# Presentation: 272500

## The  National Association of Student Financial Aid AdministratorsNational Conference

- Orlando,Florida
- July 6-9, 2008

## Loan Programs Update

**Loan Programs Update**

- Dan Madzelan
**U.S. Department of Education**

## Agenda

- Legislation Update
- Regulations Update
- Administrative Issues

## Legislation 

- Legislation

## Legislation Update

- Higher Education Reconciliation Act of 2005 (P.L. 109-171)
- Higher Education Act Reauthorization
- College Cost Reduction and Access Act (P.L. 110-84)
- HEROES (P.L. 110-93)
- Ensuring Continued Access to Student Loans Act (P.L. 110-227)

**Notes:**
Another in a long line of bills enacted to extend the HEA is the Second Higher Education Extension Act of 2007.  This was passed back in late July to extend the HEA through October 31, 2007.   Tick, tick, time is running out.  Look for another extension in the absence of a House reauthorization  proposal.
As you can see in the next bullet, the Senate has got a HEA reauthorization bill out there which passed the Senate on July 24 by a vote of 95-0.  See attached sheet for Perkins provisions.
The House has yet to introduce its version of reauthorization.  
As you know, and as we’ll go over next in some detail, the Congress passed a significant piece of legislation affecting student financial aid when it passed their budget reconciliation bills or the College Cost Reduction and Access Act of 2007.  It was Senator Enzi’s, ranking minority member of the Senate Higher Ed Committee, strong hope that the Congress take up reauthorization as well as budget reconciliation.  As we know, that did not occur.
It looks right now like we will not see reauthorization this fall.
House lawmakers considered H.R. 3625, legislation to permanently extend the Higher Education Relief Opportunities for Students (HEROES) Act of 2003. The legislation would make permanent the waiver authority of the Secretary of Education with respect to student financial assistance during a war or other military operation or national emergency, and it addresses the unique situations that active duty military personnel and other affected individuals may face in connection with their enrollment in postsecondary institutions and their Federal student loans.

## HERA

- Reauthorized FFEL Program
- Eligible Lender Trustee Relationships
- School-as-Lender
- “Negative SAP”
- Increased Loan Limits
- Disbursement Relief
- Phase Out Borrower Origination Fees

## CCRAA—Offsets (Subsidy Cuts)

- Lenders:
- Exceptional Performer Status
- Insurance
- Loan Fees
- Special Allowance Payments
- Guaranty Agencies:
- Collection Retention Allowance
- Account Maintenance Fees
- Origination Auction for PLUS (Parent)

## CCRAA — Benefits for Students

- Mandatory Pell Grant Increases
- Reduced FFEL/DL Interest Rates
- New Income Based Repayment
- Expanded Loan Forgiveness
- Revised Deferments:
- Economic Hardship
- Military Service
- TEACH Grants

## ECASLA

- Increased Loan Limits
- GAO Impact Study
- Parent PLUS Grace Period/Relief
- Academic Competitiveness Grants
- National SMART Grants
- Lender-of-Last-Resort Authority
- ED Secondary Market Authority

## Regulations 

- Regulations

## 2007-08 Negotiated Rulemaking

- Three Regional Hearings
- Four Negotiating Sessions
- Consensus Reached
- NPRM — July 1, 2008
- Final Rule — November 1, 2008
- Effective Date — July 1, 2009

## 2007-08 Negotiated Rulemaking

- Public Service Loan Forgiveness
- Income-based Repayment
- Economic Hardship Deferments
- Military Service Deferments
- Not-for-Profit Loan Holder Definition
- Federal Preemption of Certain State Laws

## 2007-08 Negotiated Rulemaking Public Service Loan Forgiveness

- Direct Loan Program Borrowers
- Not in Default
- Makes 120 Monthly On-time Payments:
- After October 1, 2007
- Income-Based Repayment
- Income-Contingent Repayment
- Other Plans with a Minimum Payment Amount
- Full-time Employment in Qualifying Service

## 2007-08 Negotiated Rulemaking Income-based Repayment 

- FFEL and Direct Loan Program Borrowers
- Eligibility Tied to a “Partial Financial Hardship”
- Standard Payment Amount, AGI, Poverty Income
- Payment Attribution:
- Accrued Interest, Fees, Loan Principal
- Stafford Interest Covered for Three Years
- 25-year Loan Forgiveness

##  2007-08 Negotiated Rulemaking Economic Hardship Deferment 

- Modified the Basic Income Criterion:
- 150% of the Poverty Level Income Appropriate to Family Size
- Eliminated the Debt-to-Income Criterion:
- “20/220 Rule”

