Session #63 FFEL Regulatory and Policy Update Pamela Moran Office of Postsecondary Education

2 Agenda Legislation Negotiated Rulemaking- Loans Regulations Other Regulations FFELP Forms

3 Legislation

4 Reauthorization of the Higher Education Act Third Higher Education Extension Act of 2007 (S.2258) –Extends the Higher Education Act through March 31, 2008 Senate Reauthorization Bill- S.1642 House Reauthorization Bill-H.R. 4137

5 Other Legislation HEROES Act – Reauthorized and made permanent –September 30, 2007 (P.L ) College Cost Reduction and Access Act of 2007 – September 27, 2007 (P.L )

6 College Cost Reduction and Access Act of Budget Reconciliation Loan forgiveness for: Public service employees Non-defaulted Direct Loan borrowers only Balance of principal and interest forgiven after 120 payments made after 10/1/2007

7 College Cost Reduction and Access Act of Budget Reconciliation FFEL-only borrowers authorized to seek DL Consolidation for this purpose –effective July 1, 2008 Included reconsolidation of existing FFEL Consolidation Loan

8 College Cost Reduction and Access Act of Budget Reconciliation Must repay under any combination of: - income-based repayment - income-contingent repayment - 10-year standard repayment - any DL repayment based on 10- year repayment amounts

9 College Cost Reduction and Access Act of Budget Reconciliation Must be employed in public service during 120-payment period Must be employed in public service job at time of forgiveness

10 College Cost Reduction and Access Act of Budget Reconciliation Public Service Jobs Include: Full-time job in government or emergency management Military service Public safety Public health

11 College Cost Reduction and Access Act of Budget Reconciliation Public education (including early childhood education) Law enforcement Public interest law services (including prosecution or public defense or legal advocacy in low- income communities at a non- profit organization)

12 College Cost Reduction and Access Act – Budget Reconciliation Public child care Public service for the elderly and disabled School-based library science and other school-based services

13 College Cost Reduction and Access Act – Budget Reconciliation Service at a 501(c)(3) organization Full-time faculty at a Tribal college and in other high-needs areas determined by ED

14 College Cost Reduction and Access Act of Budget Reconciliation Creates new Income-Based repayment plan for FFEL and DL borrowers (other than parent PLUS)-effective July 1, 2009 Creates partial financial hardship deferment

15 College Cost Reduction and Access Act of Budget Reconciliation Partial financial hardship = annual repayments exceed 15% of AGI minus 150% of poverty line based on family size based on standard 10-year repayment Unpaid amounts forgiven after 25 years

16 College Cost Reduction and Access Act of Budget Reconciliation New economic hardship covers borrowers with income not exceeding 150% of poverty line applicable to the borrower’s family size –effective October 1, 2007 Debt-to-income standard retained

17 College Cost Reduction and Access Act of Budget Reconciliation Reduces subsidized undergrad Stafford Loan Interest Rates in FFEL and Direct Loan Programs: –6% for loans first disbursed 7/1/2008-6/30/2009 –5.6% for loans first disbursed 7/1/2009 – 6/30/2010

18 College Cost Reduction and Access Act of Budget Reconciliation Reduces subsidized undergrad Stafford Loan Interest Rates in FFEL and Direct Loan Programs: –4.5% for loans first disbursed 7/1/2010 – 6/30/2011 –3.4% for loans first disbursed 7/1/2011 – 6/30/2012

19 College Cost Reduction and Access Act of Budget Reconciliation HERA Military Service Deferment Amended- Effective 10/1/2007 –Eliminates 3-Year Limit –Extends deferment for 180- days after demobilization –Covers all title IV loans, not just loans disbursed on/after 7/1/2001

20 College Cost Reduction and Access Act of Budget Reconciliation New Military Deferment for 13 months after service for- effective 10/1/2007: –National Guard, Reserve, and Retired Military Personnel Called to Active Duty –Enrolled or enrolled within 6 months of activation

21 College Cost Reduction and Access Act of Budget Reconciliation Parent PLUS Auction Authorized FFEL Parent PLUS Loans for new borrowers beginning July 1, 2009

22 College Cost Reduction and Access Act of Budget Reconciliation State-based auction every 2 years Origination rights limited to 2 lowest bidders

23 College Cost Reduction and Access Act of Budget Reconciliation Bids based on lender special allowance rate (SAP) Winning lender must make PLUS loans available to each parent of a dependent attending school in the State

24 College Cost Reduction and Access Act of Budget Reconciliation Secretary selects parent PLUS lender-of-last-resort (LLR) for each state

25 College Cost Reduction and Access Act of Budget Reconciliation Reduction in loan holder special allowance rate (SAP) Effective for loans first disbursed on or after October 1, 2007

26 College Cost Reduction and Access Act of Budget Reconciliation Different reductions for “for profit” and “not-for-profit” loan holders “For profit”: -- Stafford and Consolidation 0.55% Reduction -- PLUS (incl. Grad PLUS) 0.85% reduction

27 College Cost Reduction and Access Act of Budget Reconciliation “ Not-for-profit” -- Stafford and Consolidation 0.40% reduction -- PLUS (incl.Grad PLUS) 0.70% reduction

