients; (2) from families that
received benefits from a means-tested Federal benefit program; (3)
attended a public or nonprofit private secondary school that is in a
school district of a local education agency that was eligible for
assistance under part A of title I of the Elementary and Secondary
Education Act of 1965 which had an enrollment that was at least 30
percent were counted as living in poverty; or (4) are first-generation
college students of whom a majority are low-income students. A
Predominantly Black Institution must also have relatively low
educational and general expenditures when compared to other institutions
offering similar programs of study, be legally authorized to provide,
and provide, within the State an educational program for which it awards
a bachelor's or associate's degree; be accredited by a nationally
recognized accrediting agency; and not be receiving assistance under
Part B of Title III. Finally, a Predominantly Black Institution must
also have (1) an enrollment of undergraduate students that is at least
40 percent Black American; (2) at least 1,000 undergraduates students;
(3) no less than 50 percent of the undergraduate enrollment is either
low-income or first-generation college students; and (4) no less than 50
percent of the institution's undergraduate students are enrolled in a
program that leads to a bachelor's or associate's degree that the
institution is licensed to award by the State in which it located in.

A *Native American-Serving Nontribal Institution* is an institution of
higher education that at the time of application, enrolled at least 10
percent Native American students and is not a Tribal College or
University.

An *Asian American and Native American Pacific Islander-serving
institution* is an institution of higher education that meets the
general requirements for assistance under Title III of the HEA found in
Section 312(b) and, at the time of application, enrolled at least 10
percent Asian American and Native American Pacific Islander students.

The Department will be providing additional information and application
materials for these new programs in the near future.