# Presentation: 109284

## Institutional Title IV Loan Policy Issues

**Institutional Title IV Loan Policy Issues**

## Overview of Issues

- Administration’s FY 06 Budget Request
- All Title IV Loans
- Eligibility after Total & Permanent Disability Discharge
- Eligibility after Bankruptcy Filing
- HEROES Act and Notice

## 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
- Certifying PLUS applications from eligible lenders
- Late Disbursement Issues

## Overview of issues

- Perkins Loan Program
- PART Analysis
- Funding
- Follow-up Q&As on MPN Implementation
- Perkins Loan Consolidation Issues

## Administration FY 06 Budget  Request

- Direct taxpayer resources to students with the most need-Increase and expand Pell
- Provide significant program improvements
- Save taxpayer’s money by eliminating funding for ineffective programs

## Administration’s FY 06 Budget  Request

- Federal Perkins Loan Program
- End new Perkins lending
- Offset by increased FFEL/DL loan limits
- Recall of Federal Portion of Revolving Funds
- Essential to increasing Pell Grants
- Develop Plan to Recall Outstanding Loans
- Assignment of outstanding loans to ED

## Administration’s FY 06 Budget Request

- FFEL and Direct Loan Programs
- Increase undergraduate annual loan limits
- 1st year subsidized - $2625 to $3500
- 2nd year subsidized - $3500 to $4500
- Beyond 2nd year – subsidized remains $5500
- Maintain $4000/$5000 unsubsidized
- Increase undergraduate aggregate limits
- Undergraduate subsidized - $23,000 to $25,000
- Undergraduate total - $46,000 to $48,000

## Administration’s FY 06 Budget Request

- FFEL and Direct Loan Programs (cont.)
- Maintain graduate subsidized limits at $8500 annually
- Increase graduate unsubsidized limits from $10,000 to $12,000
- Increase graduate total annual loan limits from $18,500 to $20,500
- Increase graduate aggregate limits from $138,500 to $146,500

## Administration’s FY 06 Budget Request

- FFEL and Direct Loan Programs (cont.)
- Reestablish low-default waivers
- Applies to schools with a cohort default rate under 10% for 3 years
- Waivers apply to:
- 30-day delay for first-time, first-year borrowers
- Multiple disbursements for single term loans

## Administration’s FY 06 Budget Request

- FFEL and Direct Loan Programs (cont.)
- Extend current variable interest rates for non-consolidation loans
- Extend new teacher loan forgiveness provisions permanently
- Loans for short-term training programs
- Standardize repayment plans

## Administration’s FY 06 Budget Request

- FFEL and DL Consolidation Loans
- Move from fixed interest rate (weighted average) to variable rate
- Provide reconsolidation with 1% origination fee
- Repeal single holder rule

## Administration’s FY 06 Budget Proposal

- Program Improvements:
- Make active-duty military personnel independent for need analysis
- Eliminate 50% rules for distance education to expand options for pursuing postsecondary education
- Limit loss of eligibility due to drug offenses
- Revise allocation formula for campus-based programs

## Title IV Loan Program Issues

- Eligibility after Total and Permanent Disability Discharge (TPD)
- Eligibility requirements vary depending upon date of TPD discharge as of 11/1/2000:
- 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

## Title IV Loan Program Issues

- Eligibility after TPD Discharge (cont.)
- 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 for each loan)

## Title IV Loan Program Issues

- Eligibility after TPD Discharge (cont.)
- 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

## Title IV Loan Program Issues

- Eligibility after TPD Discharge (cont.)
- 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 prom note or signed repayment schedule
- Do not certify/originate before holder confirms
- If defaulted prior to discharge, reaffirmed loan retains default status and satisfactory repayment arrangements are required

## Title IV Loan Program Issues

- Eligibility after TPD Discharge (cont.)
- Discharge on or after July 1, 2002
- If final discharge granted-same as before 7/1/2001
- If “conditional” discharge—
- Physician cert and borrower acknowledgement of 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

