# Presentation: 496672

## Session #63

- FFEL Regulatory and Policy Update
- Pamela Moran
- Office of Postsecondary Education

## Agenda

- Legislation
- Negotiated Rulemaking- Loans Regulations
- Other Regulations
- FFELP Forms

##  Legislation

** ****Legislation**

## Reauthorization of the Higher Education Act

- Third Higher Education Extension Act of 2007 (S.2258)
- Extends the Higher Education Act through March 31, 2008
- Senate Reauthorization Bill-S.1642
- House Reauthorization Bill-H.R. 4137

## Other Legislation

- HEROES Act – Reauthorized and made permanent –September 30, 2007 (P.L. 110-93)
- College Cost Reduction and Access Act of 2007 – September 27, 2007 (P.L. 110-84)

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Loan forgiveness for:
- Public service employees
- Non-defaulted Direct Loan borrowers only
- Balance of principal and interest forgiven after 120 payments made after 10/1/2007

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- FFEL-only borrowers authorized to seek DL Consolidation for this purpose –effective July 1, 2008
- Included reconsolidation of existing FFEL Consolidation Loan

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Must repay under any combination of:
-    - income-based repayment
-    - income-contingent repayment
-    - 10-year standard repayment
-    - any DL repayment based on 10-year repayment amounts

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Must be employed in public service during 120-payment period
- Must be employed in public service job at time of forgiveness

## College Cost Reduction and Access Act of 2007- Budget Reconciliation

- Public Service Jobs Include:
- Full-time job in government or emergency management
- Military service
- Public safety
- Public health

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Public education (including early childhood education)
- Law enforcement
- Public interest law services (including** **prosecution or public defense or legal advocacy in low-income communities at a non-profit organization)

## College Cost Reduction and Access Act – Budget Reconciliation

- Public child care
- Public service for the elderly and disabled
- School-based library science and other school-based services

## College Cost Reduction and Access Act – Budget Reconciliation

- Service at a 501(c)(3) organization
- Full-time faculty at a Tribal college and in other high-needs areas determined by ED

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Creates new Income-Based repayment plan for FFEL and DL borrowers (other than parent PLUS)-effective July 1, 2009
- Creates partial financial hardship deferment

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Partial financial hardship = annual repayments exceed 15% of AGI minus 150% of poverty line based on family size based on standard 10-year repayment
- Unpaid amounts forgiven after 25 years

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- New economic hardship covers borrowers with income not exceeding 150% of  poverty line applicable to the borrower’s family size –effective October 1, 2007
- Debt-to-income standard retained

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Reduces **subsidized** **undergrad** Stafford Loan Interest Rates in FFEL and Direct Loan Programs:
- 6% for loans first disbursed 7/1/2008-6/30/2009
- 5.6% for loans first disbursed 7/1/2009 – 6/30/2010

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Reduces **subsidized undergrad** Stafford Loan Interest Rates in FFEL and Direct Loan Programs:
- 4.5% for loans first disbursed 7/1/2010 – 6/30/2011
- 3.4% for loans first disbursed 7/1/2011 – 6/30/2012

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- HERA Military Service Deferment Amended- Effective 10/1/2007
- Eliminates 3-Year Limit
- Extends deferment for 180-days after demobilization
- Covers all title IV loans, not just loans disbursed on/after 7/1/2001

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- New Military Deferment for 13 months after service for-effective 10/1/2007:
- National Guard, Reserve, and Retired Military Personnel Called to Active Duty
- Enrolled or enrolled within 6 months of activation

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Parent PLUS Auction Authorized
- FFEL Parent PLUS Loans for new borrowers beginning July 1, 2009

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- State-based auction every 2 years
- Origination rights limited to 2 lowest bidders

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Bids based on lender special allowance rate (SAP)
- Winning lender must make PLUS
-    loans available to each parent of a dependent attending school in the State

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Secretary selects parent PLUS lender-of-last-resort (LLR) for each state

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Reduction in loan holder special allowance rate (SAP)
- Effective for loans first disbursed on or after October 1, 2007