28 College Cost Reduction and Access Act of Budget Reconciliation Must be acting as “not-for- profit” on date of enactment unless waived by State “Not-for-Profit” defined as: -- a State, or a political subdivision, authority, agency, or instrumentality of State

29 College Cost Reduction and Access Act of Budget Reconciliation -- Entity described under section 150(d) of IRS Code -- Entity described under section 501 (c)(3) of IRS Code

30 College Cost Reduction and Access Act of Budget Reconciliation -- Eligible lender trustee acting on behalf of State, other State- related entity, or 150(d)(2) or 501(c)(3) entity

31 College Cost Reduction and Access Act of Budget Reconciliation Lender Default Insurance Reduced Loans first disbursed on/after October 1, 2012 Reduced from 97% to 95%

32 College Cost Reduction and Access Act of Budget Reconciliation Exceptional Performer Status Eliminated Effective for lenders/lender servicers on October 1, 2007

33 College Cost Reduction and Access Act of Budget Reconciliation Reduces GA account maintenance fee from 0.10% to 0.06%- payments received on/after October 1, 2007

34 College Cost Reduction and Access Act of Budget Reconciliation Reduces GA default collection retention to 16% - payments received on/after October 1, 2007

Negotiated Rulemaking

36 Four Negotiating Teams – Loans – NPRM 8/7/07 ACG/National Smart – NPRM 8/7/07 General Provisions NPRM 8/8/07 Accreditation – No Regulations

37 LOANS NPRM “No Consensus” on NPRM NPRM reflected what ED heard and deliberations of Secretary’s Loan Task Force

38 Regulations Calendar NPRM: June 12, 2007 Deadline for Comments: August 13, Comments Received

39 Regulations Calendar Final rules: no later than November 1, 2007 Effective date: July 1, 2008 with possible early voluntary implementation

40 Loans Issues -All Simplification of the Deferment Process Accurate & Complete Copy of Death Certificate Total and Permanent Disability NSLDS Reporting Certification of Electronic Signatures Record Retention on MPNs

41 Loans Issues – FFEL/DL Maximum Loan Period Identity Theft Grad/Prof PLUS Loan Counseling

42 Loans Issues – FFEL Prohibited Inducements Use of Preferred Lenders FFEL Loan Certification Frequency of Capitalization Eligible Lender Trustees (ELTs)

43 Loans Issues - Perkins Mandatory Assignment of Defaulted Loans Reasonable Collection Costs Definition Child and Family Services Cancellation

44 Simplified Deferment Process §§ and allows deferment based on information from another loan holder or from NSLDS if: –“New” borrower with first loan disbursed on or after July 1, 1993 – Written or verbal deferment request received

45 Simplified Deferment Process –FFEL or Direct Loan deferment already granted for same reason and same period –Loan holder has no conflicting information on borrower’s eligibility

46 Simplified Deferment Process Notice to borrower required FFEL and Direct Loan deferment may be granted only for Economic Hardship based on Perkins Loan deferment

47 Simplified Deferment Process §§ and amended to allow military service or armed forces deferment based on: - request of borrower or borrower’s representative - documentation establishing borrower eligibility

48 Simplified Deferment Process Required notice to the borrower and borrower’s representative, if applicable, that the deferment has been granted

49 Accurate and Complete Copy of a Death Certificate § for death discharges amended to allow use of an accurate and complete photocopy of a borrower ’ s death certificate

50 Accurate and Complete Copy of a Death Certificate NOTE: “ exceptional circumstances ” discharge by chief executive officer based on “ other reliable information ” unchanged

51 Total and Permanent Disability Discharges Regulations governing TPD discharges restructured in § Eligibility requirements and the discharge process clarified

52 Total and Permanent Disability Discharges Regulations: -Require TPD application submission within 90 days of date certified by physician –Define borrower’s TPD date as physician’s certification date

53 Total and Permanent Disability (TPD) Discharges –DO NOT disqualify the borrower for final discharge based on Title IV loans or earned income before the TPD date

54 Total and Permanent Disability (TPD) Discharges -DO disqualify the borrower for final discharge based on Title IV loans from TPD date until date of Secretary’s initial TPD determination and during the conditional discharge period

55 Total and Permanent Disability (TPD) Discharges –Make the Conditional Discharge Period a 3-year prospective period from TPD date

56 Total and Permanent Disability (TPD) Discharges Regulations: -Allow minimal earned income during conditional discharge period (no Title IV loans) -Require notice to borrower that no payments on loan are due during the discharge process

57 Total and Permanent Disability (TPD) Discharges –Require only return of loan payments made after the TPD date (date of physician certification of disability)

58 NSLDS Reporting Requirements §§ , and amended to require enrollment and loan status reporting (or any other Title IV- related data required by the Secretary) by Secretary’s established deadline

59 NSLDS Reporting Requirements Deadlines to be published in Federal Register Notice or DCL format

60 NSLDS Reporting Requirements FFEL guaranty agency enrollment and loan status reporting deadline to loan holders reduced from 60 to 35 days