## 2007-08 Negotiated Rulemaking Military Service Deferments

- HEROES Act of 2003 (P.L. 108-76) Permanently Extended by P.L. 110-93
- New HERA Military Service Deferment Modified by CCRAA
- New CCRAA Post-Active Duty Deferment
- Rules for Applying Benefits to Those Who Qualify for Multiple Benefits

## 2007-08 Negotiated Rulemaking Not-for-Profit Loan Holder Definition

- Differential SAP Rates for Lenders/Holders
- HEA Defines an Eligible Not-for-Profit Holder:
- States/Others Eligible to Issue Tax-exempt Bonds
- Not-for-Profit Entity Under IRC 501(c)(3)
- ELT Acting on Behalf of a State or NFP Entity
- Qualifying Lender Must Have Sole Beneficial Ownership Interest

## 2006-07 Negotiated Rulemaking

- No Consensus
- Internal Student Loan Task Force
- NPRM — August 8, 2007
- Final Rule — November 1, 2007
- Effective Date — July 1, 2008

## 2006-07 Negotiated Rulemaking

- Identity Theft
- PLUS Entrance Counseling
- Maximum Length of Loan Period
- Frequency of Capitalization for FFEL Consolidation Loan Borrowers
- Determination of Deferment Eligibility by One Loan Holder

## 2006-07 Negotiated Rulemaking

- Use of True and Exact Photocopy of a Death Certificate
- Prospective Discharge for Total and Permanent Disability
- Standardize NSLDS Reporting
- Retention of Disbursement Records and Certification of E-signatures for Assigned MPNs

## 2006-07 Negotiated Rulemaking

- FFEL Eligible Lender Trustee Relationships
- Clarify eligibility requirements for Perkins Child and Family Service Agency Cancellation
- Define “Reasonable” Perkins Collection Costs
- Mandate Assignment of Defaulted Perkins Loans

## 2006-07 Negotiated Rulemaking Prohibited Inducements

- 1986 HEA Amendments
- No “Quid Pro Quo” for Applications or Volume
- 1998 HEA Amendments
- Allow FFELP Offerings Comparable to Direct Loans
- Old Rules Generally Reflect the Statute

## 2006-07 Negotiated Rulemaking Prohibited Inducements

- New Rules
- Codify Current Interpretive and Clarifying Guidance, Including the Prohibited and Permissible Activities Approach of the 1989 Dear Colleague Letter
- Provide for a “Rebuttable Presumption” in Formal Enforcement Actions
- Expand the Federal Trade Commission’s (FTC) “Holder Rule” to FFELP Loans Made to Students Attending All Schools

## 2006-07 Negotiated Rulemaking Prohibited Inducements—Lenders Cannot:

- Offer, directly or indirectly, points, premiums, payments or other inducements to any school to secure loan volume applications, or placement on a preferred list
- Pay referral or processing fees to another lender or other party
- Pay conference or training registration, transportation and lodging costs for school or school-affiliated organization employees
- Pay entertainment expenses related to lender-sponsored activities for employees of school or school-affiliated organization
- Undertake philanthropic activities in exchange for FFEL applications, volume or placement on lender list
- Provide staffing services to a school except on a short-term, emergency basis

## 2006-07 Negotiated Rulemaking Prohibited Inducements—Lenders May:

- Provide assistance comparable to that provided to a Direct Loan school by the Secretary
- Engage in student aid/financial literacy outreach, but no in-person counseling
- Provide meals, refreshments and receptions, reasonable in cost, in conjunction with meetings, training or conferences if provided to all participants
- Provide toll-free numbers for FFEL information/e-transmission
- Provide reduced borrower origination fees
- Provide reduced interest rates
- Pay Federal default fees
- Provide borrower benefits in the form of repayment incentives
- Provide items of nominal value

## 2006-07 Negotiated Rulemaking Prohibited Inducements—Guarantors

- Same As Lenders, Except May Pay:
- Travel and lodging expenses related to school employee service on the GA’s advisory or governing board; and
- Reasonable costs of meals and refreshments for GA-sponsored training, workshops, and forums

## 2006-07 Negotiated Rulemaking Preferred Lender Lists

- School’s Option
- Allowed, Never Regulated
- Evolution:
- Cohort Default Rate Concerns
- Facilitate Electronic Transactions
- Competition/Proliferation of Borrower Benefits