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Different reductions for “for profit”  and “not-for-profit” loan holders
- “For profit”:
-         -- Stafford and Consolidation
-             0.55% Reduction
-         --  PLUS (incl. Grad PLUS)
-             0.85% reduction

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- “Not-for-profit”
-       -- Stafford and Consolidation
-               0.40% reduction
-       -- PLUS (incl.Grad PLUS)
-               0.70% reduction

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Must be acting as “not-for-profit” on date of enactment unless waived by State
- “Not-for-Profit” defined as:
-     -- a State, or a political subdivision, authority, agency, or instrumentality of State

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

-      --   Entity described under section 150(d) of IRS Code
-      -- Entity described under section 501 (c)(3) of IRS Code

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

-      -- Eligible lender trustee acting on behalf of State, other State-related entity, or 150(d)(2) or 501(c)(3) entity

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Lender Default Insurance Reduced
- Loans first disbursed on/after October 1, 2012
- Reduced from 97% to 95%

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Exceptional Performer Status Eliminated
- Effective for lenders/lender servicers on October 1, 2007

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Reduces GA account maintenance fee from 0.10% to 0.06%- payments received on/after October 1, 2007

## College Cost Reduction and Access Act of 2007 - Budget Reconciliation

- Reduces GA default collection retention to 16% - payments received on/after October 1, 2007

## 2006-2007Negotiated Rulemaking

**2006-2007****Negotiated Rulemaking**

## Four Negotiating Teams –

**Four Negotiating Teams –**

- Loans – NPRM 8/7/07
- ACG/National Smart – NPRM 8/7/07
- General Provisions NPRM 8/8/07
- Accreditation – No Regulations

## LOANS NPRM

- “No Consensus” on NPRM
-  NPRM reflected what ED heard and deliberations of Secretary’s Loan Task Force

## Regulations Calendar

- NPRM:  June 12, 2007
- Deadline for Comments:
-       August 13, 2007
- 241 Comments Received

## Regulations Calendar

- Final rules:  no later than November 1, 2007
- Effective date:  July 1, 2008 with possible early voluntary implementation

## Loans Issues -All

- Simplification of the Deferment Process
- Accurate & Complete Copy of Death Certificate
- Total and Permanent Disability

- NSLDS Reporting
- Certification of Electronic Signatures
- Record Retention on MPNs

## Loans Issues – FFEL/DL

- Maximum Loan Period
- Identity Theft
- Grad/Prof PLUS Loan Counseling

## Loans Issues – FFEL

- Prohibited Inducements
- Use of Preferred Lenders
- FFEL Loan Certification
- Frequency of Capitalization
- Eligible Lender Trustees (ELTs)

## Loans Issues - Perkins

- Mandatory Assignment of Defaulted Loans
- Reasonable Collection Costs Definition
- Child and Family Services Cancellation

## Simplified Deferment Process

- §§682.210 and 685.204 allows deferment based on information from another loan holder or from NSLDS if:
- “New” borrower with first loan disbursed on or after July 1, 1993
-  Written or verbal deferment request received

## Simplified Deferment Process

- FFEL or Direct Loan deferment already granted for same reason and same period
- Loan holder has no conflicting information on borrower’s eligibility

## Simplified Deferment Process

- Notice to borrower required
- FFEL and Direct Loan deferment may be granted only for Economic Hardship based on Perkins Loan deferment

## Simplified Deferment Process

- §§682.210 and 685.204 amended to allow military service or armed forces deferment based on:
-    - request of borrower or borrower’s representative
-    - documentation establishing borrower eligibility

## Simplified Deferment Process

- Required notice to the borrower and borrower’s representative, if applicable, that the deferment has been granted

## Accurate and Complete Copy of a Death Certificate

- §682.402 for death discharges amended to allow use of an accurate and complete photocopy of a borrower’s death certificate

## Accurate and Complete Copy of a Death Certificate

- NOTE:“exceptional circumstances” discharge by chief executive officer based on “other reliable information” unchanged

## Total and Permanent Disability Discharges

- Regulations governing TPD discharges restructured in §682.402
- Eligibility requirements and the discharge process clarified

