# Presentation: 412031

## FFEL, Direct Loan, and Perkins Loan Policy Issues of Interest to Schools

- Pam Moran
- Gail McLarnon

**Session #47**

## Overview of Issues

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

## Overview of Issues (cont.)

- All Title IV Loans
- Eligibility after Total and Permanent       Disability Discharge
- Eligibility after Bankruptcy Filing
- General Disaster Guidance
- HEROES Act and Notice

## Overview of Issues (cont.)

- Perkins Loan
-  PART
-  Funding
-  MPN Implementation
-  Initiatives
-  Assignment and Cohort Calculations

## “New” Teacher Loan Forgiveness Provisions

- H.R. 5186 – Taxpayer-Teacher Protections Act of 2004
- 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 to a major in teaching areas
- 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

- Immediate Implementation
- DCL summarizing provisions is under development
- Current application form to be revised

## 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.

## 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)

## Late Disbursement 34 CFR 668.164(g)

- Borrower must have had a period of eligibility before < half-time or withdrawal
- New borrower subject to 30-day delay must complete 30 days
- Late second disbursement only if successfully completed the period of enrollment
- Certification/origination must take plus while borrower still enrolled and otherwise eligible; for Perkins, awarding must take place
- ISIR/SAR with official EFC
- Costs for FFEL/DL limited to documented educational costs

## Late Disbursement 34 CFR 668.164(g)

-  Timeframes:
- 120 days after date of withdrawal determination
- 120 days after date of ineligibility
- After 120 days – with Secretary’s approval if student not at fault

## Late Disbursement 34 CFR 668.164(g)

-  Post 120-day request:
- School’s name and OPE ID
- Contact person’s name, title, phone and fax numbers, and e-mail address
- Student’s name and SSN (and parent’s name and SSN for PLUS)
- Type and amount of Title IV to be disbursed
- Explanation of why the disbursement was not made, including why it was not the student’s fault

## Late Disbursement 34 CFR 668.164(g)

-  Post 120-day request:
- For Pell Grant:
- Award Year
- Payment period begin and end dates
- Date student completed the payment period or withdrew from school
- For FFEL and Direct Loans:
- Loan type (sub, unsub, or PLUS)
- The date the loan was certified or originated
- Loan period begin and end dates

## Late Disbursement 34 CFR 668.164(g)

-  Post 120-day request:
- For FFEL and Direct Loans:
- Did the student complete the loan period?
- If the student did not complete the loan period, on what date did the student cease to be enrolled at least half-time?
- Is this the first disbursement of the loan or is it a second or subsequent disbursement?
- The lender’s name, for FFEL
- Award ID, for Direct Loan

## Late Disbursement 34 CFR 668.164(g)

-  Contact Information:
- FAX to:
- COD School Relations Center
- Late Disbursement Request
- (877)  623-5082
-  FSA notifies school by e-mail

## 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
- 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
- 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
- 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”

## 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
- Documentation required
- Maintains “in-school” status for borrowers whose attendance is interrupted
- Requires contact with ED’s case management team for borrowers in repayment or default
- GEN 04-09, September 2004: Notice to extend various school reporting deadlines for Hurricane Affected Schools

## HEROES Federal Register Notice

- HEROES Bill (P.L. 108-76, Aug. 18, 03)
- Authorized  ED to publish FR notice of waivers/mods to HEA & program regs for applicants & recipients of TIV who:
- Are serving on active duty during war or military operation/national emergency
- Are performing qualifying National Guard duty during a war or military operation/national emergency

## HEROES Federal Register Notice

- Authorizes waivers/modifications to HEA & program regs for applicants and recipients of TIV who:
- Reside or are employed in a disaster area
- Suffered direct economic hardship because of a war or national emergency

## HEROES Federal Register Notice

- FR Notice published Dec. 12, 2003
- _[http://ifap.ed.gov/fregisters/fr12122003.html](http://ifap.ed.gov/fregisters/fr12122003.html)_
- 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
- Waives collection on defaulted loans while borrower is an affected individual

## HEROES Federal Register Notice

- Military service does not interrupt service required for loan cancellation
- Military service does not interrupt required consecutive payments to rehabilitate or make satisfactory repayments arrangements to regain eligibility or consolidate a Title IV loan

## HEROES Federal Register Notice

- Waives written request, written agreement and supporting documentation for initial periods of forbearance for Perkins borrowers
- Requires documentation beyond initial forbearance for Perkins borrowers
- Periods of forbearance for Perkins borrowers do not count against 3 year limit.

