# Presentation: 656250

## FFEL Loan Participation Program

- Participation Operations – Part 1
- August 1, 2008

## Presenters

- Jeff Baker
- Director Policy Liaison & Implementation
- Federal Student Aid
- U.S. Department of Education
- Jay Hurt
- Chief Financial Officer
- Federal Student Aid
- U.S. Department of Education

## 
Introduction

Jeff Baker
Director Policy Liaison & Implementation
Federal Student Aid
U.S. Department of Education

- Introduction
- Jeff Baker
- Director Policy Liaison & Implementation
- Federal Student Aid
- U.S. Department of Education

## Logistics

- Title: Loan Participation Program
- Participation Operations – Part 1
- Date:  August 1, 2008
- To Participate You Must –
- Logon at URL provided in registration confirmation email; and
- Dial in to 1-888-324-6476 Confirmation number:  MGERHARD
- Additional information on the Loan Purchase Programs at:  www.federalstudentaid.ed.gov/ffelp

## Webinar Objectives

- Purpose: To provide high level overview of the operational processes involved in executing the legal documents, requests for funding, reporting, and auditing for the Loan Participation Purchase Program
- Target Audience: Personnel at servicers, lenders and custodians who are responsible for record keeping
- Limitations:  Will not include details on the operational aspects of Monthly Reporting, Auditing or Winding Down under the Loan Participation Purchase Program or Loan Purchase Commitment Program.  This information will be provided in other formats, including in subsequent Webinars
- Participation Operations Webinar – Part 2 will be held on August 8, 2008

## Legal Authorities

- Ensuring Continuing Access to Student Loans Act of 2008 (P.L. 110-227)
- HR 5715
- Signed by the President on May 7, 2008
- Strengthened GA Lender of Last Resort Program
- Provided Secretary authority to purchase FFEL loans.
- Cannot provide advanced funding to lenders
- Federal Register Notice
- Required by statute
- Draft Posted to IFAP on June 24, 2008
- Official Publication July 1, 2008

## Program Objectives

- Ensure that eligible students and parents receive federal student loans for the 2008-2009 academic year
- Support the FFEL Program as a successful private/public partnership
- Ensure no net cost to the federal government

## Two Programmatic Components

- Loan Purchase Commitment Program
- Commitment by ED to purchase eligible 2008-2009 FFEL loans through September 30, 2009
- Called “put”
- Any FFEL lender/holder
- Loans must be fully disbursed to be purchased
- 45 day advance notice of loans to be sold
- ED’s commitment has value in financial markets

## Two Programmatic Components

- Loan Participation Purchase Program
- Commitment by ED to purchase “participation interests” in eligible 2008-2009 FFEL loans through September 30, 2009
- ED’s purchase will provide immediate liquidity
- To terminate ED’s participation interest lender repays ED with defined yield.
- Loans can be redeemed by lender
- Loans can be sold to ED

## Custodian Approval

- Officer's Certificate w/ signature covering reps and warranties in Master Participation Agreement Section 10 (c)
- Must include non-affiliation with Sponsor notice if Custodian Approval is requested in connection with the Initial Approval Package
- List of Key Personnel
- years of service
- special designations or certifications
- Most recent SAS70
- SEC Regulation AB report
- Materials describing trust operations
- Disaster Recovery Procedures
- List of all existing LIDS

**Notes:**
Chris G suggests leaving the link to the general website, not making it specific link

## 
Loan Participation Purchase Program Process Overview

                          Jay Hurt
	Chief Financial Officer
	Federal Student Aid
	U.S. Department of Education

- Loan Participation Purchase Program Process Overview
-                           Jay Hurt
- 	Chief Financial Officer
- 	Federal Student Aid
- 	U.S. Department of Education

## Agenda

- Process Description
- Process Flow Example
- Winding down the Participation
- Questions

## Process Overview

- New Processes
- Initial Approval Package
- Custodian Approval
- Pre-Approval Steps
- Funding Requests
- Monthly Reporting and Cash Sweep
- Audits
- Existing Processes
- 799 Billing
- Form 2000 Reporting

## Initial Approval Packages

- Detailed instructions for submission of the Initial Approval Package was posted on August 1, as Electronic Announcement #10 at:
- www.federalstudentaid.ed.gov/ffelp

