1. 1 Federal Perkins Loan Basics Nebraska Association of Student Financial Aid Administrators April 10, 2014 Norfolk, Nebraska Presented by: Mari Krag Student Loan Service Center, North Dakota University system

2. 2 Session Rules of Etiquette Please turn off your cell phone Please turn off your cell phone If you must leave the session early, please do so as discreetly as possible If you must leave the session early, please do so as discreetly as possible Please avoid side conversations during the session Please avoid side conversations during the session Thank you for your cooperation!

3. 3 Agenda What is a Federal Perkins Student Loan? What is a Federal Perkins Student Loan? Perkins Promissory Note Perkins Promissory Note Entrance & Exit Counseling Entrance & Exit Counseling Repayment & Billing Repayment & Billing Forbearance, Deferment, Discharge & Cancellation Forbearance, Deferment, Discharge & Cancellation Collection and Default Collection and Default Assignment Assignment COHORT Default Rates COHORT Default Rates

4. 4 What is a Federal Perkins Student Loan? Perkins Student Loans are low-interest, long- term loans made by schools to assist needy students in paying for school. Perkins Student Loans are low-interest, long- term loans made by schools to assist needy students in paying for school. Federal Perkins Loan Program funds are made up of a Federal Capital Contribution (FCC) and a non-federal share provided by the school (ICC). Federal Perkins Loan Program funds are made up of a Federal Capital Contribution (FCC) and a non-federal share provided by the school (ICC).

5. 5 Perkins Loan Limits Annual Maximum Loan: Undergraduate: $5,500 Graduate: $8,000 Aggregate Maximum Loan: Undergraduate Grade levels 1 & 2: $11,000 Grade levels 3 & 4: $27,500 Graduate: $60,000 Perkins Master Promissory Note 34 CFR 674.31 For the paper MPN Go to: http://ifap.ed.gov/dpcletters/GEN1219.html http://ifap.ed.gov/dpcletters/GEN1219.html For the electronic version of the MPN Go to: http://ifap.ed.gov/dpcletters/GEN1223.html

6. 6 Disclosure, Entrance & Exit Counseling Disclosure, in writing, must be made prior to disbursement or within 30 days after. Entrance Counseling is not required, however, it can help reduce defaults. Some suggested topics for entrance counseling are: Emphasize repayment obligation Review terms of the loan Stress repayment required Review Rights & Responsibilities Consequence of Default Additional Contact Information

7. 7 Exit Counseling Exit Counseling is required Exit Counseling is required Required elements of exit counseling are: Terms & Conditions of the Loan Average anticipated monthly payment amount Debt-Management Strategies Importance of Repayment obligation Types of tax benefits that may be available Options to change repayment plans Use of an MPN Pre-payment options Forbearance, deferment, cancellation & discharge Consequences of Default Obligation to repay full amount Require current borrower information Remind borrower he/she must inform school of contact information changes Ombudsman’s Office NSLDS Loan consolidation

8. 8 Repayment & Billing Maximum Repayment Period is 10 years Minimum monthly payment amount is $40 Options for Monthly, Bimonthly or Quarterly payment plans Grace Periods Initial Grace Period: 9 months Post-Deferment Grace Period: 6 months Schools must contact borrower 3 times during grace periods at 90 days, 150 days & 240 days Interest rate is 5% per annum simple interest Interest begins to accrue when the Grace Period ends. Repayment periods may be extended for prolonged periods of illness, unemployment or low income

9. 9 OPTION’s for billing are by monthly statements, coupons, e-bills or ACH. Payment Processing Payments the school receives must be applied in the following order: * Collection Costs * Late charges (or penalty charges) * Accrued interest * Principal

10. 10 Incentive Repayment Program Reduce interest rate up to 1% if 48 consecutive monthly payments Discount up to 5% if loan paid in full before end of repayment period or with the Secretary’s approval, establish other incentive options Incentives costs must be absorbed by the school and the school must reimburse their Perkins fund for income lost as a result of the incentives.

11. 11 FORBEARANCE, DEFERMENT, DISCHARGE & CANCELLATION Forbearance is a temporary postponement of payments. Interest continues to accrue during forbearance. May be granted for 1 year at a time with a maximum of 3 years. Borrower must request forbearance. Schools may process forbearance based on a verbal request from the borrower and document the request and terms of the forbearance in the borrowers file & send the borrower confirmation.