## HEROES Federal Register Notice

- Waives supporting documentation for initial periods of forbearance for FFEL/DL borrowers
- Requires documentation beyond initial forbearance for FFEL/DL borrowers

## HEROES Federal Register Notice

- For Perkins, FFEL and DL borrowers eligible for a military deferment:
- Military service as an affected individual does not count against 3 year limit
- Waives supporting documentation for initial periods of military deferment
- Requires documentation beyond initial period of military deferment

## OMB’s Perkins Loan Program Assessment Rating (PART)

- Government Performance & Results Act requires all Federal programs to have measurable goals and objectives
- President’s Management Council developed 5-point plan to improve efficiency & effectiveness of Federal programs
- OMB developed Program Assessment Rating tool (PART) to assess the effectiveness of Federal Programs

## OMB’s Perkins Loan Program Assessment Rating (PART)

- PART consists of 30 weighted questions divided into 4 sections:
- Program Purpose and Design
- Strategic Planning
- Program Management
- Program Results
- OMB issues rating for each program
- Final results released each year as part of the President’s budget

## OMB’s Perkins Loan Program Assessment Rating (PART)

- Federal Perkins Loan Program rated ineffective
- Program was deemed redundant and duplicative due to existence of FFEL and Direct Loan Program
- Funding request was eliminated from the President’s FY05 budget request
- Bringing Perkins on Budget
- FOCUS Group:  Thursday, December 2 Versailles 1 & 2, 4:45 pm

## Perkins Loan Program Budget/Appropriations

**President’s FY05 Budget Request (AY 05-06)**
- New FCC:  0
- Cancellation:  $66,665,000
**House FY05 Appropriations (AY 05-06)**
- New FCC:  0
- Cancellation:  $66,665,000
**Senate FY05 Appropriation (AY 05-06)***
- New FCC:  $98,764,000
- Cancellation:  $66,665,000
- *Maintains FY 2004 (AY 04-05) funding levels

## Perkins Loan Program Budget/Appropriations

- Congress passed Omnibus Appropriations Bill – HR 4814 – on November 20, 2004 funding 13 Federal agencies
- House & Senate Final Conference Perkins Loan Appropriation (AY 05-06)
- New FCC:  0
- Cancellation: $66,131,680

## Perkins Loan Program MPN Implementation

- Implementation Guidance:
- Dear Colleague Letter CB-03-14
- _[http://ifap.ed.gov/dpcletters/CB0314.html](http://ifap.ed.gov/dpcletters/CB0314.html)_
- 2004-2005 FSA Handbook, Vol. 6, Chap.3
- Implementation date:
- Must be used for all new loans on or after November 1, 2004

## Perkins Loan Program MPN Implementation

- Perkins MPN does not change the lending process:
- Determine borrower eligibility
- Ensure a signed prom note covers loan
- Provide loan disclosures/notices under Sec. 674.16(a) & Sec. 668.165(a) (can be provided electronically through a secure website
- Disburse, service and collect

## Perkins Loan Program MPN Implementation

- Options for use of MPN:
- School may choose annual or multi-year use
- Annual note:  Borrower signs once each year for all loans made that year
- Multi-year:  Borrower signs one MPN for all loans made until note expires
- Borrower may choose annual note if s/he notifies school in writing

## Perkins Loan Program MPN Implementation

- MPN Expiration Provisions-No further loans made under MPN after earliest of:
- The date the school receives borrower’s written request for no further MPN loans
- 12 months after signature date if no disbursement has been made under MPN
- 10 years after the signature date or date of school’s receipt of MPN

## Perkins Loan Program MPN Implementation

- MPN format and text cannot be changed [except bracketed text]
- MPN requires subsidiary record of disbursements and adjustments for enforcement purposes
- Use electronic MPN in accordance with ED E-signature Standards
- Dear Colleague GEN-01-06, May 2001
- _[http://ifap.ed.gov/dpcletters/gen0106.html](http://ifap.ed.gov/dpcletters/gen0106.html)_

## ED Perkins Loan Program Initiatives

- Proposed NSLDS Data Quality Initiative and Federal Perkins Loan Compliance Initiative
- Identify schools with high volumes of aged defaulted loans
- Review consistency/quality of Perkins Loan NSLDS reporting and due diligence
- Assess administrative capability and recommend improvements/assignment

## Assignment of Defaulted Perkins Loans

- IT’S EASY TO ASSIGN!!
- Assignment form redesigned for easier batch submissions
- Supporting documentation streamlined
- Partial electronic process instituted
- _[http://ifap.ed.gov/dpcletters/cb0312.html](http://ifap.ed.gov/dpcletters/cb0312.html)_

## Consolidation & Perkins Loan Cohort Default Rates

- 34 CFR 674.5(b) – Defines cohort default rate as the percentage of current and former students *“who enter repayment”* in an award year and default before the end of the following award year
- Borrowers who consolidate in their grace period do not enter repayment and aren’t included in calculation at all

## Technical Assistance

- We appreciate your feedback and comments.  We can be reached at:
**Pam Moran **
- Phone: 202-502-7814
- Fax: 202-502-7874
- Email:Pamela.Moran@ed.gov
**Gail McLarnon**
- Phone: 202-502-7814
- Fax: 202-502-7874
- Email:Gail.McLarnon@ed.gov