## Total and Permanent Disability 	 Discharges

- Regulations:
-    -Require TPD application
-     submission within 90 days of
-     date certified by physician
- Define borrower’s TPD date as physician’s certification date

## Total and Permanent Disability 	(TPD) Discharges

- DO NOT disqualify the borrower for final discharge based on Title IV loans or earned income before the TPD date

## Total and Permanent Disability (TPD) Discharges

-  -DO disqualify the borrower for final discharge based on Title IV loans from TPD date until date of Secretary’s initial TPD determination and during the conditional discharge period

## Total and Permanent Disability (TPD) Discharges

- Make the Conditional Discharge Period a 3-year prospective period from TPD date

## Total and Permanent Disability (TPD) Discharges 

- Regulations:
-  -Allow minimal earned income during conditional discharge period (no Title IV loans)
-  -Require notice to borrower that no payments on loan are due during the discharge process

## Total and Permanent Disability (TPD) Discharges

- Require only return of loan payments made **after** the TPD date (date of physician certification of disability)

## NSLDS Reporting Requirements

- §§682.208, 682.401 and 682.414 amended to require enrollment and loan status reporting  (or any other Title IV-related data required by the Secretary) by Secretary’s established deadline

## NSLDS Reporting Requirements

- Deadlines to be published in Federal Register Notice or DCL format

## NSLDS Reporting Requirements

- FFEL guaranty agency enrollment and loan status reporting deadline to loan holders reduced from 60 to 35 days

## Certification of Electronic Signatures on Assigned MPNs

- §§682.409 and 682.414 amended to require loan holders to maintain certification of creation and maintenance of E-MPN process, including borrower authentication and signature process

## Certification of Electronic Signatures on Assigned MPNs

- Requires loan holders to retain an original electronically signed MPN for at least 3 years after all MPN’s loans are satisfied

## Certification of Electronic Signatures on Assigned MPNs

- Upon Secretary’s request:
- loan holder must provide the certification and cooperate in all activities to enforce an assigned loan, including testimony in a legal proceeding

## Certification of Electronic Signatures on Assigned MPNs

- Required certification includes:
- 	-Description of borrower’s steps   in executing the signed MPN
- Copy of each screen the borrower saw when signing the MPN electronically

## Certification of Electronic Signatures on Assigned FFEL Loan MPNs

- Required certification includes:
- Description of field edits and other security measures used to ensure data integrity through the loan origination process

## Certification of Electronic Signatures on Assigned FFEL Loan MPNs 

- Required certification includes:
- Description of storage process/systems for signed MPNs to ensure document integrity (no alterations)

## Certification of Electronic Signatures on Assigned FFEL Loan MPNs 

- Required certification includes:
- Documentation supporting the lender’s authentication  electronic signature process
- All other evidence required by the Secretary

## Certification of Electronic Signatures on Assigned FFEL Loan MPNs

- Documents to resolve factual disputes on assigned loans required within 10 business days of ED’s request
- Full and complete access to electronic records required until all MPN-derived loans  satisfied

## Record Retention Requirements onFFEL MPNs Assigned to the Department

- §682.409 amended to require a  Guaranty Agency to submit lender disbursement records on assigned loans to ED

## Maximum Loan Period  

- §682.603 and 682.604 amended to:
- Eliminate 12-month loan period maximum
- Provide flexibility in non-term and nonstandard term program loan certification
- Provide flexibility in rescheduling “stop out and return” disbursements within 180-day period.

## Loan Counseling for Grad/Prof PLUS Borrowers

- §682.603 requires, before certifying PLUS, comparative info to eligible Stafford non-applicant:
- PLUS/Stafford interest rates, interest accrual periods, and grace periods
- Opportunity for Stafford Loan must be given before receipt of PLUS Loan

## Loan Counseling for Grad/Prof PLUS Borrowers 

- Initial counseling required for all PLUS borrowers
- Exit counseling required for Stafford/PLUS combination borrowers

## Use of Eligible Lender Trustees (ELTs) by FFEL Schools

- Lender definition in §682.200 amended to prohibit new ELT  relationships with schools on/after September 30, 2006
-  §682.602:HERA FFEL school lender limits applied to school ELT arrangements 1/1/2007

