# Presentation: 749202

## FFEL and Direct Loan Policy Issues

- Pam Moran

**Session 33**

## Overview of Issues

- FFEL and Direct Loan Program
- Legislative Update
- Update -“New” Teacher Loan Forgiveness Provisions
- Update – HEROES ACT
- Loan Eligibility and Certification Issues
- Additional Unsubsidized Stafford for Dependent Students
- Professional Judgment in Reducing or Refusing to Certify

## Overview of Issues

- Loan Eligibility and Certification Issues (cont.)
- Eligibility after Total and Permanent Disability
-    Discharge
- Eligibility after Bankruptcy Filing
- Applicable Loan Limits
- General Disaster Guidance
-  Additional Hurricane Katrina Guidance

## 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
- Continuing Resolution – Enacted 9/30/2005 – 11/18/2005

## Congressional Activity

_**HEA REAUTHORIZATION**_
- HEA Extension – P.L. 109-81 (9/30/05) –
- 	Expires 12/31/05
- House – H.R. 609 – Mark-up of HEA Bill
- Concluded week of 7/25/05
- Senate – S. 1614 – Mark-Up Concluded 9/8/05
- Senate – Senate Budget committee passes S. 1873 cutting 7 billion in student loan savings with HEA REAUTH. attached

## Congressional Activity

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

## H.R. 609

- Increases annual UG and GRAD loan limits; no change in aggregates
- Maintains variable interest rate for Stafford Loans
- Makes increased Teacher Loan Forgiveness permanent
- Reinstates expired waivers – multiple disbursement and 30-day delay
- Requires collection of 1% insurance premium in FFELP
-  Reduces FFELP origination fees and DL fees progressively:
-   FFEL 3% to 1% by 2010
-   DL 4% to 1% by 2010

## H.R. 609

- Prohibits repayment incentive program and waiver of fees in DL Program
- Establishes new loan forgiveness categories
- Standardizes FFEL & DL Loan repayment plans except for ICR and adds “delayed repayment plan”

## H.R. 609

- Makes “active duty” military personnel independent students
- Reinstates up to 3-year military service deferment in FFEL and DL for loans first disbursed July 1, 1993
- Limits school FFELP lenders to lending to grad/professional students; all earnings except admin. expenses must be used for need-based aid

## H.R. 609

- Consolidation Program:
- Implements dual interest rate with choice of variable or fixed rate for applicants on/after July 1, 2006
- Eliminates single- holder rule
- Eliminates spousal consolidation
- Makes DL and FFEL terms and conditions identical
- Eliminates DL “in-school” Consolidation and FFEL “early conversion to repayment” consolidation

## S. 1614

- Increases annual loan limits UG and Grad with no change in aggregates
-    Also:
- Increase to $7,000 unsub limit for graduate prerequisite coursework
- Authorizes PLUS for graduate/professional students
- Maintains July 1, 2006 fixed interest rate for Stafford and PLUS loans; increases PLUS cap from 7.9% to 8.5%
- Maintains Consolidation Loan fixed interest rate
- Repeals single-holder rule

## S. 1614

- Removes mandatory DL origination fee and establishes 1% up to 3% fee; 4% for PLUS loans
- Maintains current up to 3% FFELP origination fee with additional 1% for loans disbursed on/after April 1, 2006

## S. 1614

- Makes no change in borrower repayment terms except new forgiveness for DL ICR in public sector job for 10 years
- Military Service deferment for up to 3 years for loans first disbursed July 1, 2001
- Places moratorium on FFELP school as lender authority, requires loan held until grace period, and requires all earnings except admin. expenses to be used for need-based aid

## Update - “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
- Expired September 30, 2005
- Return to prior requirements and amounts in section 428J of HEA and 34 CFR 682.215 and section 460 and 34 CFR 682.217 if “new borrower” on/after October 1, 2005

## Update - “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”

## Update - “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 to a major in teacher areas
- Other teachers who demonstrate competence in subject areas in which they teach based on uniform state standards

## Update - “New” Teacher Loan Forgiveness Provisions

- 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 to a major in teaching areas
- Other teachers who demonstrate competence in subject areas in which they teach based on uniform state standards

