# Presentation: 660627

## FFEL Loan Purchase Programs

- September 26, 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
- Margaret Ayanian
- Business Operations
- Federal Student Aid
- U.S. Department of Education

## Logistics

- Title:  Department of Education’s plans to purchase FFEL Program Loans and Participation Interests
- Date:  September 26, 2008
- To Participate You Must –
- Logon at URL provided in registration confirmation email; and
- Dial in to 1-888-469-1368 Confirmation number:  6871798
-     Participant Pass code:  2417097
- Additional information on the Loan Purchase Programs at:  www.federalstudentaid.ed.gov/ffelp

## 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 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
- No statutory authority to provide advance funding

## 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

- 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 re-purchased by lender
Loans can be sold (put) to ED

- 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 re-purchased by lender
- Loans can be sold (put) to ED

- Two Programmatic Components

## Webinar Objectives

- Purpose:  To provide additional detail of operational processes involved in the Participation Purchase Program and the Loan Purchase Commitment Program.
- Target Audience:
- Personnel at servicers, lenders and custodians who are responsible for collections and reporting
- Personnel at servicers and lenders who are responsible for loan sale transfer operations.

## Agenda

**Loan Eligibility Requirements**
**Participation Purchase Program**
- Loan Schedules
- Month-End Aggregate Settlement Date Report
- Pay.gov Remittance Activity
- Agreed Upon Procedures (AUP) Requirements/ Compliance Audits
**Loan Purchase Commitment Program**
- Pre-Sale - Loan Level Detail Report
- Bill of Sale Documents
- Security Release Documents
- Post Sale Adjustments
- Collateral Transfer Documents
- Agreed Upon Procedures (AUP) Requirements

## 
Loan Eligibility

- Loan Eligibility

## Loan Eligibility – General

- Only Stafford and PLUS (no consolidation) loans made for a loan period that includes, or begins on or after, July 1, 2008 and for which the first disbursement is made on or after May 1, 2008 and no later than July 1, 2009.
- Loans must include all other eligible subsidized and unsubsidized 2008-2009 loans for the borrower
- No defaulted loans
- No  Lender of Last Resort loans
- No loans with borrower benefits, except:
- An upfront borrower fee reduction;
- .25% interest rate reduction for automatic repayment.
- Servicing agreement must be terminable within no more than 30 days notice

## Loan Eligibility - Programmatic

- Loan Purchase Commitment Program:
- Loans must be fully disbursed by Purchase Date
- Loans previously in Loan Participation Program may participate in program
- Loan Participation Program:
- Minimum of one disbursement made
- Loan must be fully disbursed by September 30, 2009
- Loans may only be participated once in the program
- Hard and soft edits are being run against incoming loan schedule data files to identify issues

## Loans Number 1 and 2 meet loan period eligibility requirements because first disbursement is made on or after May 1, 2008 and not later than July 1, 2009 and Loan Period End Date is greater than or equal to July 1, 2008
Loan Number 3 is an ineligible loan because the loan period does not include July 1, 2008.

- Loan Number 3 is an ineligible loan because the loan period does not include July 1, 2008.

| Loan 
Number | Loan Period Begin Date | Loan Period End  Date | First Disbursement 
Date | Eligibility
 |
| --- | --- | --- | --- | --- |
| 1 | March 10, 2007 | July 15, 2008 | May 5, 2008 | Eligible Loan |
| 2 | June 9, 2008 | August 15, 2008 | July 11, /2008 | Eligible Loan |
| 3 | January  27, 2008 | June 15, 2008 | June 10, 2008 | Ineligible Loan |

- Loan Eligibility Requirements

## 
Participation Purchase Program

- Participation Purchase Program

## Loan Schedules - Changes

- Changes to the Loan Schedule File include:
- New Record Count in Header
- Switch to updated Loan Schedule format starting October 6, 2008
- Test files for updated Loan Schedule can be sent to ED starting on October 3, 2008

## Loan Schedules

- Weekly Loan Schedule
- Participation Purchase Funding Requests
- Month-End Loan Schedule
- Reports aggregate pool of loans held in Class A Participation Certificate by ED
- Report date is the last calendar day of month end and due to ED seven (7) business days after month end
- If Sponsor has multiple Servicers, each servicer must submit a separate Month-End Loan Schedule
- May not be used for Participation Purchase Funding Requests
- Details of file format and instructions provided in Electronic Announcement #16