## Frequency of Interest Capitalization in FFEL Program 

- §682.202 amended to limit frequency of capitalization on Federal Consolidation Loans during  in-school deferment period
- Lenders may only capitalize unpaid interest at expiration of deferment period

## Identity Theft Discharge

- HERA  provided for a FFEL and Direct Loan discharge if borrower’s loan eligibility was falsely certified due to the crime of identity theft
- Implementing Interim and Revised Final Regulations published in 2006

## Identity Theft Discharge

- §682.402 defines “crime” for  discharge as judicial determination by local, State, or Federal court that “crime” of identity theft has occurred and  names perpetrator
- Requires individual did not receive or benefit from loan proceeds

##  Identity Theft Discharge

- No change to existing discharge eligibility requirements
- Upon receipt of valid identity theft report/notice alleging ID theft, lender may:
- suspend credit bureau reporting on a loan for 120 days
- grant a 120-day administrative forbearance

## School FFEL Loan Certification 

- §682.603 (f) reorganized and amended
-  FFEL schools **May Not**:
-    - Refuse/Delay certification
-      based on choice of lender or
-      GA
-    - Assign lender to first-time
-      borrower in award packaging
-      or through other methods

## School FFEL Loan Certification 

- Engage in a pattern or practice of discrimination to deny FFEL access
- Refuse to certify or certify a reduced amount **except **on a case-by-case, documented basis with reason provided to borrower in writing

## School Preferred Lender List in FFELP 

- _Background_:
- School’s Option
- Allowed But Never Regulated
- Evolution:
- Default prevention
- Simplification E-transmission
- Competition
- Proliferation of borrower benefits

## School Preferred Lender List in FFELP 

- Regulations require:
- List must contain at least 3 unaffiliated lenders
- “Unaffiliated” means:
- No common control or ownership
- No common directors, trustees, or general partners

## School Preferred Lender List in FFELP

-  §682.212 requires a school to:
- Disclose method/criteria for lender inclusion on the list
- Provide comparative information on borrower benefits offered by listed lenders
- Department to provide model format for school use

## School Preferred Lender List in FFELP 

- Include prominent statement advising borrowers that use of the school’s preferred lender not required
- Update at least annually

## School Preferred Lender List in FFELP 

- Under §682.212, a school **MUST NOT:**
- Include lenders that were solicited and provided school or school- employee benefits, but may include lenders solicited for best borrower benefits

## School Preferred Lender List in FFELP  

- Under §682.212, a school **MUST NOT:**
** **Assign lender to first-time borrower
- Cause any unnecessary delays in certification for borrowers not using one of the school’s preferred lenders

## FFEL Program Lender and GA Prohibited Inducements

_**Background**_**:**
- Enacted as part of 1986 Amendments to HEA
- 1998 Amendments to HEA allowed lenders and GAs to provide assistance to schools comparable to what Secretary provides to Direct Loan schools

## FFEL Program Lender and GA Prohibited Inducements

- Affects lender eligibility and participation and GA participation
- Prior regulations primarily reflect statutory provisions

## FFEL Program Lender and GA Prohibited Inducements

- Regulations codify current interpretive and clarifying guidance on prohibited inducements and retain Prohibited and Permissible Activities format of 1989 DCL guidance (89-L-189, February 1989)

## FFEL Program Lender and GA Prohibited Inducements

- Regulation introduce use of:
-       -- “rebuttable presumption” in formal enforcement actions
- Expands use of Federal Trade Commission’s (FTC) “Holder Rule” to loans for all schools

## FFEL Program Prohibited Inducements -Lenders

- Lender definition in §682.200 forbids an eligible lender, directly or through an agent from:
-    - Offering directly or indirectly, points, premiums, payments or other inducements to a school or any party to secure FFEL applications or loan volume

## FFEL Program Prohibited Inducements -Lenders

- Such as:
- Payments to prospective borrowers, including prizes and additional financial aid