**Notes:**
Chris G suggests leaving the link to the general website, not making it specific link

## Initial Approval Package - Matrix

| Form  | Ex | Who Executes | Frequency | When Due | Process Flow |
| --- | --- | --- | --- | --- | --- |
| Notice of Intent to Participate | H | Eligible Lender | Once | For loans as of 5/1/08, execute NOI as of 7/31/08 |  Receive via PDF format in email to FSA web email address designated in the instruction package
 Send acknowledgement of receipt email to lender, acknowledging official receipt date.  |
| Adoption Agreement | A | Sponsor,Custodian,
Trustee LenderDepartment | Once.
Does not commit to participate | When entering into Master Participation Agreement and prior to July 1, 2009 |  Exhibits A, E, F submitted together
 Submits to ED  hardcopy originals with pen/ink signatures
 ED Sends acknowledgement of receipt email to Sponsor’s contact.
 ED Initiates pre-approval steps
ED to follow-up with Sponsor’s contact for any document deficiencies.
 ED to review submission, sign Adoption Agreement & PDF it to Sponsor’s contact.   |
| Officer's Certificate (including): | E | Sponsor |  |  |  |
| Attachment I:  Certificate of Incorporation and by-laws or certificate of limited partnership and limited partnership agreement |  |  |  |  |  |
| Attachment II:  "Resolutions of the Board" |  |  |  |  |  |
| Attachment III:  Certificate of Good Standing of the Sponsor |  |  |  |  |  |
| Opinion of Counsel to the Sponsor | F | Counsel to Sponsor |  |  |  |
| Initial "Monthly Rolling Forecast“
Section 8a(1) of the MPA
 | N/A | Custodian or Sponsor | Monthly | Prior to Initial Funding Request
then Monthly |  Verify that sponsor's anticipated volume equals or exceeds $50,000,000. |

**Notes:**
Chris suggests covering the status of custodian situation here. 
Reminder that Custodian approval is a work in process and try to get a timeframe.

## Pre-Approval Steps

**Custodian LID**
- Custodians assigned a new LID for unique relationship to a Sponsor
**Student Aid Internet Gateway Instructions**
- Details to establish mailbox for funding request files
**Establish Bank Account Information**
- For payments to Custodian
**ED sets Funding Request Day of Week**
**File transmission testing**
- Upon submission of the initial approval package, ED will accept a test Loan Schedule file and other communications to begin working through operational testing with Sponsor/Custodian during the approval process.
**Monthly Rolling Forecast **
- Must be complete prior to first Funding Request

## Initial Approval Packages

- Detailed instructions for submission of the Initial Approval Package was posted on August 1, as Electronic Announcement #10 at:
- www.federalstudentaid.ed.gov/ffelp

**Notes:**
Chris G suggests leaving the link to the general website, not making it specific link

## Funding Request - Matrix

| Form  | Ex | Who
Executes | Frequency | When Due | Process Flow |
| --- | --- | --- | --- | --- | --- |
| Class A and B
Participation 
Certificates | C, D | Custodian | Once | Created
prior to initial 
Purchase 
Date | Class A Certificate undergoes the following:
Submits via PDF format with signatures in email to ED web email address designated in the instruction package
ED sends acknowledgement of receipt email to custodian.
Submits original copy with wet signature (pen & ink) of A certificate.  Recommend using courier or express service. |
| Participation
Purchase 
Request | B | Custodian | No more often than
weekly
 | Whenever 
requesting 
funding, and 
no more 
than weekly
 | Receive via PDF format with signatures in email to ED web email address designated in the instruction package
Send acknowledgement of receipt e-mail to Custodian with assigned Participation Purchase Request Reference Number.
Must send Monthly Rolling Forecast before initial request
 |
| Loan Schedule
and Custodial
Certification
Report | B |  |  |  | Flat file will be received in SAIG mailbox and swept into FMS for processing. FMS / EDCAPS / Treasury disburses funding (or creates a receivable). |
| Security Release
Certificate | G | Sponsor | As necessary. | Bundled with
Ex B, if any
Eligible Loans 
Are subject to any
Security interest. | Receive via PDF format with signatures in email to ED web email address designated in the instruction package   |

