# Presentation: 759573

## NASFAA National Conference

**Seattle, Washington -- July 5 - 8, 2006**
**     ****Washington State Convention **
**	****	****       ****& Trade Center**

## Loan Forgiveness, Cancellation and Discharge

**Gail McLarnon**
**U.S. Department of Education**

## Today’s Agenda

**Teacher loan forgiveness in the Federal Direct Loan and the Federal Family Education Loan (FFEL) Programs**
**Teacher loan cancellation in the Federal Perkins Loan Program**
**Permanent and total disability loan discharges in the Title IV Loan Programs**

## Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

- FFEL and DL loan forgiveness of up to $5,000 adopted in the Higher Education Amendments of 1998
- Taxpayer-Teacher Protection Act of 2004 (TTPA) increases loan forgiveness to up to $17,500 until September 30, 2005
- TTPA requires all teachers to be “highly qualified”

## Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

- Higher Education Budget Reconciliation Act (HERA) makes up to $17,500 in loan forgiveness permanent (retroactive to October 1, 2005)
- HERA extends loan forgiveness to certain private school teachers effective 7/1/06

## Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

- Resources:
- FFEL Program regulations:  §682.215
- Direct Loan Program regulations:  §685.217
- Dear Colleague Letter GEN-04-14 summarizes teacher loan forgiveness provisions of TTPA  _[http://ifap.ed.gov/dpcletters/GEN0414.html](http://ifap.ed.gov/dpcletters/GEN0414.html)_
- Dear Colleague Letter GEN-06-02 summarizes HERA changes to teacher loan forgiveness _[http://](http://ifap.ed.gov/dpcletters/GEN0602.html)__[ifap](http://ifap.ed.gov/dpcletters/GEN0602.html)__[.ed.](http://ifap.ed.gov/dpcletters/GEN0602.html)__[gov](http://ifap.ed.gov/dpcletters/GEN0602.html)__[/](http://ifap.ed.gov/dpcletters/GEN0602.html)__[dpcletters](http://ifap.ed.gov/dpcletters/GEN0602.html)__[/GEN0602.html](http://ifap.ed.gov/dpcletters/GEN0602.html)_

## Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

- Resources (cont.)
- Teacher loan forgiveness application and forbearance forms _[http://ifap.ed.gov/dpcletters/GEN0502Revised.html](http://ifap.ed.gov/dpcletters/GEN0502Revised.html)_
- Look for Interim Final Regulations with Comments in late July implementing TTPA and HERA changes to teacher loan forgiveness on _[http://ifap.ed.](http://ifap.ed.gov/)__[gov](http://ifap.ed.gov/)_

## Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

- TTPA changes to teacher loan forgiveness
- Loan forgiveness of up to $5,000 if a teacher teaches five years in an elementary or secondary school with a population of 30% of more low-income children
- Teacher must be “highly qualified”

## Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

- A “highly qualified” teachers is:
**Fully certified or has passed a state licensing exam; licensed by the State in which he or she teaches**
**A new teacher who holds a B.A. and passes 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**
**Any other teacher who demonstrates competence in subject areas in which he or she teaches based on uniform State standards**

## Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

- TTPA authorizes loan forgiveness up to $17,500 if a teacher
- Meets the previous requirements AND
- Teaches special education in elementary or secondary school OR
- Teaches mathematics or science in secondary school

## Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

- Teachers who began qualifying service before the 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

## Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

- All Bureau of Indian Affairs Schools are considered low-income schools
- Statutory interpretation of “highly qualified” changed—No longer tied to NCLB date of enactment

## Teacher Loan Cancellation in the Federal Perkins Loan Program

- Higher Education Act authorizes up to 100% loan cancellation over a five year period for:
- Full-time teachers in a school serving students from low-income families
- Full-time special education teachers, including teachers of infants, toddlers children or youth with disabilities
- Full-time teachers of mathematics, science, foreign languages, bilingual education of any other field of expertise  determined by a State education agency to have a shortage of qualified teachers

## Teacher Loan Cancellation in the Federal Perkins Loan Program

- Cancellation Rates
- 15% of principal and interest for first and second years of teaching
- 20% of principal and interest for third and fourth years of teaching
- 30% of principal and interest for fifth and final year of teaching

## Teacher Loan Cancellation in the Federal Perkins Loan Program

- Borrowers placed in deferment during periods of teaching service in anticipation of loan cancellation
- The Department of Education does not approve or supply Perkins Loan cancellation and deferment forms.