## Title IV Loan Program Issues

- 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 the HEA
- Eliminates bankruptcy discharge to borrowers in repayment for seven years; borrowers must prove undue hardship

## Title IV Loan Program Issues

- Eligibility After Bankruptcy Filing (cont.)
- Direct Loans – DLB04-14 and DLB 04-17
**Applies to ALL Title IV Loans**
**New MPN not required**
**No longer rejecting disbursements after filing**
**Loans are disbursements are clearly identifiable by date before and after**
**Filing borrowers remain in default w/o SRA**
**Voluntary SRA does not violate “stay of collections”**

## Title IV Loan Program Issues

- HEROES Federal Register Notice
- HEROES Bill (P.L. 108-76, August 18, 2003) authorizes ED to publish FR notice of waivers/mods to HEA and program regs for applicants and recipients of Title IV aid who are “affected individuals”
- FR Notice published December 12, 2003
- _[http://ifap.ed.gov/fregisters/fr12122003.html](http://ifap.ed.gov/fregisters/fr12122003.html)_

## Title IV Loan Program Issues

- HEROES Federal Register Notice (cont.)
- Excludes all military service from Title IV borrower’s initial grace period
- Requires loan holders keep affected individuals in an “in-school” status or “in-school” deferment
- Waives collection on defaulted loans while borrower is an affected individual
- Waives documentation/3-year limit for a military deferment

## Title IV Loan Program Issues

- HEROES Federal Register Notice (cont.)
- Military service does not interrupt service required for loan cancellation
- Military service does not interrupt required consecutive payments to rehabilitate, make satisfactory repayments arrangements to regain eligibility or consolidate
- Waives supporting documentation for initial forbearance in FFEL and DL

## Title IV Loan Program Issues

- HEROES Federal Register Notice (cont.)
- Waives written request, written agreement and supporting documentation for initial forbearance for Perkins borrowers
- Requires documentation beyond initial forbearance period
- Periods of forbearance for Perkins borrowers do not count against 3 year limit

## Federal Family Education Loan (FFEL) and Federal Direct Loan Program Issues

- “New” Teacher Loan Forgiveness
- Taxpayer—Teacher Protections Act of 2004 authorizes loan forgiveness up to $5,000 if:
- Borrower teaches five years in an elementary or secondary school with 30% or more Title I enrollment (includes all BIA schools)
- Borrower is a “highly qualified” teacher as defined in the No Child Left Behind Act

## FFEL and Direct Loan Program Issues

- “New” Teacher Loan Forgiveness (cont.)
- Loan forgiveness  of up to $17,500 authorized if teacher:
**Meets above requirements AND**
**Teaches special education in elementary or secondary school **
**	****	****	****	****OR**
**Teaches math or science in secondary school**

## FFEL and Direct Loan Program Issues

- “New” Teacher Loan Forgiveness (cont.)
- Teachers who began qualifying service before new law enacted:
- Do not have to meet new requirements for $5,000 but
- Must meet new requirements for $17,500
- DCL GEN-04-14 summarizes provisions
- DCL GEN-05-02 – Applications

## FFEL and Direct Loan Program Issues

- Loan Eligibility & Certification Issues
- Additional Unsub for Dependent Students if:
- Parent is ineligible for PLUS due to adverse credit
- Parent likely precluded from borrowing PLUS under documented exceptional circumstances
- Examine Use of Endorser for PLUS eligibility

## FFEL and Direct Loan Program Issues

- Additional Unsub for Dependent Students
- Guidelines for certifying/originating include:
- Unwillingness to borrower PLUS does NOT qualify the dependent
- FAO’s belief that parent should not borrower PLUS does NOT qualify the dependent.
- Only one parent must be denied. If both apply and one is eligible, dependent is ineligible

