**DRAFT**

**4/2/2015**

# Issue Paper 3

# Session 2:   March 31 –  April 2, 2015

# Issue:Easing the Transition of Borrowers from Rehabilitation to Servicing

**Statutory cites:**§§428F and 430(c)

**Regulatory cites:**§§682.211 and 685.205

**Summary of Change:**This change would create a mandatory administrative forbearance for borrowers who have rehabilitated their defaulted FFEL or Direct Loan Program loans. This forbearance would last for no longer than 90 days, during which time the loan holder would maintain the borrower’s payment at the rehabilitation payment amount and request that the borrower select a repayment plan for the now rehabilitated loan. The loan holder would apply the forbearance without a request of, or any documentation from, the borrower, but the borrower could decide to end the forbearance at any time.

****The request to add this issue to the agenda specifically included providing for the transfer of income and family size information from the guaranty agency to the lender that purchases the rehabilitated loan in FFEL Program. We do not believe this information is necessary for the maintenance of the borrower’s reasonable and affordable payment amount, which is the only information needed to apply the forbearance. In addition, this information could not be used to establish a borrower’s payment amount under an income-based repayment plan, because the borrower must, after rehabilitating the loan, apply for an income- based plan and supply new income documentation and a new certification of family size.

**Changes:**See regulatory text below.

**§682.211   Forbearance.**

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(g) In granting a forbearance under this section, except for a forbearance under paragraph (i)(5) or (i)(7) of this section, a lender shall grant a temporary cessation of payments, unless the borrower chooses another form of forbearance subject to paragraph (a)(1) of this section.

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(i) *Mandatory administrative forbearance.*

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(7) The lender shall grant a mandatory administrative forbearance to a borrower for a period not to exceed 90 days after the borrower has rehabilitated a defaulted loan pursuant to §682.405 by accepting payments in an amount that is equal to the final reasonable and affordable payment amount the borrower paid to rehabilitate the loan, as provided to the lender by the guaranty agency. During this time, the lender must provide information to the borrower about all available repayment plans and ask the borrower to select a repayment plan.  Interest that accrues during this period is not capitalized.

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**§685.205   Forbearance.**

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(b) *Administrative forbearance.* In certain circumstances, the Secretary grants forbearance without requiring documentation from the borrower. These circumstances include but are not limited to—

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(11) A period of up to 90 days after the borrower has rehabilitated a defaulted loan pursuant to §685.211(f) during which time the Secretary accepts payments in an amount that is equal to the final reasonable and affordable payment amount the borrower paid to rehabilitate the loan. During this time, the Secretary will provide information to the borrower about all available repayment and asks the borrower to select a repayment plan. Interest that accrues during this period is not capitalized.

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