# Presentation: 674570

## Session GA-04

**What’s New for Guaranty Agencies and Lenders**
**Pamela Moran**

## Agenda

- Legislation Update
- Loan Access Initiatives
- Regulations Update

## Legislation 

**Legislation**** **

## Legislation Update

- Higher Education Reconciliation Act (HERA) (P.L. 109-171) – February 8, 2006
- College Cost Reduction and Access Act (CCRAA)(P.L. 110-84) – September 27, 2007

## Legislation Update

- Ensuring Continued Access to Student Loans Act (ECASLA) (P.L. 110-227) – May 7, 2008
- Higher Education Opportunity Act (P.L. 110-315) (HEOA) – August 14, 2008
- H.R. 6889 (P. L. 110-350) – October 7, 2008

## HERA

- Reauthorized FFEL Program until 2012
- Increased Loan Limits
- Phase-Out of Borrower Origination Fees
- Grad/Prof PLUS Introduced

## HERA

- Aligned Repayment Plans –FFEL/DL
- Disbursement Relief – Cohort Default Rate Waivers for Schools
- Reduced PLUS Interest Rates

## HERA

- Identity Theft Discharge
- Military Deferment
- Loan Rehabilitation Relief – FFEL/DL

## HERA

- Consolidation Loan – Married/In-school/Early Conversion eliminated
- School-as-Lender/Use of Lender Trustee
- Lender Reduced Insurance/“Negative SAP”

## CCRAA 

- Reduced FFEL/DL Interest Rates for Undergrad Subsidized Loans
- New Income-Based Repayment Plan –FFEL/DL
- New Public Service Loan Forgiveness - DL

## CCRAA 

- Revised Deferments:
- Economic Hardship – Changed Eligibility Standards
- Military Service Expanded and Post-Active Duty Added

## CCRAA

- Lender (Offsets):
- Exceptional Performer Status Eliminated
- Insurance Reduced
- Loan Fees Increased
- Special Allowance Payments Reduced
- Origination Auction for PLUS (First-time Parent PLUS)

## CCRAA

- Guaranty Agency (Offsets):
- Collection Retention Allowance Reduced
- Account Maintenance Fees

## ECASLA

- Increased FFEL/DL Annual and Aggregate Loan Limits
- Parent PLUS Grace Period/Relief

## ECASLA

- Lender-of-Last Resort Authority Enhanced
- ED Granted Authority to Purchase Loans and Participation Interest in Loans to ensure FFEL loan access

## ECASLA

- FFEL/DL LOAN LIMITS –
- New $2,000 annual Unsub Stafford loan amount for dependent undergraduate students
- Additional $2,000 Unsub Stafford annual loan amount for dependents with no PLUS, independent undergrads, and for non-degree preparatory coursework for undergrad  programs

## ECASLA

- FFEL/DL LOAN LIMITS - unchanged
- $7,000 Additional Unsub Stafford for non-degree preparatory coursework for grad/professional programs
- $7,000 Additional Unsub Stafford for non-degree teacher certification coursework

## ECASLA

- FFEL/DL LOAN LIMITS -
- Increased Aggregate total for dependent undergrads from $23,000 to $31,000 (no more than $23,000 subsidized)
- Increased Aggregate total for independent undergraduate students from $46,000 to $57,500 (no more that $23,000 subsidized)

## ECASLA

- FFEL/DL LOAN LIMITS -
- Aggregate total for graduate/professional remains at $138,500 (no more than $65,000 subsidized)

## ECASLA

- PLUS Loan Changes -
- Optional delayed repayment start date for parent PLUS borrowers based on dependent’s enrollment status
- Extenuating circumstances for PLUS adverse credit may include delinquency of up to 180 days on mortgage or medical bill payments

## ECASLA- Loan Access Initiatives

- FFEL Lender-of-Last-Resort -
- Mandates LLR coverage for all loan types – Subsidized and Unsubsidized Stafford and PLUS for parents and graduate/professional students
- Authorizes institutional designation for LLR through June 30, 2009