## Funding Request Packages

- Detailed instructions for submission of the Funding Request Package was posted on August 1, as Electronic Announcement #12 at:
- 		www.federalstudentaid.ed.gov/ffelp

**Notes:**
Chris G suggests leaving the link to the general website, not making it specific link

## Loan Schedule

- Header Information
- Custodian ID and Servicer ID, PCFundingRequest, CashCollections, Form799PaymentReceived
- Loan Level Detail
- Will contain information relating to each loan submitted for the program.
- Loan Level amount fields will tie to PCFundingRequest and CashCollections fields.
- Each Loan Schedule from a Participation Purchase Request will be comprised of separate flat files by servicer (unless aggregated by the Custodian)
- Aggregate requests in excess of $99,999,999.99 will require separate flat files such that no one file exceeds $99,999,999.99.
- Custodian/Servicer to send separate files with unique Batch IDs

## Loan Schedule

- ED will work with Sponsor/Custodians during the Initial Approval Package phase to minimize the following processing kick-outs.  ED’s edits will be made available.
- Files will be _rejected in full_ and same-day notification will be returned when certain instances exist such as
- invalid Servicer or Custodian LIDs submitted
- PCFundingRequest amount in the Loan Schedule header does not reconcile to the loan level information
- Upon entire file rejections, requests may be re-submitted on the same day or will be required to wait until the following week.
- Specific Loans will be rejected and the Participation Purchase Request reduced by a corresponding amount in certain instances when individual loan data is incomplete or indications of ineligibility exist.  Exceptions reports will be returned on the day of submission.

**Notes:**
7/31/08 – CashCollection not reconciling to loan level detail is no longer a hard edit.

## Monthly Reporting

- Monthly Rolling Forecast:  Must provide a 12 month rolling forecast, estimating the number of Loans and the Principal Balance that the Sponsor believes will become subject to Participation Interests in each of the months following the date of such projection through September 2009.
- Monthly Settlement Date Report: Provided by the Custodian, must include all loans subject to a Class A Participation Interest and an aggregation of the Department’s yield and principal paid to the Department with respect to each Class A Participation Interest.
- Loan Schedule supporting Monthly Settlement Date Report
- All cash is swept from the Collection Account and applied first to the Department’s yield and then to the Class A Certificate Balance

## Process Flows Example

- The following example is for illustrative purposes only and covers the following:
-  Initial Approval Process **(Red)**
-  Pre-Approval Activity **(Yellow)**
-  Funding Requests
- First Disbursements **(Green)**
- Second Disbursements **(Orange)**
-  Monthly Reporting **(Blue)**
-  Form 799 Reporting **(Brown)**

## Example of Process Flows

| Step | Date | Entity | Activity |
| --- | --- | --- | --- |
| 1 | 25-Jul-08 | Originating Lender (LID 123) | Submits Notice of Intent to Participate
 |
|  |  |  |  |
| 2 | 26-Jul-08 | Department of Education | Sends email confirming receipt of Notice of Intent to Participate which establishes Loan Eligibility to May, 1, 2008 |
| 3 | 4-Aug-08 | Originating Lender (LID 123)
Custodian (LID Needed) | Submits remainder of Initial Approval Package including Adoption Agreement, 
Exhibits E and F |
| 4 | 4-Aug-08 
through
11-Aug-08 | Originating Lender (LID 123), Custodian (Preliminary LID 456)  and Department of Education | Engage in pre-approval activities
LIDs, SAIG, Test file transfers, 
Set up bank account information, 
reminder that Monthly Rolling Forecast  is
due prior to first funding request |
| 5 | 11-Aug-08 | Department of Education | Completes approval process
Notifies of approval, activates Custodian LID (456), assigns weekly request day (Friday) |

