**Issue Paper 2**

**Session 1:  February 24 – 26, 2015**

**Issue:**Establishing procedures for Federal Family Education Loan (FFEL) Program loan holders to use the Department of Defense’s Defense Manpower Data Center (DMDC) database to identify U.S. military servicemembers who may be eligible for a lower interest rate on their FFEL Program loans under the Servicemembers Civil Relief Act (SCRA).

**Statutory cites:**§428(d) of the Higher Education Act of 1965, as amended

50 U.S.C. §527, App.; Sec. 207 of the SCRA

**Regulatory cites:**§§682.202(a)(8) and 685.202(a)(11)

**Summary of issue:**

On August 14, 2008, as part of the Higher Education Opportunity Act, Congress further amended §428(d) of the Higher Education Act of 1965 (HEA), as amended, to provide that the maximum interest rate that may be charged to certain servicemembers under §207 of the Servicemembers Civil Relief Act (SCRA), 50 U.S.C. App. §527, would apply to loans made under the William D. Ford Federal Direct Loan (Direct Loan) Program and the Federal Family Education Loan (FFEL) Program. Previously, FFEL and Direct Loan program loans were not subject to the interest rate limitation of the SCRA.

The implementing regulations [§682.202(a)(8)] were published October 29, 2009, and provide that once a loan holder (the Secretary or a FFEL loan holder) receives a borrower’s written request and a copy of the borrower’s military orders, the maximum interest rate on any Direct Loan or FFEL program loan made prior to the borrower entering active duty status is six percent while the borrower is on active-duty status.

After consulting with the Department of Justice and other federal agencies, we issued a Dear Colleague Letter GEN-14-16 (August 25, 2014), and announced new procedures for identifying borrowers who are eligible for the SCRA interest rate limit on Direct Loan and FFEL program loans held by the Department.  We also authorized and encouraged FFEL program lenders and loan servicers to adopt similar procedures.  Under the new procedures, borrowers are not required to submit a written request and a copy of their military orders to establish eligibility for the benefit.  Instead, the Department’s federal loan servicers use the Department of Defense’s SCRA website (at www.dmdc.osd.mil/appj/scra) to access the DMDC database to confirm that a borrower is (or has been) in military service and the dates of service.  The Department’s servicers use this process to identify Direct Loan borrowers who are eligible for benefits under the SCRA and apply the interest rate limit to the borrower’s loans, without requiring the borrower to submit a request or provide any documentation.  A number of FFEL loan servicers are also using the DMDC database as allowed by our Dear Colleague Letter. 

Questions for consideration by the committee include:

· Should FFEL lenders and their servicers be required to regularly and proactively conduct a DMDC database match to identify borrowers who are eligible for the SCRA interest (i.e., should use of the DMDC database be the only method used to grant the SCRA interest rate limit)?

· Should borrowers be allowed to request their FFEL servicer access the DMDC database to confirm their eligibility for SCRA benefits, rather than submitting the request in writing along with a copy of the their military orders?

·  Are there circumstances under which the current regulatory approach to granting the interest rate benefit would be applicable or useful?

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