## Teacher Cancellation in the Federal Perkins Loan Program

- Resources:
- Perkins Loan Program regulations:  Subpart D of 34 CFR 674
- Volume 6, Chapter 4 Financial Aid Handbook: _[http://ifap.ed.gov/sfahandbooks/030106Vol6FSAHandbook.html](http://ifap.ed.gov/sfahandbooks/030106Vol6FSAHandbook.html)_
- Campus-Based Program Materials
- 	_[http://ifap.ed.gov/IFAPWebApp/currentCBPMaterialsPag.jsp](http://ifap.ed.gov/IFAPWebApp/currentCBPMaterialsPag.jsp)_

## Requirements for FFEL, Direct and Perkins Loan Forgiveness

- Borrowers cannot receive benefits for qualifying teaching service under both HEA and National & Community Service Act
- Loan holders do not refund payments received during a period when borrower qualified for loan forgiveness/cancellation
*Directory of Designated Low-Income Schools for Teacher Cancellation Benefits* used across Title IV loan programs-All BIA schools are low-income

## Total and Permanent Disability (TPD) Discharge of Title IV Loans

- June 1999 – Department of Education’s Inspector General issues Report identifying weaknesses in the TPD process
- November 1999 – Dear Colleague Letter GEN-99-36 strengthens process _[http://ifap.ed.gov/dpcletters/doc0625_bodyoftext.htm](http://ifap.ed.gov/dpcletters/doc0625_bodyoftext.htm)_
- November 2000 – Final regulations issued changing eligibility for post-TPD discharge _[http://www.ifap.ed.gov/fregisters/1101200010.html](http://www.ifap.ed.gov/fregisters/1101200010.html)_

## Overview of TPD Discharge Process

- Borrower applies to the loan holder for a disability discharge and loan holder makes preliminary determination of TPD.
- If loan holder determines that borrower does not meet criteria for TPD, loan is returned to prior status.
- If loan holder determines borrower meets criteria for TPD, loan is assigned to Department’s Disability Discharge  Unit.  For FFEL loans, both loan holder and GA determine borrower eligibility.

## Overview of TPD Discharge Process

- Department reviews all assigned loans to affirm borrower eligibility for TPD.
- Loan placed in conditional discharge status and monitored for 3 years if TPD affirmed.
- Final TPD discharge granted if  borrower’s earnings do not exceed poverty level for family of two and borrower does not receive any new Title IV loans during conditional period.

## TPD Discharge and Title IV Eligibility

- Title IV 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

## TPD Discharge and Title IV 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)

## TPD Discharge and Title IV 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

## TPD Discharge and Title IV 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

## TPD Discharge and Title IV Eligibility 

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

## TPD Discharge and Title IV Eligibility

- Discharge on or after July 1, 2002
- If final discharge granted – same as before 7/1/01
- 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/prior status applies

## NSLDS Tracking of TPD Discharges

- NSLDS uses Outstanding Principal Balance in conjunction with the loan status DS (disability) or DI (defaulted, then disabled), to distinguish between conditional and final discharge.
- Borrowers denied final TPD discharge are returned to repayment status on NSLDS.
- NSLDS May 2005 Newsletter on NSLDS Reporting _[http://ifap.ed.gov/nsldsmaterials/Newsletter10.html](http://ifap.ed.gov/nsldsmaterials/Newsletter10.html)_

## Department of Education Conditional Disability Discharge Unit

- Conditional Disability Discharge Unit Website
- _[http://www.fsacollections.ed.gov/contractors/ga/cdd/index.asp](http://www.fsacollections.ed.gov/contractors/ga/cdd/index.asp)_
- Updates and Bulletins
- Forms and Applications
- FFEL Lender Performance Reports
- Dear Colleague Letters and NCHELP Q&A

## TPD Discharge Facts and Figures

- Common reasons TPD Discharge Assignments are rejected
- Promissory note missing
- Condition begin date missing/incomplete
- Payment history missing/incomplete
- Loan Discharge application missing/incomplete

## TPD Discharge Facts and Figures (cont.)

- Processing Statistics:
- Of total TPD applications received since inception:
- 50% of borrowers reinstated to prior status on loan
- 20% of borrowers received final TPD discharge
- 30% of borrowers still in conditional discharge period
- Borrowers reinstated to prior status  on loan because:
- 37% failed medical review
- 7.8% received a new title IV loan
- 54.6 failed to respond to request for income information
- Less than 1% had income that exceed poverty guidelines

##  Upcoming TPD Discharge Dear Colleague Letters

- Dear Colleague Letter announcing new address for TPD assignments:
- U.S. Department of Education
- 	Conditional Disability Discharge
- 	6201 Interstate 30
- 	Greenville, TX 75402
- Dear Colleague Letter announcing credit bureau reporting for TPD Discharge Assignments
- Dear Colleague Letter announcing new TPD Forms

## Thank You !!Gail.McLarnon@ed.gov(202) 219 -7048