- All Dates are for illustrative purposes only

**Notes:**
Should we include an example of a purchase request for loans disbursed before december.

## Example of Process Flows

| Step | Date | Entity | Activity |
| --- | --- | --- | --- |
| 6 | 2-Sep-08 | Originating Lender (LID 123) | Makes first disbursement of loan.  Borrower and school records show lender as LID 123. |
|  |  | Note: It is assumed that all Lender/Sponsor activities in this flow are performed by the same servicing system. |  |
| 7 | 4-Sep-08 | Sponsor (LID 123). | Requests Custodian (LID 456) to sell participation interest in loan to ED. |
|  | Note:  This date could be anytime from the day of the first disbursement to the end of the program. | Note: Originating lender now called Sponsor with same LID. |  |
| 8 | 5-Sep-08 | Custodian (LID 456) | Submits Participation Purchase Request and loan details to ED for purchase of participation and funding by ED. |
| 9 | 10-Sep-08 | Department of Education | Reviews and edits data then sends funding request to Department of the Treasury. |
|  |  |  |  |
| 10 | 10-Sep-08 | Department of Education | Informs Sponsor (LID 123) and Custodian (LID 456) of expected funding date of September 11.  |
|  |  |  |  |

- All Dates are for illustrative purposes only

**Notes:**
Can we adjust the dates from steps 4-13 to show how they can get cash as early as we can commit to?

## Example of Process Flows

| Step | Date | Entity | Activity |
| --- | --- | --- | --- |
| 11 | 11-Sep-08 | Department of the Treasury | Sends funds to Custodian (LID 456) using ACH process. |
| 12 | 11-Sep-08 | Sponsor (LID 123) and Custodian (LID 456) | Flag records to show legal title of loan being transferred from Sponsor (LID 123) to Custodian (LID (456) on this date.   |
| 13 | 12-Sep-08 | Custodian (LID 456) | Sends funds to Sponsor (LID 123).   |
|  |  |  | Note:  Depending  upon Sponsor/Custodian agreement, this funding could occur on same day Custodian receives funds from ED. |
| 14 | 15-Sep-08 | Originating Lender (LID 123) | Reports loan to GA as disbursed and held by LID 123.  |
|  | Note:  This date is for illustrative purposes only.  Reporting to GA is on an entirely different schedule unrelated to the other steps in this flow and could happen before or after previous steps. |  |  |

- All Dates are for illustrative purposes only

## Example of Process Flows

| Step | Date | Entity | Activity |
| --- | --- | --- | --- |
| 15 | 16-Sep-08 | Guaranty Agency (GA) | Reports loan to NSLDS as originated and held by Lender (LID 123).  NSLDS displays as such. |
|  | Note:  Same as note above. |  |  |
| 16 | 30-Sep-08

Note: This date is an
‘as-of’ date. | Custodian and Sponsor | Performs month end activities relating to Monthly Rolling Forecast, Monthly Settlement Date Report, cash sweeps and application to Participant’s Yield and Class A Certificate Balance. |
| 17 | Oct-08 | Sponsor (LID 123) | Files Form 799 for the period of September 2, 2008 to September 11, 2008 (time when loan was made and held by the lender). Form  799 will include: Lender Fee, Borrower Origination Fee, Interest Subsidies (if any), and SAP (positive or negative) |
| 18 | Oct-08 | Custodian (LID 456)  | Files Form 799 for the period of September 12, 2008 to end of quarter on September 30, 2008 (days in quarter when loan was held by the Custodian). Form 799 will only include: Interest Subsidies (if any) and SAP (positive or negative) since the Lender Fee and Borrower Origination Fee was included in Sponsor's Form 799. |
|  |  | Note:  While not required, this step assumes that Sponsor/Custodian agreement provides that Sponsor's servicing system will prepare this Form 799 on behalf of the Custodian. |  |
| 19 | Month End of October, November, December | Custodian and Sponsor | Performs month end activities relating to Monthly Rolling Forecast, Monthly Settlement Date Report, cash sweeps and application to Participant’s Yield and Class A Certificate Balance. |