## Update - “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

## Update - “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.

## Update - “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

## Update - HEROES ACT

- HEROES ACT (Public Law 108-76,    August 18, 2003)
- Extended by P.L. 109-78 (9/30/05) until September 30, 2007
- 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; also October 20, 2005 extending 12/1/03 guidance
- 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 for borrowers in repayment
- Military service does not interrupt required consecutive payments to rehabilitate or make satisfactory repayment arrangements - may lapse

## Additional Unsubsidized Loan Eligibility for Dependent Students

- Dependent Student Eligible Only If:
- Parent ineligible for PLUS due to adverse credit
- Parent likely precluded from borrowing PLUS under documented exceptional circumstances
- Examine use of endorser for PLUS eligibility

## Additional Unsubsidized Loan Eligibility for Dependent Students

- Guidelines for certifying/originating include:
- Parent’s unwillingness to borrow PLUS does not qualify the dependent
- FAO’s belief that parent should not borrow PLUS does not qualify the dependent
- Only one parent must be denied.  However, if both apply and one is eligible, the dependent is ineligible

## Additional Unsubsidized Loan Eligibility for Dependent Students

- Guidelines for certifying/originating include:
- Adverse credit denial in one year is not  applicable in subsequent years
- PLUS eligibility or dependent eligibility can happen any time in academic year

## Additional Unsubsidized Loan Eligibility for Dependent Students

- Documented “Exceptional”  Circumstances
- Regulatory Examples; Not an Exhaustive List
- Incarcerated Parent
- Parent Whereabouts Unknown

## Additional Unsubsidized Loan Eligibility for Dependent Students

- Parent with limited income – low earnings, public assistance, or disability benefits
- FFEL Program – Documented evidence lender has or will deny a PLUS loan due to income-to-debt, ability to repay, or other credit standards
- DL Program – School documents inability to pay due to income-to-debt ratio, existing debt burden, or limited income.

## Additional Unsubsidized Loan Eligibility for Dependent Students

- Other Recognized Circumstances
- Eligible Dependent Child of non-U.S. citizen or non-permanent resident
- Official Letter or Ruling from Bankruptcy Court stating no additional debt may be acquired by filer

## Exercising Professional Judgment in Declining/Reducing Loans

- Case-by-case
- Documented
- Written explanation to student of reason
- No discrimination – race, sex, color, income, religion, national origin, age, handicapped status, or choice of lender or guaranty agency

## Exercising Professional Judgment in Declining/Reducing Loans

- No policy of covering school charges only
- No “mandatory” use of preferred lender
- No use of required credit checks
- No loan without Pell eligibility determination and application (if applicable); No unsub loan without subsidized eligibility and application ($ tolerance)

## Post-TPD Discharge Eligibility

- November 1, 2000: Regulations changed eligibility for Post-TPD Discharge borrowers
- Eligibility requirements vary depending upon date of TPD Discharge
- Before July 1, 2001
- On or after July 1, 2001 and before July 1, 2002
- On or after July 1, 2002
- Refer to ISIR Codes and Comments

## Post-TPD Discharge Eligibility

- Discharge before July 1, 2001
- Certification from physician that borrower can engage in substantial gainful activity (i.e., no longer TPD)                         (NOTE: Need one per school)
- Borrower statement acknowledging no discharge of new loan for pre-existing conditions unless substantial deterioration    (NOTE: Need each loan)

## Post-TPD Discharge Eligibility

- Discharge on or after July 1, 2001 and before July 1, 2002 with new loan request within 3 years of TPD date:
- Physician Certification
- Borrower Acknowledgement Statement
- Reaffirmation of Discharged Loan
- After 3 years from TPD date only certification and borrower acknowledgement required

## Post-TPD Discharge Eligibility

- Reaffirmation
- If ISIR Discharge Date is within 3 years of new loan request, contact holder to identify 3 years from TPD date
- If reaffirmed, requires new promissory note or signed repayment schedule

## Post-TPD Discharge Eligibility

- Reaffirmation
- Do not certify/originate before holder confirms reaffirmation
- If defaulted prior to discharge, reaffirmed loan retains  default status and satisfactory repayment arrangements* required
- *SRA also applies during conditional period for conditional discharge

## Post-TPD Discharge Eligibility

- Discharge on or after July 1, 2002
- If final discharge granted – same as before July 1, 2001
- If “conditional” discharge
- Physician certification and borrower acknowledgement for new loan

## Post-TPD Discharge Eligibility

- Borrower acknowledgement that neither new loan nor conditionally discharged loan are dischargeable now or in the future based on pre-existing condition unless substantial deterioration
- Collection resumes on conditional loan and prior status applies