12. 12 Deferment Deferment During deferment no payment is due and interest does not accrue. Deferments are followed by a 6 month Grace Period. Deferment for in-school, graduate fellowship, rehabilitation training, unemployment, economic hardship, military service and active duty student may be granted based on verification from the holder of another FSA loan that they have granted a deferment for the same reason and same time period on a Perkins, Direct, FFEL Stafford or Plus loan.

13. 13 Deferment and Default Deferment and Default A borrower is NOT entitled to deferment on a defaulted loan. May grant deferment if the borrower signs a new repayment agreement & school may require borrower to pay late fees, collection costs and some or all of the past due amount. Deferments for all Perkins Loans In – School – Graduate Fellowship - Rehabilitation Training - Seeking full-time employment – 3yrs Economic hardship – 3 yrs Military Service In a war, military operation or national emergency 13 month Post-Active Duty deferment

14. 14 DISCHARGING PERKINS LOANS   You must discharge the remaining balance of the loan if the borrower qualifies for one of the following:   Death   Total and Permanent Disability (non-veterans) http://ifap.ed.gov/eannouncements/070313TPDDischargeInformationImpofTP DDischargeChanges.html   Discharge for Service-Connected Disability (veterans) New on-line process for TPD through NelNet / http://www.disabilitydischarge.com/home//http://www.disabilitydischarge.com/home/ U.S. Department of Education P.O. Box 87130 Lincoln, NE 68501-7130   Closed School   Spouses of 9/11 victims   Bankruptcy Discharge

15. 15 Cancellation Borrower must submit cancellation form Concurrent deferment must be processed during period of service No cancellation allowed for services before the loan was disbursed or during the enrollment period covered by the loan May cancel a defaulted loan if the only reason for default was borrower’s failure to file cancellation request on time. If loan was accelerated only service performed PRIOR to date of acceleration can be cancelled. No cancellation for AmeriCorps recipients of a national service education award.

16. 16 Cancellation Rates: Cancellation Rates: Military, Teachers/Public Servants Military, Teachers/Public Servants 1 st & 2 nd Years = 15% 3 rd & 4 th Years = 20% 5 th Year = 30% Early Childhood Education Early Childhood Education 15% each year Volunteer Service Volunteer Service Up to 70% = 1 st & 2 nd Yrs = 15% 3 rd & 4 th Yrs = 20% A year of service consists of 12 consecutive months of service, except for teaching service, where a borrower must be full-time for a full academic year or its equivalent.

17. 17 Summary Listing of Cancellations: Summary Listing of Cancellations: Elementary and Secondary Teachers in a public or nonprofit elementary or secondary school system in a: Low-Income School or Low-Income Educational Service Agency Teacher in a Shortage Field ie: math, science, foreign languages or bilingual education or other field determined by the state as a teacher shortage field. Special-Education Teacher including teachers of infants, toddlers, children or youth with disabilities. Military Service Cancellation - for a full year of active duty in an area of hostilities or an area of imminent danger.

18. 18 Public Service Cancellations Public Service Cancellations Nurse or Medical Technician - Nurse is a licensed or registered nurse - Medical Technician is an allied health professional who is certified, registered or licensed. Firefighter Cancellation - Must be employed full-time by a federal, state or local fire fighting agency. Early Intervention (for disabled infants/toddlers Child or Family Services Faculty Member at a Tribal college or university Speech Pathologist (at Title 1 School) Librarian (at Title 1 School) Law Enforcement Public Defender

19. 19 Early Childhood Education Includes Pre-Kindergarten, Child Care, Head Start Volunteer Service Cancellation 70% cancellation allowed for service as a volunteer in Peace Corps or AmeriCorps VISTA (Americorps does not qualify unless service is with VISTA and borrower elects NOT to receive a National Service Education Award.

20. 20 Collection and Default Notices of Overdue Payments 1 st past due notice = 15 days after payment due date 2 nd past due notice = 30 days after payment due date Final Demand letter = 45 days after payment due date - must include amount of any late charge Default Reduction Assistance Program DRAP assists schools by contacting defaulted borrowers by letter All functions of the DRAP process are accessed via the eCampus- Based (eCB) website. https://cbfisap.ed.govhttps://cbfisap.ed.gov RETURNED MAIL or NO RESPONSE You must take steps to locate the borrower. If no response within 30 days of Final Notice you must try to contact the borrower by phone. Make at least two attempts on different days at different times.

