# Presentation: 161839

##    Federal Loan Policy Forum  FPS Boston SummitPartnership Meeting    Boston, MA August 31, 2005 Pamela Moran U. S. Department of Education

## Congressional Activity

**Fiscal Year 2006 Appropriations** **(October 1, 2005 – September 30, 2006)**
**HOUSE – H.R. 3010 (6/24/2005) – Appropriations Bill for Labor, ****	****    HHS, and Education Enacted**
**	****    ****- 6/27/05 – H.R. 3010 Referred to Senate**
**SENATE – 7/14/2005 – Senate Appropriations Committee Reports Out Senate Bill**
**Pending:  Senate Floor Action**

## Congressional Activity

_**HEA REAUTHORIZATION**_
**HEA One-year extension – Expires 9/30/05**
**House – H.R. 609 – Mark-up of HEA Bill Concluded week of 7/25/05**
**Senate – Mark-Up Scheduled 9/7/05**

##   Congressional Activity 

_**Budget**_** **_**Reconciliation**_
**	****- May become Reauthorization for ****	****  Student Loan Programs **
**	****- $11 Billion Savings Target for   ****	**** ****	****   Education**

##   HEROES ACT

-  **HEROES ACT (Public Law 108-76,**
**   ****August 18, 2003)**
** ****Expires September 30,2005**
** ****Authorized ED to publish Federal**
**   ****Register Notice of Waivers and **
**   ****Modifications to HEA and Program **
**   ****regulations for applicants and **
**   ****recipients of Title IV aid who:**

##   HEROES ACT

**Reside/employed in a disaster area**
**Suffered direct economic hardship**
**   ****because of a war or national**
**   ****emergency**
**Are serving on active duty during a **
**   ****war or other military operation or**
**   ****national emergency**
**Are performing qualifying National **
**   ****Guard duty during a war or other **
**   ****military operation or national**
**   ****emergency**

##  HEROES Federal Register Notice

**Federal Register Notice of Waivers and Modifications – December 12, 2003****   **
**Excludes all military service from Title IV borrower’s initial grace period**
**Requires loan holders to keep affected individuals in an “in-school” status or “in-school” deferment**

## HEROES Federal Register Notice

**  ****Waives collection on defaulted loans while **
**    ****borrower is an affected individual**
**  ****Requires documentation beyond initial period of   ****	****forbearance**
**  ****Military service does not interrupt required ****	****consecutive payments to rehabilitate or make ****	****satisfactory repayment arrangements - may lapse**
**  ****If Act lapses – See GEN 03-06, March 2003**

## “New” Teacher Loan Forgiveness Provisions

-  P.L. 108-409 – Taxpayer-Teacher
-    Protections Act of 2004 – enacted October
-    30, 2004
-  DCL GEN – 04 -14 Summarizes Provisions
-  Expires September 30, 2005
-  If lapses – return to prior requirements and 				 	amounts in 428J and 34 CFR 682.215

## “New” Teacher Loan Forgiveness Provisions

- Loan forgiveness of up to $5,000 if teacher:
- Teaches five years in an elementary or
-    secondary school with 30% or more 			    			Title I enrollment
- Is “highly qualified”

## “New” Teacher Loan Forgiveness Provisions

-   **“****Highly Qualified” teachers are:**
** ****Those who are fully certified or passed a state **
**    ****licensing exam and are licensed by State in **
**    ****which teacher teaches**
**  ****New teachers who hold a B.A. and pass a **
**    ****rigorous state test demonstrating knowledge**
**    ****and teaching skills; secondary teachers also**
**    ****must complete major, graduate degree, or**
**    ****coursework equivalent a major in teaching**
**    ****areas**
**  **

## “New” Teacher Loan Forgiveness Provisions (cont.)

** ****Other teachers who demonstrate**
**   ****competence in subject areas in which**
**   ****they teach based on uniform state**
**   ****standards**

## “New” Teacher Loan Forgiveness Provisions

-  **Loan forgiveness up to $17,500 if**
**   ****teacher:**
** ****Meets above requirements AND**
** ****Teaches special education in  **
**   ****elementary or secondary school OR**
** ****Teaches math or science in **
**   ****secondary school**

## “New” Teacher Loan Forgiveness Provisions

-  **Teachers who began qualifying**
**   ****service before new law was enacted:**
** ****Do not have to meet the new**
**   ****requirements to get the $5,000, but**
** ****Must meet the new requirements to**
**   ****get the $17,500.**

## “New” Teacher Loan Forgiveness Provisions

-  **All BIA Schools are considered Eligible**
**   ****Low Income Schools**
** ****Statutory interpretation of “highly  **
**   ****qualified” changed – No longer tied**
**   ****to NCLB date of enactment**

## Post – July 1, 2005Consolidation Loan Questions

**Q: Can a borrower who has submitted a Consolidation Loan Application prior to July 1, 2005, request early conversion to repayment on loans for consolidation after July 1, 2005?**
**A: Yes, but early conversion remains lender option.**