## Month-End Aggregate Settlement Date Report

- One report, aggregating all Month-End Loan Schedules (in the case of multiple Servicers)
- Reports Collection Activity of all loans – Section IV, used for distribution in Cash Available to pay Participation Yield (Line 23) and Outstanding Balance of Class A Participation Interests (Line 24)
- Report date is the last calendar day of month end and due to ED seven (7) business days after month end
- Must reconcile to only one Pay.gov confirmation number
- Details of Excel file format and instructions provided in Electronic Announcement #17

## Pay.gov Remittance Activity

- Custodians are required to remit amounts equal to Cash Available for Distribution (Line 22) of Monthly Aggregate Settlement Report, no later than seven (7) business days after calendar month end
- Payments should be made through Pay.gov ACH Funds Remittance. Instructions provided at: _[http://www.fp.ed.gov/fp/attachments/activities_whatsnew/PaygovFundsRemittance092008.doc](http://www.fp.ed.gov/fp/attachments/activities_whatsnew/PaygovFundsRemittance092008.doc)__ _
- Confirmation number will be provided from Pay.gov website upon remitting payment
- Each Aggregate Monthly Settlement Report must reconcile to only one Pay.gov confirmation number

## AUP - PARTICIPATION PROGRAM 

- AUP - PARTICIPATION PROGRAM

- Authority: Section 8 of the MPA
- Audit Type: An agreed upon procedures (AUP) attestation engagement
- AUP Objective: To perform procedures and report results and findings in order to assist ED in evaluating the loans’ compliance with the provisions of the MPA. The procedures are focused on loan eligibility, similar to a commercial transaction.

## AUP - PARTICIPATION PROGRAM 

- AUP - PARTICIPATION PROGRAM

**AUP Scope:**
- Initial Participation Purchase Request (PPR) – AUP report due to ED within 60 days of consummation
- Subsequent PPR – AUP report due to ED based on ED published schedule
- AUP is at the Sponsor level not at the Servicer level
**Professional Standards: **Government Auditing Standards must be used in conjunction with the AICPA Attestation Standards
**AUP Guide: **Published by early October 2008.  The guide will require that AUP reports be submitted to ED electronically to an e-mail address identified in the guide.  The guide will also require submission of a Statement of Compliance to be signed by the Sponsor and Servicer.

## Compliance Audits

- Authority: Section 8 of the MPA
- Audit Type: Due Diligence Audit
- Audit Objective: The Department and its representatives may conduct a due diligence audit of the Servicer’s operations, Loan Documents, Eligible Loans and Settlement Reports.  This will assist ED in evaluating compliance with the provisions of the MPA.
- More information on Compliance Audits to follow in future announcements

## 
Loan Purchase Commitment Program

- Loan Purchase Commitment Program

## Loan Transfer/Conversion File

- Seller submits 45-Day Notice of Intent to Sell with recommended purchase date.
- Nine (9) business days prior to purchase date seller submits Loan Transfer/Conversion File to the ED Servicer.
- During the next three (3) business days, ED Servicer will perform loan eligibility and data integrity edits on the loan data.  ED Servicer will work with Seller/Seller’s Servicer to clear exception items or adjustments to loan balances.
- Six (6) business days prior to the purchase date, the loan balances for the sale are locked down and the final Loan Purchase Detail Loan Schedule is provided to the Seller. Any subsequent transactions processed on the loans to the sold to ED will be handled as post sale adjustments.

## Detail Loan Schedule

- The report will include a final listing of all eligible loans submitted by a seller to be sold to the Department.
- Selling lender reviews and agrees with the Pre-Sale Report totals and final listing of all eligible loans to be sold to the Department.
- Pre-Sale Reports will include a calculation of the final sale purchase price including principal and interest outstanding through sale date, return of the 1% origination fee, and $75.00 per loan.