## ECASLA-Loan Access Initiatives

- ED FFEL Loan Purchase Authority -
- Terms and conditions established by the Secretary in consultation with Treasury and OMB
- May produce no “net” cost to the Federal government
- Includes no advance funding for lenders

## ECASLA-Loan Access Initiatives

- Loan Purchase Commitment Program -
- ED Commitment to purchase eligible 2008-2009 FFEL loans through September 30, 2009 from any FFEL lender/holder
- Loans must be fully disbursed to be purchased
- 45-day advance notice from lender of loans to be sold

## ECASLA-Loan Access Initiatives

- Loan Participation Purchase Program -
- ED Commitment to purchase “participation interests” in eligible 2008-2009 FFEL loans
- Purchase provides liquidity to lender
- To terminate ED interest, lender repays ED by redeeming loans or selling them to ED

## ECASLA-Loan Access Initiatives

- 	Go to _[www.ifap.ed.gov](http://www.ifap.ed.gov/)_ and hit ECASLA link for ECASLA DCLs and Legislative and Legal Notices, Electronic Announcements, and Implementation Webinars on Loan Purchase Programs

## HR 6889- Loan Access Initiatives

- 	Extends Loan Purchase Programs through 2009-2010 academic year

## Higher Education Opportunity Act (HEOA)  Reauthorization of the HEA

- Signed into law August 14, 2008
- Authority for insurance of FFEL loans and to make Consolidation Loans extended to 2014
- Provisions effective August 14, 2008, unless otherwise specified

## HEOA -Implementation

- Six Hearings Concluded 10/15/09
- Notice Announcing Formation of Committees and Soliciting Nominations for Non-Federal Negotiators – 11/08
- Committees Established - 12/08
- Negotiations – 2/09 – 4/09

## HEOA -Implementation  

- NPRM Prepared/Cleared by OMB –
- 		4/09-7/09
- NPRM Published - 8/09
- Comment Period Ends – 9/09
- Final Regulations Prepared/Cleared by OMB –	9/09-10/09
- Final Regulations Published – 11/1/09

## HEOA – Lenders and GAs  

- Lender forbearance disclosures for forbearances on or after August 14, 2008:
- Impact of capitalization as interest and total interest for life of loan
- Contact every 180 days regarding capitalization and options to pay accruing interest or end forbearance

## HEOA – Lenders and GAs  

- Lender methods of granting in-school deferment includes confirmation of borrower’s enrollment status using NSLDS, if requested by school
- Required borrower notice upon loan transfer, sale, or assignment must include date of transfer and date new servicer will accept payments

## HEOA – Lenders and GAs  

- Guaranty Agency default notice for claims received on or after August 14, 2008:
- Two separate notices to borrower
- Simple and understandable terms
- Options to exit default and related costs and conditions

## HEOA – Lenders and GAs  

- Defaulted Loan Rehabilitation Consumer Credit Reporting:
- Applies to GA and all prior holders of the loan
- Required request to consumer reporting agency to remove default record
- Loan rehabilitations on or after August 14, 2008
- GA required to provide rehabilitated borrowers with economic and financial materials

## HEOA – Lenders and GAs  

- Lender Consolidation Loan Disclosures to Federal Perkins and Direct Loan borrowers at time of application:
- Must be simple and understandable
- Must include statement that simply applying does not obligate the borrower
- Information on any loss of Perkins and Direct Loan benefits upon consolidation

## HEOA – Lenders and GAs  

- Lender Consolidation Loan Disclosures to Federal Perkins and Direct Loan borrowers at time of application (cont.):
- Information on consolidation loan or repayment plans and options to change plan, options and information to prepay or pay over shorter period
- Information on consequences of default
- Must include statement that lender-based benefits may vary

## HEOA – Lenders and GAs  

- Revised and new FFEL borrower disclosures
- Required lender disclosures for each private education loan based on section 128(e) of Truth in Lending Act
- Required lender reporting and certification