21. 21 Late Charges The assessment of late charges is optional. Must assess on all overdue payments if adopts a late charge policy Charge is based on either actual costs or on average costs Charge may not exceed 20% of the installment payment Must inform borrower of the assessment of the late charge May not charge late fees once collection action begins May waive any late charges if borrower repays full past-due amount Loan Acceleration Acceleration is an option not a requirement. Must accelerate prior to assigning loan to Department. Acceleration immediately makes payable the entire outstanding balance You may accelerate if borrower misses payment, deferment, forbearance or cancellation filing date. Marks serious stage of default. Must send written acceleration notice at least 30 days in advance. Must send another notice to inform borrower of the date of acceleration including total amount due.

22. 22 Collection Procedures First collection effort Use your own personnel or hire a collection firm. If cannot collect by the end of 12 months you may litigate or make a second collection effort. Second collection effort If first used own personnel must refer to collection firm (unless state law prohibits). If first used a collection firm, use your own personnel or use a different collection firm or assign to the Department. If 2 nd collection attempt is unsuccessful you must continue to make yearly attempts to collect until – the loan is paid through litigation the loan is assigned to the Department the loan is written off

23. 23 Credit Bureau Reporting Must report defaulted loan to credit bureaus Must report any changes in the status Must respond within one month to any inquiries National Credit Bureaus that the Department has agreements with are: Trans Union Corporation1-800-888-4213 Experian1-888-397-3742 Equifax1-800-685-1111 Credit bureaus charge fees for their services, which the school or servicer are responsible to pay to use the credit bureau’s services.

24. 24 Writing off Accounts You may write off a defaulted account with a balance of less than $25 (including outstanding principal, accrued interest, collection costs and late charges). You may write off a defaulted account with a balance of less than $50 (including outstanding principal, accrued interest, collection costs and late charges) IF, for a period of two years, you have billed the borrower as required. 34 CFR 674.43(a) and 674.47(h)

25. 25 Assignment A defaulted loan may be assigned to the Department if the school has not been able to collect and… all due diligence procedures have been followed The total amount of the loan is $25 or more The loan has been accelerated. A loan may NOT be assigned if…. Borrower has received a discharge in bankruptcy If there is a judgment (unless the judgment has been entered and assigned to the United States The loan has been discharged because the borrower has died http://ifap.ed.gov/eannouncements/attachments/PerkinsAssignmentProcedures April2013.pdf

26. 26 Required Documentation for Assignment A school may be required to submit the following documents for assignment One original and one copy of assignment form Original promissory note or certified copy of the original note Copy of Repayment schedule Copies of all deferment and cancellation requests Copy of the acceleration notice to the borrower Documentation the loan has been withdrawn/returned from collection Copies of any bankruptcy pleadings Certified copy of judgment order Documentation that the school has complied with all due diligence requirements if school COHORT default rate at 20% 2 years prior to submission. Assignments are to be sent to Assignments are to be sent to: ECSI Federal Perkins Loan Servicer 181 Montour Run Road Coraopolis, PA 15108

27. 27 COHORT Default Rates For any award year in which 30 or more borrowers enter repayment COHORT default is calculated on a percentage of those borrowers who default before the end of the following award year. Example: 33 borrowers enter repayment 4 are 8 months delinquent by the end of the following award year COHORT DEFAULT RATE = 12% If the school’s COHORT default rate is … 25% or higher, the school’s FCC will be reduced to zero 50% or higher for the 3 most recent years, the school is ineligible to participate in the Federal Perkins Loan Program and must liquidate its loan portfolio. ORANGE BOOK: http://ifap.ed.gov/perkinscdrguide/1112PerkinsCDR.htmlhttp://ifap.ed.gov/perkinscdrguide/1112PerkinsCDR.html

28. 28 Reference: www.ifap.ed.gov www.ifap.ed.gov www.ifap.ed.gov

29. 29 THANK YOU! THANK YOU! Mari Krag Student Loan Service Center, NDUS Dept. 3190 PO Box 6050 Fargo ND 58108-6050 Tel: 701-231-9545 Tel: 701-231-9545 mari.krag@ndsu.edu mari.krag@ndsu.edu