## Eligibility After Bankruptcy Filing 

-  Bankruptcy Reform Act of 1994 – (Pub L. 103-394)
- No denial of grant or loan to a person who has filed or received a discharge in bankruptcy
-  1998 Amendments to HEA
- Eliminates bankruptcy discharge to borrowers in repayment for seven years; borrowers must prove undue hardship

## Eligibility After Bankruptcy Filing 

- Change in operational treatment for eligibility of borrowers who have filed for bankruptcy
- Direct Loans [DLB-04-14 (May 2004), 04-17 (June 2004)]
- No longer closing out MPNs for filing borrowers and requiring new MPNs; no longer rejecting disbursements after filing
- Also applicable to FFEL and Perkins borrowers

## Eligibility After Bankruptcy Filing 

- Changed approach based on decision that loans and disbursements under MPN are clearly identifiable by date before and after filing
- Filing borrowers in default remain ineligible without satisfactory repayment arrangements; voluntary SRA does not violate “stay of collections”

## Applicable Loan Limits Eligibility 

- One-year Program normally completed full-time in one-year =  maximum 1st year limits
- Two-year Program normally completed full-time in two-years = maximum 2nd year limits

## Applicable Loan Limits Eligibility 

- Consecutive one-year certificate programs
- No more than 1st year limits for each certificate program
- No linking of separate, stand-alone programs
- Grade level for loan limits based on school academic standards; may not coincide with start of new academic year.

## Applicable Loan Limits Eligibility 

- Grade level progression for increased loan limits within academic year
- Applies only to standard term programs
- Loan limit up to difference between the two loan limits for period of increased eligibility
- Certify / originate new loan only for period reflecting progression
- OR
- Handle as adjustment of current loan if lender allows

## Applicable Loan Limits Eligibility 

- Prerequisite coursework:
- pre-undergraduate degree/certificate = up to $2,625 (sub/unsub) plus possible up to $4,000 additional unsub
- Post-baccalaureate required for graduate/professional degree = up to $5,500 (sub/unsub) plus possible up to $5,000 additional unsub
- Associate or Baccalaureate degree required for non-graduate/professional degree program = up to $3,500 (sub/unsub) plus possible up to $5,000 additional unsub

## Applicable Loan Limits Eligibility 

- Transfer student with transfer credits or advanced standing due to prior college credit or degree/certificate not required for admission = 2nd year loan limits or higher
-  Post-baccalaureate for Teacher credential or certification awarded by the State
- Up to $5,500 (sub/unsub) plus possible up to $5,000 additional unsub
- Not limited to initial certification

## Applicable Loan Limits Eligibility 

_**Graduate/Professional**_
- Must be admitted as graduate/professional regular student – not conditional admit Must be program above baccalaureate degree
- May include some undergraduate course work

## Applicable Loan Limits Eligibility 

_**Graduate/Professional**_
- Combined Undergraduate/graduate program
- At least three full-time years must be completed, prior to or part of program
- School must identify undergrad/grad transition point
- Student can’t receive undergrad/grad student financial assistance for same period of enrollment

## General Disaster Guidance

- GEN-04-04, February 2004:
- General guidance for Federal-declared disasters
- Supplements 2003-2004 SFA Handbook and Disaster Letter 99-28, August 1999
- Presidential declaration necessary

## General Disaster Guidance

- GEN-04-04, February 2004:
- Maintains “in-school” status for borrowers whose attendance is interrupted
- Provides forbearance without documentation or agreement for initial period for borrowers in repayment

## Hurricane Guidance

- See _[http://fsa4schools.ed.gov](http://fsa4schools.ed.gov/)__ and Hurricane Information on __[www.ed.gov](http://www.ed.gov/)__ for announcements_
- Legislation:
- P.L. 109-66 -  Pell Grant Hurricane and Disaster Relief Ace: waives  Pell Grant repayments for students who withdraw due to major disaster

## Hurricane Guidance

- P.L. 109-67 – Student Grand Hurricane and Disaster Relief Act: waives student repayment of Title IV grants if withdrawal due to major disaster
- Does not waive school reimbursement
- P.L. 109-86 – Natural Disaster Student Aid Fairness Act:  authorizes reallocation of 2004-05 campus-based funds for affected schools

## Technical Assistance

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