## HEOA – Lenders and GAs  

- Before Loan Disbursement:
- Notice of whether lender will pay required fees
- Types of repayment plans
- Forbearance circumstances
- Types of loan forgiveness and eligibility requirements
- Notice of option to pay accrued interest and capitalization frequency if unpaid

## HEOA – Lenders and GAs  

- Before repayment:
- Timing change to no more than 150 days before first payment due date
- Name of loan servicer, if applicable
- For PLUS borrowers, repayment start date after in-school deferment
- Repayment plans and option to change plans
- Info on lender-offered repayment benefits and limits/conditions
- Options to avoid default and any associated costs
- Projected total interest and amount of any interest paid
- Resources for advice and assistance

## HEOA – Lenders and GAs  

- Sample projections for PLUS and Unsub Stafford Loans must include loan costs of paying or capitalizing accruing interest
- New disclosures during repayment for loans with first payment due date on or after July 1, 2009
- Required bill or statement for all borrowers
- Required disclosures for borrowers having difficulty making payments
- Required disclosures for delinquent borrowers

## HEOA – Lenders and GAs  

- Required lender annual reporting for preferred lender arrangements:
- ED identified minimum information to institutions and institution-affiliated organizations
- Information to ED on reasonable expenses paid to FAO staff or others with education loan responsibilities
- Required lender certification of compliance with HEOA section 120 requirements no later than February 4, 2010, and as part of lender compliance audit

## HEOA – Lenders and GAs  

- Prohibited inducement provisions revised for activities undertaken by lenders or GAs on or after August 14, 2008
- For GAs(changes):
- Prohibited payments include stock or other securities, prizes, travel, entertainment expenses, tuition payment or reimbursement, or other inducements to school or its employees, or any lender and its agents, employees, or independent contractors to secure guarantees
- School exit counseling excluded from prohibited school-required functions a GA can perform or pay to have performed

## HEOA – Lenders and GAs  

- For Lenders(changes):
- Prohibited payments same as GAs, but also includes lender payments for referrals and processing or finder’s fees, provision of information technology at below-market value, and additional financial aid funds to any school or its employees
- Consulting arrangements or contracts to provide services to lender with FAO employees or other school employees with student loan responsibilities prohibited

## HEOA – Lenders and GAs  

- For Lenders (cont.):
- School exit counseling excluded from prohibited school-required functions a lender can perform or pay to have performed
- Lender reimbursement of reasonable incurred expenses for school employee service on lender advisory boards permitted
- Payments permitted to school’s student as lender’s representative if student is otherwise employed by lender and disclosure of employment made

## HEOA – Lenders and GAs  

- GAs required to develop and make available educational programs and materials on budgeting and financial management for students and parents
- Must be presented in simple and understandable formats
- Must address cost of using high interest loans
- Programs and materials may be provided to Direct Loan only schools
- Considered default reduction activities for section 422(h)(4)(B) of HEA

## HEOA –Student Loan ProgramsBorrowers

- Estimated Financial Assistance Excludes all Veterans’ Education Benefits
- Servicemembers Civil Relief Act (SCRA) applied to FFEL and Direct Loan Borrowers
- 6% interest rate cap during active duty service beginning date of enactment
- Does not apply to PLUS endorsers

## HEOA – Borrowers

- SCRA - continued
- Borrower must make written request
- Related special allowance change for loans first disbursed on/after July 1, 2008

## HEOA – Borrowers

- PLUS Loan deferment for:
- in-school period
- up to six months for post-half-time enrollment period

## HEOA – Borrowers

- PLUS Loan deferment
- At specific request of parent PLUS borrower based on dependent’s status
- Granted automatically to grad/prof borrower for post-enrollment period with required notice

## HEOA – Borrowers

- Capitalization of PLUS Loan deferment-related accrued interest may be paid monthly or quarterly or capitalized no more frequently than quarterly for all borrowers

## HEOA – Borrowers

- PLUS Loan “adverse credit standard” clarified for special extenuating circumstances to be existing regulatory standard

## HEOA – Borrowers

- Income-Based Repayment limited to borrower with defaulted loans assigned to ED
- Rehabilitation of defaulted loans limited to one opportunity – borrower-based eligibility continues unless redefault on previously rehabilitated loan