## FFEL and Direct Loan Program Issues

- Guidelines for certifying/originating include:
- Adverse credit denial in one year not applicable to subsequent years
- PLUS or dependent eligibility can happen any time in academic year
- Documented “Exceptional” Circumstances
- Regulatory Examples not exhaustive list

## FFEL and Direct Loan Program Issues

- Additional Unsub for Dependent Students
- Parent with limited income – low earnings, public assistance, or disability benefits
-  FFEL Program – Documented evidence lender has/will deny PLUS 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

## FFEL and Direct Loan Program Issues

- Professional Judgment: 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 GA

## FFEL and Direct Loan Program Issues

- Professional Judgment: 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 & app ($tolerance)

## FFEL and Direct Loan Program Issues

- Late Disbursements Beyond 120 Days
- Dear Colleague GEN-05-07, April 2005
- _[http://ifap.ed.gov/dpcletters/doc0672_bodyoftext.htm](http://ifap.ed.gov/dpcletters/doc0672_bodyoftext.htm)_
- Requests must be made directly by a school or its third party servicer
- School must fax request on school letterhead:
**(877) 623-5082 – COD School Relations Center**
**FAX COVER MUST READ:  Attn: FSA Support Team, “Late” Late Disbursement Approval Request**

## FFEL and Direct Loan Program Issues

- Late Disbursements Beyond 120 Days
- FFEL/DL Requests Must Include:
**Loan type**
**Certification/Origination Date**
**Loan period beginning/end dates**
**Lenders Name (FFEL) – Award ID (DL)**
**Did Student Complete Loan Period**
**If not, when did enrollment cease**
**Late first disbursement or subsequent**

## FFEL and Direct Loan Program Issues

- Late Disbursements Beyond 120 Days
- Submit a separate request for each student or parent
- Submit a separate request for each Title IV Program, except sub & unsub loans for the same student/same loan period
- Expect email approval or denial within 10 days

## Federal Perkins Loan Program

- OMB’s Perkins Loan Program Program Assessment Rating (PART)
- Government Performance & Results Act – all Federal programs to have measurable goals
- President’s Management Council developed 5-point plan to improve efficiency & effectiveness of Federal programs
- OMB developed PART assessment to assess effectiveness of Federal Programs

## Federal Perkins Loan Program

- OMB’s Perkins PART Analysis (cont.)
- Federal Perkins Loan Program rated ineffective
- Program deemed redundant and duplicative due to existence of the FFEL and Direct Loan Programs
- Funding request for new FCC was eliminated from the President’s FY05 budget request
- Elimination of the Program proposed as part of the President FY06 budget request

## Federal Perkins Loan Program

- Perkins Loan Budget/Appropriations
- President’s FY05 Budget Request (AY 05-06)
- New FCC:  0      	Cancellation $66,665,000
- Congressional FY05 Appropriation (AY 05-06)
- New FCC:   0	Cancellation:
- President’s FY06 Budget Request (AY 06-07)
- No New FCC/Cancellation; Eliminate Program
- Congressional FY 06 Appropriation (AY 06-07)
- In Progress

## Federal Perkins Loan Program

- Follow-up Q&As on MPN Implementation
- Schools may direct borrowers to secure website for required notices and disclosures (CFR 668.165(a) and 674.16(a)
- Loans included in the disclosure of “total and cumulative balance owed” to schools
- Disbursements cancelled in first 12 months
- New MPN after borrower’s bankruptcy filing

## Federal Perkins Loan Program

- Perkins Loan Consolidation Issues
- Consolidation and revolving fund cash flow
- Excess cash strategies
- Converting Perkins Loans to early repayment for FFEL in-school consolidation
- Consolidation in “in-school” or grace vs. repayment and calculation of cohort default
- Borrower information/authorizations – LVCs

## Contact Information

- Gail McLarnon
- 	Office of Postsecondary Education
- 	U.S. Department of Education
-    202-219-7048
-    _[gail.mclarnon@ed.gov](mailto:gail.mclarnon@ed.gov)_

## Slide 42