## 2006-07 Negotiated Rulemaking Preferred Lender Lists

- Includes a Minimum of 3 Unaffiliated Lenders:
- No common control or ownership
- No common directors, trustees, or general partners
- Includes a Prominent Statement Advising Borrowers That Use of the School’s Preferred Lenders Is Not Required
- Is Updated At Least Annually

## 2006-07 Negotiated Rulemaking Preferred Lender Lists

- An Institution Must:
- Disclose Its Method and/or Criteria for Including a Lender On Its List
- Provide Comparative Information on Borrower Benefits Offered By Its Listed Lenders
- ED to Provide a Model Format for School Use

## 2006-07 Negotiated Rulemaking Preferred Lender Lists

- An Institution Must Not:
- Include Lenders That Were Solicited and Provided School or School Employee Benefits, but May Include Lenders Solicited for Best Borrower Benefits
- Assign a Lender to a First-time Borrower
- Cause Any Unnecessary Delays in Certification for Borrowers Not Using One of the School’s Preferred Lenders

## 2006-07 Negotiated Rulemaking Preferred Lender Lists

- The Department’s Model Format:
- Lender and Contact Information
- Average Amount Borrowed From Lender
- Average/Range of Interest Rates on Lender’s Loans
- Borrower Benefits
- Base Interest Rate/APR
- Interest Rate Discounts and Qualifying Conditions
- Principal Reduction and Qualifying Conditions
- Fees
- Repayment Plans
- Total Loan Cost

## 2006-07 Negotiated Rulemaking Schools Not Using Preferred Lender Lists

- All FFEL Certification Rules Apply
- May Identify the Lenders that Previously Made FFEL Loans To Its Students and Parents
- May Not Endorse or Recommend Any Lender
- Provide a “Neutral” Presentation of Factors to Consider When Selecting a Lender
- Simply State:
- “You must select your lender.  The aid office cannot do so for you.”

## Best Practices 

- Best Practices

## Some Things to Consider

- Scan the Field and Determine If Voluntary or Required:
- Your School’s Ethics Rules or Codes of Conduct
- Private Agreements With State Attorney General
- State Ethics Rules for Public Employees
- Your State Laws Governing School Practices
- Professional Association/ Accrediting Agency Best Practices or Recommended Codes of Conduct
- Federal Title IV Regulations

## Some Things to Consider

- When Applying Legal Requirements in the Same Area From Multiple Sources:
- Consult With Counsel
- Default to the Strictest Requirement and Build Your Practices Around That
- If in Doubt, Assume a Gift or Service Is Not Permitted Until Otherwise Confirmed
- Avoid Appearance As Well As Reality of Conflicts of Interest
- Document Your Decisions

## Some Things to Consider

- Review School Web-sites and Other Published Materials for “Neutrality” in Loan and Lender Information
- Examine Your Existing Practices With Lenders, Guaranty Agencies, and Other Vendors for Possible Conflicts of Interest
- Talk to Your Colleagues at Other Schools
- What Are They Implementing?
- Why Are They Doing That?

## Administrative Issues 

- Administrative Issues

## Recent Letters and Announcements

- College Cost Reduction and Access Act (GEN-08-01, January 8, 2008)
- Aggregate Loan Limit for Certain Health Professions Graduate and Professional Students (GEN-08-04, April 14, 2008)
- School Use of a Preferred FFEL Lender List (GEN-08-06, May 9, 2008)
- Lender Suspends/Ceases FFEL Participation
- “Unaffiliated” Lenders

## Recent Letters and Announcements

- July 1, 2008 Interest Rate for Variable Rate Stafford and PLUS Loans (May 27, 2008)
- FFEL Lender-of-Last-Resort Services
- GA Program Implementation and Operating Procedures (GEN-08-03, March 26, 2008)
- Additional GA Guidance (GEN 08-05, May 5, 2008)
- Ensuring Continued Access to Student Loans Act (GEN-08-08, June 18, 2008)

## Recent Letters and Announcements

- Letter from Secretary Margaret Spellings (May 21, 2008)
- FFEL Loan Purchase Commitment and Short-Term Market Liquidity
- Maintain a Long-Term Program Commitment
- Lender-of-Last-Resort Program
- Direct Loan Capacity
- Letter from Secretary Spellings to College Presidents (June 18, 2008)
- http://federalstudentaid.ed.gov/ffelp

## Questions and Answers

- Contact Information:
- Phone:  202-502-7816
- Email:   dan.madzelan@ed.gov
- FAX:     202-502-7873