## Post – July 1, 2005Consolidation Loan Questions

**Q:  Can a borrower who has submitted a Consolidation Loan Application prior to July 1, 2005, to an FFEL lender that is ineligible to consolidate the borrower’s loans receive a pre-July 1 fixed interest rate from an eligible FFEL consolidating lender?**
**A:  Yes, but copy of original pre-July 1 substantially complete consolidation application (hard-copy or record of on-line submission) must be forwarded to and retained by eligible consolidating lender.**

## Post – July 1, 2005Consolidation Loan Questions

**Q:  If a lender receives an LVC reflecting post-July 1 interest rates for a pre-July 1 consolidation loan applicant, may the lender use pre-July 1 interests rates to calculate the borrower’s weighted average fixed interest rater?**
**A:  Yes, if the consolidating lender can document the borrower is a pre-July 1 applicant, the lender **_**should**_** use pre-July 1 interest rates in calculating the fixed interest rate regardless of the interest rate reported on the LVC.**

## Post – July 1, 2005Consolidation Loan Questions

**Q:  Can a pre-July 1 consolidation loan applicant be required to pay post- July 1 interest rates on Stafford Loans until paid off by consolidation?**
**A:  Yes, a borrower must continue to pay Stafford Loan at applicable rate (unless lender provides otherwise) until notified the obligation is paid in full.  No capitalization of 60-day application forbearance interest but higher rate may prevail.**

## Death Discharge Regulations 34 CFR 682.402

**Effective July 1, 2005**
**Requires original or certified copy of death certificate for discharge**
**Provides for “exceptional circumstances” discharge without death certificate upon approval by guaranty agency chief financial officer**

## Death Discharge Regulations 34 CFR 682.402

**Effective July 1, 2005**
**Requires reliable documentation to be maintained separately and available upon request**
**“****Exceptional” provisions apply if family or State Records office unwilling to provide death certificate**

## Deceased Borrowers

**Loans may not be made or Title IV loans funds advanced to a deceased borrower.**
**Deceased borrowers are no longer “eligible” borrowers after date of death**
**Lenders should cancel or recall disbursement made after date of death**

## Deceased Borrowers

**Schools should be required to refund loan proceeds delivered after date of death even if “good faith” delivery.**
**Options for PLUS Loans:**
**Convert obligation to surviving parent**
**If none, or “exceptional circumstances” apply, convert to additional Unsubsidized Stafford Loan within late disbursement requirements. **

## Collection Costs

**484A(b) – Requires Assessment of “Reasonable” Collections Costs**
**34 CFR 682.410(b)(2)**
**Provides for maximum cap on what are “reasonable” collection costs**
**Proves “exception” for **_**lesser**_** maximum cap for loan rehabilitations and defaults paid through loan consolidation (up to 18.5 percent).**

## Collection Costs

**Dear GA Director Letter, March 29, 1994 -**
**“****After further consideration, the Department has decided that, strict application of the requirement of 484A(b) of the HEA would frustrate the intent of the changes to the rehabilitation and consolidation programs.  In addition, we have concluded that the amount of the collection costs assessed borrowers as reasonable under 34 CFR 682.410(b)(2) is not reasonable when the borrower has shown the initiative to address the default through**

## Collection Costs

-      **one of these programs.  Therefore, the Department has decided to modify its earlier policy guidance to restrict the amount of reasonable collection costs that would be considered “reasonable” under these circumstances to be an amount that does not exceed 18.5 percent of the outstanding amount of principal and accrued interest on the loan at the time the agency arranges the lender purchase to rehabilitate the loan or certifies the pay-off amount to the consolidating lender.”**

## Collection Costs

**34 CFR 682.410(b)(2) provides that maximum reasonable collection costs must equal the lesser of**
**Amount charged under formula in 34 CFR 30.60 or**
**Amount charged if loan is held by ED**

## Collection Costs

**Formula in 34 CFR 30.60 describes way to compute a pay-off amount to make ED “whole” when ED uses contingent fee based collectors – the “make-whole” rate – to satisfy principal, interest, and contingent fee charges.**

## Collection Costs

**GAs must compute and recover collection costs for entire default portfolio as ED would:**
**1. Calculate annually costs it expects to incur in a given year using recent data for entire default portfolio (30.60(a) includes examples of costs) – in-house and outside costs.**
**2.  Determine using “formula” in 30.60(c) what “charge” (as percentage of principal and interest outstanding on defaulted loans) is needed to cover all collection costs.**
**3.  Assess percentage as a flat percentage to all defaulters – as flat rate percentage on each payment (34 CFR 682.404(f)).**

## Collection Costs

**Separate make-whole rates may be calculated for in-house collections and contingent fee based outside collections, but not required**
** ****Various overhead expenses should be  **
**    ****included in both**
_**All**_** collection costs must actually be incurred by the GA, but for the entire defaulted loan portfolio      not just for the particular debtor on a particular debt**
**GA compares its rate to ED’s rate to identify lesser rate**

## Technical Assistance

**We appreciate your feedback and comments.  We can be reached at:**
**Pam Moran**** **
**Phone: 202-502-7732**
**Fax: 202-502-7874**
**Email:Pamela.Moran@ed.gov**