## HEOA – Borrowers

- Loan Forgiveness expanded, if Congress  appropriates funds, for:
- Early Childhood Educators
- Nurses
- Foreign Language Specialists
- Librarians
- Higher Qualified Teachers serving students who are limited English proficient, from low-income communities, and from underrepresented populations

## HEOA – Borrowers

- Loan Forgiveness expanded, if Congress  appropriates funds, for:
- Child Welfare Workers
- Speech-Language Pathologists and Audiologists
- School Counselors
- Public Sector Employees
- Medical Specialists
- Mental Health Professionals

## HEOA – Borrowers

- Loan Forgiveness expanded, if Congress  appropriates funds, for:
- Dentists
- Nutrition Professionals
- STEM Employees
- Physical Therapists
- Occupational Therapists
- Superintendents, Principals, and other Administrators
- Civil Legal Assistance Attorneys

## HEOA – Borrowers

- Total and Permanent Disability discharge available, July 1, 2010, subject to regulations:
- If borrower unable to engage in substantial gainful activity based on documented medical or mental impairment expected to result in death, or has lasted or can be expected to last for continuous period 	of not less than 60 months
- Reinstatement authorized if new title IV loan or income exceeds poverty line

## HEOA – Borrowers

- Total and Permanent Disability discharge available for applications received on/after August 14, 2008:
- If borrower provides Department of Veterans Affairs (DVA) documentation showing DVA determination that borrower unemployable due to service-connected condition.  No other medical documentation required.

## HEOA – Borrowers via Direct Loan Program for Military Service 

- “No Interest Accrual” for no more than 60 months for Direct Loan borrowers who:
- are serving on active duty during war or other military operation or national emergency, or in qualifying National Guard duty during the same, and
- are serving in an area of hostility that qualifies for special pay

## HEOA – Borrowers via Direct Loan Program for Military Service

- FFEL borrowers may consolidate or reconsolidate FFEL consolidation loan in Direct Loan program to qualify for benefit

## HEOA – Borrowers via Direct Loan Program  

- “Public Service Job” for Direct Loan Public Service Loan Forgiveness amended:
- government job excludes time in US Congress
- jobs in public health, public interest law services, and faculty teaching in “high needs areas” clarified

## HEOA – Borrowers via Direct Loan Program  

- “Public Service Job” (cont.):
- childhood education as separate category, including Head Start and State-funded pre-kindergarten
- Applies to service on/after 10/1/2007

## HEOA – Schools  

- Institutions of Higher Education (IHE) and IHE-affiliated organizations must adopt “codes of conduct” governing relationships with financial institutions
- Specific student/family disclosure requirements for IHEs with preferred lender arrangements for FFEL and/or private education loans (minimum information requirements and model disclosure to be provided by ED)

## HEOA – Schools  

- Preferred Lender List (PLL) requirements added to institutional PPA for IHEs with PLL arrangements for title IV and/or private education loans
- Specific IHE and IHE-affiliated organization reporting requirements to ED on PLL arrangements

## HEOA – Schools  

- Specific disclosure requirements for Direct Loan schools
- Marketing limitations on preferred lender arrangements for private education loans
- New FAA professional judgment authority to offer dependent student Unsub Stafford if parent discontinues financial support and refuses to complete FAFSA

## HEOA – Schools  

- Entrance Counseling for first-time FFEL and DL borrowers added to law--consistent with regulations, except:
- Borrower’s acknowledgement of receipt and understanding required
- Must explain interest accrual/capitalization and borrower’s option to pay interest

## HEOA – Schools  

- Entrance Counseling --consistent with regulations, except:
- Must define half-time enrollment status at the school and impact of less-than-half-time status
- Must explain importance of office contacts when withdrawing
- Must provide information on NSLDS and how to access

## HEOA – Schools  

- Exit counseling requirements amended –consistent with regulations, except:
- More detailed repayment plan info required, including impact of interest paid/unpaid
- Info on impact of consolidation on repayment, including underlying loan benefits
- Options to prepay and change repayment plans
- Info on available tax benefits
- Statement that lender-based benefits vary