- All Dates are for illustrative purposes only

## Example of Process Flows

| Step | Date | Entity | Activity |
| --- | --- | --- | --- |
| 20 | Jan-09 | Custodian (LID 456)  
Note:  While not required, this step assumes that Sponsor/Custodian agreement provides that Sponsor's servicing system will prepare this Form 799.
 | Files Form 799 for the period from October 1, 2008 to December 31, 2008.  Form 799 will include the entire quarter's - Interest Subsidies and SAP.  Note that the Sponsor does not include this loan in its Form 799 for this quarter.
 |
| 21 | 12-Jan-09 | Sponsor (LID 123) | Makes final disbursement of loan.  Borrower and school records show lender as LID 123.  
Note: This disbursement is made by Sponsor (LID 123) on behalf of Custodian (LID 456) since the Custodian is the legal holder of the loan as a result of the first disbursement's transfer. |
| 22 | 13-Jan-09 | Sponsor (LID 123).  | Requests Custodian (LID 456) to sell increased participation interest in loan to ED. |
| 23 | 14-Jan-09 | Custodian (LID 456) | Submits Participation Request and loan details to ED for purchase of increased participation and funding. |
| 24 | 15-Jan-09 | Sponsor (LID 123) | Reports loan to GA as fully disbursed with Lender (LID 123) still reported as both the originating and holding lender. |
|  | Note:  This date assumes that reporting to the GA is done on the 15th of each month. |  |  |
| 25 | 16-Jan-08
Note:  Same as note above. | Guaranty Agency (GA) | Reports loan to NSLDS as fully disbursed and still held by Sponsor (LID 123).  NSLDS displays as such. |

- All Dates are for illustrative purposes only

## Example of Process Flows

| Step | Date | Entity | Activity |
| --- | --- | --- | --- |
| 26 | 21-Jan-09 | Department of Education | Reviews and edits data then sends funding request to Department of the Treasury. |
| 27 | 21-Jan-09 | Department of Education | Informs Sponsor (LID 123) and Custodian (LID 456) of expected funding date of January 22.   |
|  |  |  |  |
| 28 | 22-Jan-09 | Department of the Treasury | Sends funds via ACH to the Custodian |
| 29 | 22-Jan-09 | Sponsor (LID 123) and Custodian (LID 456) | Flag records to show legal that all disbursements are part of loan that was transferred from Sponsor (LID 123) to Custodian (LID (456) after first disbursement.     |
| 30 | 23-Jan-09 | Custodian (LID 456) | Sends funds to Sponsor (LID 123).   |
| 31 | January 2009 Month End | Custodian and Sponsor | Performs month end activities relating to Monthly Rolling Forecast, Monthly Settlement Date Report, cash sweeps and application to Participant’s Yield and Class A Certificate Balance. |
| 32 | 15-Feb-09
Note:  This date assumes that reporting to the GA is done on the 15th of each month. | Sponsor (LID 123) | Assuming that loan is now fully disbursed, reports loan to GA as now held by Custodian (LID 456). |
| 33 | 16-Feb-08
Note:  Same as note above. | Guaranty Agency (GA) | Reports loan to NSLDS as fully disbursed and now held by Custodian (LID 456).  NSLDS displays as such. |

- All Dates are for illustrative purposes only

## Example of Process Flows

| Step | Date | Entity | Activity |
| --- | --- | --- | --- |
| 34 | Apr-09 | Custodian (LID 456) | Files Form 799 for the period January 1, 2009 to March 31, 2009. Form 799 will include: Second disbursement Lender and Borrower Origination Fees and Interest Subsidies (if any), and SAP (positive or negative).   |
|  |  |  | Note: the Sponsor does not include any of this loan in its Form 799 for this quarter. |
| 35 | Jul-09 | Custodian (LID 456) | Files Form 799 for the period of April 1, 2009 to June 30, 2009. Form 799 will include: Interest Subsidies (if any), and SAP (positive or negative).  Note that the Sponsor does not include any of this loan in its Form 799 for this quarter. |
| 36 | Oct-09 | Custodian (LID 456) | Files Form 799 for the period of July 1, 2009 to September 30 2009. Form 799 will include: Interest Subsidies (if any), and SAP (positive or negative).   |
|  |  |  | Note:  the Sponsor does not include any of this loan in its Form 799 for this quarter. |

- Month End Reporting occurs throughout the time period in this slide

- All Dates are for illustrative purposes only

## Winding Down

- Two Options for Redemtion of Loans
- Sponsor buys back Loans at the Redemption Price as defined in the MPA
- Sponsor sells Loans to ED (Put) pursuant to the Master Loan Sale Agreement at the Purchase Price as defined therein
- Once a Loan is reported as Redeemed it may be removed from the Loan Schedule

## Questions