**DRAFT**

**03/26/2015**

# Issue Paper 2

**Session 2:**March 31 – April 2, 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, 682.208, and 685.202

**Summary of Change:**Expands the provisions under §682.202 and §682.208 to require loan holders to determine a borrower’s active duty military status for application of the Servicemembers Civil Relief Act (SCRA) maximum interest rate based on information from the authoritative electronic database maintained by the Department of Defense, as authorized by the Secretary. Modifies §685.202(a)(11) to provide that for Direct Loans, the Secretary applies the maximum interest rate under the SCRA upon receipt of evidence of the borrower’s active duty military service.

**§682.202   Permissible charges by lenders to borrowers.**

The charges that lenders may impose on borrowers, either directly or indirectly, are limited to the following:

(a) Interest.  

[ * * * ]

(8) *Applicability of the Servicemembers Civil Relief Act (SCRA) (50 U.S.C 527, App. sec. 207*). Notwithstanding paragraphs (a)(1) through (a)(4) of this section, effective August 14, 2008,   a loan holder must use the official electronic database maintained by the Department of Defense, as authorized by the Secretary, to identify all borrowers who are active duty service members and who qualify under paragraph §682.202(a)(8) and apply the maximum interest rate, as defined in 50 U.S.C. 527, App. section 207(d). The maximum interest rate on FFEL Program loans made prior to the borrower entering active duty status is 6 percent while the borrower is on active duty military service. For purposes of this paragraph, the interest rate includes any other charges or fees applied to the loan.

(i) The loan holder must use the information in the official electronic database to determine the borrower’s eligibility for the SCRA interest rate limit unless the borrower  demonstrates that the information in the database is not accurate by providing the loan holder with --

(1) A copy of the borrower’s military orders, or 

(2) The certification of the borrower’s military service from an authorized official, in connection with the borrower’s request for another benefit on the loan.

(ii) The loan holder must apply the SCRA interest rate limit for the longest eligible period verified with the official electronic database, a copy of the borrower’s military orders, or certification of the borrower’s military service from an authorized official.

[* * *]

**§682.208   Due diligence in servicing a loan.**

**[ * * * ]**

(j)  Effective July 1, 2016, a loan holder is required to use the  official electronic database maintained by the Department of Defense, as authorized by the Secretary, to identify all borrowers who are active duty service members and who qualify under paragraph §682.202(a)(8).

(1) The loan holder must compare its list of borrowers against the database maintained by the Department of Defense at least monthly to identify servicemembers who are in active duty status.

(2) If the borrower (or the borrower’s representative) requests the SCRA interest rate limit but does not send to the loan holder a copy of the borrower’s military orders, the loan holder must determine the borrower’s eligibility using the official electronic database maintained by the Department of Defense, as authorized by the Secretary.

(3) The loan holder must apply the SCRA interest rate limit for the longest eligible period verified with the official electronic database, a copy of the borrower’s military orders, or certification of the borrower’s military service from an authorized official.

(k)  When the loan holder determines that the borrower qualifies for the interest rate limit under §682.202(a)(8), the loan holder must use the information from the official electronic database to apply the SCRA interest rate limit to the borrower’s loan.

(1) The loan holder must notify the borrower if the SCRA interest rate limit is applied to the borrower’s loan and provide the borrower an opportunity to request additional information.

(2) The loan holder must end the application of the SCRA interest rate limit as of the borrower’s active duty status end date as reflected in the electronic database, or in other acceptable evidence under §682.202(a)(8)(i), as provided by the borrower.   

(3) (i) For PLUS loans with an endorser, the loan holder must use the official electronic database to apply, extend, or end (as applicable) the SCRA interest rate limit to the loan regardless of whether the loan holder  is currently pursuing the endorser for repayment of the loan. 

(ii) If both the borrower and the endorser are eligible for SCRA interest rate limit on a loan, the loan holder must use the earliest active duty start date and the latest active duty end date of either party to use and discontinue the SCRA interest rate limit.

(4) If either borrower on a joint consolidation loan is eligible for the SCRA interest rate limit on that loan, the loan holder must use the earliest active duty start date and the latest active duty end date to use and discontinue the SCRA interest rate limit.

(5) If the application of the SCRA interest rate limit to a loan that has already been paid in full through consolidation results in an overpayment, the holder of the loan that was paid in full must return the overpayment to the holder of the consolidation loan.

(6) For any other circumstances where application of the SCRA interest rate limit results in an overpayment on the loan, the loan holder must refund the amount of that overpayment to the borrower.

**§685.202   Charges for which Direct Loan Program borrowers are responsible.**

**(a) Interest**

**[ * * * ]**

(11) Applicability of the Servicemembers Civil Relief Act (50 U.S.C. 527, App. sec. 207). Notwithstanding paragraphs (a)(1) through (10) of this section, effective August 14, 2008, upon the Secretary's receipt of evidence of the borrower’s active duty military service, the maximum interest rate, as defined in 50 U.S.C. 527, App. section 207(d), on Direct Loan Program loans made prior to the borrower entering active duty status is 6 percent while the borrower is on active duty military service.  For purposes of this paragraph, the interest rate includes any other charges or fees applied to the loan.

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