## HEOA – Schools  

- School cohort default rate-related disbursement waivers and exceptions amended for loans first disbursed on/after October 1, 2011-less than 15%
- School cohort default rate formula changed to use three-year period for FY 2009 and beyond with transition period

## HEOA – Schools  

- School cohort default rate penalty threshold % increased to 30% for FY 2012 and beyond
- Default prevention plan required at 30% cohort default rate

## HEOA – Schools  

- FFEL School Lender annual lender audit now requires determination that interest, special allowance, and other loan proceeds used only for need-based grants and allowable administrative and other expenses
- Also applies to annual audit of eligible lender trustee used by school

## HEOA – Schools  

- Foreign Nursing Schools eligible for FFEL loans (excludes consolidation loans) on/after July 1, 2010 if school meets certain requirements
- Secretary authorized to waive annual foreign school audit if schools received less than $500,000 in preceding year;  audit requirement for other foreign schools may be modified

## Regulations 

**Regulations**** **

## 2007-08 Negotiated Rulemaking

- Four Negotiating Sessions ending April 2008
- Consensus Reached
- NPRM — July 1, 2008
- Final Rule — October 23, 2008
- Effective Date — July 1, 2009

## 2007-08 Negotiated Rulemaking

- Public Service Loan Forgiveness
- Income-based Repayment
- Economic Hardship Deferments
- Military Service Deferments
- Not-for-Profit Loan Holder Definition
- Federal Preemption of Certain State Laws

## 2007-08 Negotiated Rulemaking Public Service Loan Forgiveness

- Direct Loan Program Borrowers ONLY
- Not in Default
- Makes 120 Monthly On-time Payments:
- After October 1, 2007
- Income-Based Repayment
- Income-Contingent Repayment
- Other Plans with a Minimum Payment Amount
- Full-time Employment in Qualifying Service

## 2007-08 Negotiated Rulemaking Income-based Repayment 

- FFEL and Direct Loan Program Borrowers
- Eligibility Tied to a “Partial Financial Hardship”
- Standard Payment Amount, AGI, Poverty Income
- Payment Attribution:
- Accrued Interest, Fees, Loan Principal
- Stafford Interest Covered for Three Years
- 25-year Loan Forgiveness

##  2007-08 Negotiated Rulemaking Economic Hardship Deferment 

- Modified the Basic Income Criterion:
- 150% of the Poverty Level Income Appropriate to Family Size
- Eliminated the Debt-to-Income Criterion:
- “20/220 Rule”

## 2007-08 Negotiated Rulemaking Military Service Deferments

- New HERA Military Service Deferment Modified by CCRAA
- New CCRAA Post-Active Duty Deferment
- Rules for Applying Benefits to Those Who Qualify for Multiple Benefits

## 2007-08 Negotiated Rulemaking Military Service Deferments

- Military Deferment revised –
- all title IV loans, not just loans made on/after July 1, 2001
- removes 3-year limit
- adds a 180-day deferment period after demobilization

## 2007-08 Negotiated Rulemaking Military Service Deferments

- New CCRAA Post-Active Duty Deferment added -
- Up to13-months of deferment for certain  borrowers in school or in grace period when called to active duty
- Terminates at return to school
- Not the same borrowers as Military Service deferment eligible

## 2007-08 Negotiated Rulemaking Not-for-Profit Loan Holder Definition

- Differential SAP Rates for Lenders/Holders
- HEA Defines an Eligible Not-for-Profit Holder:
- States/Others Eligible to Issue Tax-exempt Bonds
- Not-for-Profit Entity Under IRC 501(c)(3)
- ELT Acting on Behalf of a State or NFP Entity
- Qualifying Lender Must Have Sole Beneficial Ownership Interest

## Contact Information

- We appreciate your feedback and comments.  We can be reached at:
- Phone:  202-502-7732
- Email:   Pamela.Moran@ed.gov
- FAX:     202-502-7873