## Detail Loan Schedule

- Six business days prior to Purchase Date, ED Servicer will prepare the Loan Level Detail Report above using the following data elements from the Conversion Transfer File received from the Seller’s Servicer’s:
**DEAL ID** = unique 5 digit field that identifies the individual loan sale
**OLA **= Original Loan Amount
**SUB PBO **= Principal Balance Outstanding for Subsidized Stafford loans
**UNSUB PBO **= Principal Balance Outstanding for UnSubsidized Stafford loans
**PLUS PBO **= Principal Balance Outstanding for PLUS Loan
**Estimated IRB as of Sale Date **= Estimated Interest Receivable Borrower as of Sale Date

## Bill of Sale Documents

- Bill of Sale documents to be submitted to ED on the fifth (5) business day prior to Purchase Date.
- 	o    Formal Bill of Sale, including assigned Deal ID;
- 	o    Final Loan Schedule Summary;
- 	o    Loan Schedule (Loan Level Detail Report);
- 	o    Security Release Certification (if applicable);
- 	o    Notice of Assignment and Designation of 		Payee Financial Institution Form (optional) or;
- 	o  	Subsequent notification of receipt of funds by 	the Secured Lender

##  Security Release Documents

-  Security Release Documents

- Formal Bill of Sale, with named Secured Lender
- Security Release Certification
- Notice of Assignment and Designation of Payee (optional) or
- Subsequent notification that Secured Party has received funds

## Transition/Post Sale Adjustments 

- Transition/Post Sale Adjustments

- Six business days prior to the purchase date, the loan balances for the sale are locked down and the final Loan Purchase Detail Loan Schedule is provided to the Seller. Any subsequent transactions processed on the loans to the sold to ED will be handled as post sale adjustments.
- Seller/Seller’s Servicer continues to service the loans included in the sale during this period until the loans are sold to ED on the purchase date.
- Seller/Seller’s Servicer will track the transactions that come in during the lockdown period thru sale date along with any post sale adjustments.  In both cases, transactions will be forwarded to the ED Servicer for processing.

## Transition/Post Sale Adjustments 

- Transition/Post Sale Adjustments

- Examples of adjustments include:
- Borrower Payments
- Payment Reversals (NSF)
- Cancellations/School Refunds
- Payment Corrections
- Demographic changes
- Payment Corrections
- Post sale adjustments will include both cash transactions (borrower payments, cancellations, school refunds) and non-monetary transactions (address changes).
- A separate transmittal form will be used for reporting the different types of post sale adjustments.
- Instructions and transmittal forms to be used for reporting post sale adjustments will be issued next week.

## Collateral Transfer Documents

- By Purchase Date, Seller transmits loan documents to the
- ED Servicer.
- Loan documents include:
- Original or copy of the Master Promissory Note (MPN);
- School certification record .
- Electronic “session data” if MPN was executed electronically (e-signed).  All data that demonstrates the e-sign process that was used by the borrower, including the electronic signature.  Session data must contain date and time audit trails.

## Collateral Transfer Documents

- For required collateral documents, ED Servicer can accept files in the following formats:
- TIFF
- PDF
- Word
- Text
- Image document guidelines will be issued that will provide details on the layout of the index image file and transmission protocols available for submission of documents to the ED Servicer.

## AUP – PURCHASE PROGRAM 

- AUP – PURCHASE PROGRAM

**Authority:** Section 5 of the MLSA
**Audit Type: **An agreed upon procedures (AUP) attestation engagement
**AUP Objective: **To perform procedures and report results and findings in order to assist ED in evaluating the loans’ compliance with the provision of the MLSA. The procedures are focused on loan eligibility, similar to a commercial transaction.

## AUP – PURCHASE PROGRAM 

- AUP – PURCHASE PROGRAM

**AUP Scope:**
- Initial Bill of Sale (BOS) – AUP report due to ED within a yet to be determined number of days after consummation
- Subsequent BOS – AUP report due to ED based on ED published schedule
- AUP is at the Seller level not at the Servicer level

## AUP – PURCHASE PROGRAM 

- AUP – PURCHASE PROGRAM

**Professional Standards:**
- Government Auditing Standards must be used in conjunction with the AICPA Attestation Standards
- 	An AUP guide will be published by late October 2008.  The guide will require that AUP reports be submitted to ED electronically to an e-mail address identified in the guide.

## Questions

- 	Questions may be asked now or submitted to the following e-mail addresses:
- _[loan.participation@ed.gov](mailto:loan.participation@ed.gov)__ OR __[loan.purchase@ed.gov](mailto:loan.purchase@ed.gov)_