## FFEL Program Prohibited Inducements - Lenders

- Payments or other benefits to a school, school-affiliated organization, or other individual for loan apps, volume of loans, or placement on a preferred lender list
- Payment and service on lender advisory boards

## FFEL Program Prohibited Inducements - Lenders

- Payments or other benefits to student lender reps on campus or other solicitors to secure loan applications from prospective borrowers

## FFEL Program Prohibited Inducements - Lenders

- Payment of referral fees, or processing fees not required to comply with federal or state law, to another lender or other party

## FFEL Program Prohibited Inducements - Lenders

- Payment of conference or training registration, transportation, and lodging costs for school or school-affiliated organization employees
- Payment of entertainment expenses related to lender-sponsored activities for the same

## FFEL Program Prohibited Inducements - Lenders

- Undertaking philanthropic activities in exchange for FFEL applications, volume, or placement on a school’s  preferred lender list

## FFEL Program Prohibited Inducements - Lenders

- Providing staffing services to a school, except a foreign school, other than on a short-term, non-recurring emergency basis, including compensated and third-party contractual services

## FFEL Program Prohibited Inducements - Lenders

- §682.200 provides that an eligible lender may **ONLY** provide:
- Assistance to schools comparable to that provided DL schools by the Secretary

## FFEL Program Prohibited Inducements - Lenders

- Support for or participation in student aid/financial literacy outreach with schools and guaranty agencies, except in-person initial and exit counseling

## FFEL Program Prohibited Inducements - Lenders

- Reasonable costs of meals, refreshments, and receptions for meeting, training, or conferences if open to all attendees
- Toll-free numbers for FFEL info and school loan data transmission

## FFEL Program Prohibited Inducements - Lenders

- Reduced origination fees (statutorily authorized)
- Reduced interest rates (statutorily authorized)

## FFEL Program Prohibited Inducements - Lenders

- Payment of Federal Default fees (not statutorily prohibited)
- Borrower benefits under repayment incentive and certain loan forgiveness programs
- Items of nominal value

## FFEL Program Prohibited Inducements – GAs

- §682.401(e) same as lenders, except GAs permitted to pay:
-    -- travel and lodging expenses related to school employee service on GA advisory or governing board

## FFEL Program Prohibited Inducements – GAs

-    -- reasonable costs of meals and refreshments for GA-sponsored training, workshops, and forums permitted

**Negotiated Rulemaking**2007-2008

- 2009-10 and subsequent years
- Federal Register notice Fall 2007
- Regional hearings in Fall 2007
- Negotiating committees TBD

**Negotiated Rulemaking**2007-2008

- Committees expected to meet January – March 2008
- NPRMS in June 2008
- Final regulations by
-   November 1, 2008

## Other Regulations and Forms

**Other Regulations and Forms**

## Revised Final Regulations   9/28/07

- Part of HEA Extension –
-    P.L. 109-292
- Loan Discharge for 9/11 spouses and parents
- Interim Final Regulations – December 28, 2006

## Revised Final Regulations   9/28/07

- Revised Final Regulations –  September 28, 2007
- Spouse of eligible public servant
- Parent of eligible victim
- Includes portion of Consolidation Loan

## Forms

-   _MILITARY DEFERMENT_ (HERA)
-    -Form Posted to IFAP
-     June 11, 2007-GEN-07-04
-    -Requires CCRAA revisions
- _9/11 DISCHARGE APPLICATION_
-       - Form Posted to IFAP      November 9, 2007–GEN-07-08

## Forms

- Federal Consolidation Loan Application and Promissory Note
-    -Form Posted to IFAP 3/12/07
-    -Requires CCRAA addendum
- PLUS MPN
-        -Form approved by OMB and
-         to be posted to IFAP with
-         CCRAA changes

## Forms

- Federal Stafford MPN
-    -Requires CCRAA addendum
- Teacher Loan Forgiveness – undergoing ED review prior to entering Paperwork Act clearance process

## Contact Information

- We appreciate your feedback and comments. We can be reached at:
- Phone:(202) 502-7732
- Email: Pamela.Moran@ed.gov
- Fax: (202) 502-7873