61 Certification of Electronic Signatures on Assigned MPNs §§ and amended to require loan holders to maintain certification of creation and maintenance of E- MPN process, including borrower authentication and signature process

62 Certification of Electronic Signatures on Assigned MPNs Requires loan holders to retain an original electronically signed MPN for at least 3 years after all MPN’s loans are satisfied

63 Certification of Electronic Signatures on Assigned MPNs Upon Secretary’s request: –loan holder must provide the certification and cooperate in all activities to enforce an assigned loan, including testimony in a legal proceeding

64 Certification of Electronic Signatures on Assigned MPNs Required certification includes: -Description of borrower’s steps in executing the signed MPN –Copy of each screen the borrower saw when signing the MPN electronically

65 Certification of Electronic Signatures on Assigned FFEL Loan MPNs Required certification includes: –Description of field edits and other security measures used to ensure data integrity through the loan origination process

66 Certification of Electronic Signatures on Assigned FFEL Loan MPNs Required certification includes: –Description of storage process/systems for signed MPNs to ensure document integrity (no alterations)

67 Certification of Electronic Signatures on Assigned FFEL Loan MPNs Required certification includes: –Documentation supporting the lender’s authentication electronic signature process –All other evidence required by the Secretary

68 Certification of Electronic Signatures on Assigned FFEL Loan MPNs Documents to resolve factual disputes on assigned loans required within 10 business days of ED’s request Full and complete access to electronic records required until all MPN-derived loans satisfied

69 Record Retention Requirements on FFEL MPNs Assigned to the Department § amended to require a Guaranty Agency to submit lender disbursement records on assigned loans to ED

70 Maximum Loan Period § and amended to: Eliminate 12-month loan period maximum Provide flexibility in non-term and nonstandard term program loan certification Provide flexibility in rescheduling “stop out and return” disbursements within 180-day period.

71 Loan Counseling for Grad/Prof PLUS Borrowers § requires, before certifying PLUS, comparative info to eligible Stafford non-applicant: –PLUS/Stafford interest rates, interest accrual periods, and grace periods Opportunity for Stafford Loan must be given before receipt of PLUS Loan

72 Loan Counseling for Grad/Prof PLUS Borrowers Initial counseling required for all PLUS borrowers Exit counseling required for Stafford/PLUS combination borrowers

73 Use of Eligible Lender Trustees (ELTs) by FFEL Schools Lender definition in § amended to prohibit new ELT relationships with schools on/after September 30, 2006 § :HERA FFEL school lender limits applied to school ELT arrangements 1/1/2007

74 Frequency of Interest Capitalization in FFEL Program § amended to limit frequency of capitalization on Federal Consolidation Loans during in-school deferment period Lenders may only capitalize unpaid interest at expiration of deferment period

75 Identity Theft Discharge HERA provided for a FFEL and Direct Loan discharge if borrower’s loan eligibility was falsely certified due to the crime of identity theft Implementing Interim and Revised Final Regulations published in 2006

76 Identity Theft Discharge § defines “crime” for discharge as judicial determination by local, State, or Federal court that “crime” of identity theft has occurred and names perpetrator Requires individual did not receive or benefit from loan proceeds

77 Identity Theft Discharge No change to existing discharge eligibility requirements Upon receipt of valid identity theft report/notice alleging ID theft, lender may: –suspend credit bureau reporting on a loan for 120 days –grant a 120-day administrative forbearance

78 School FFEL Loan Certification § (f) reorganized and amended FFEL schools May Not: - Refuse/Delay certification based on choice of lender or GA - Assign lender to first-time borrower in award packaging or through other methods

79 School FFEL Loan Certification Engage in a pattern or practice of discrimination to deny FFEL access Refuse to certify or certify a reduced amount except on a case-by-case, documented basis with reason provided to borrower in writing

80 School Preferred Lender List in FFELP Background: School’s Option Allowed But Never Regulated Evolution: –Default prevention –Simplification E-transmission –Competition –Proliferation of borrower benefits

81 School Preferred Lender List in FFELP Regulations require: List must contain at least 3 unaffiliated lenders “Unaffiliated” means: –No common control or ownership –No common directors, trustees, or general partners

82 School Preferred Lender List in FFELP § requires a school to: Disclose method/criteria for lender inclusion on the list Provide comparative information on borrower benefits offered by listed lenders –Department to provide model format for school use

83 School Preferred Lender List in FFELP Include prominent statement advising borrowers that use of the school’s preferred lender not required Update at least annually

84 School Preferred Lender List in FFELP Under § , a school MUST NOT: Include lenders that were solicited and provided school or school- employee benefits, but may include lenders solicited for best borrower benefits

85 School Preferred Lender List in FFELP Under § , a school MUST NOT: Assign lender to first-time borrower Cause any unnecessary delays in certification for borrowers not using one of the school’s preferred lenders

86 FFEL Program Lender and GA Prohibited Inducements Background: Enacted as part of 1986 Amendments to HEA 1998 Amendments to HEA allowed lenders and GAs to provide assistance to schools comparable to what Secretary provides to Direct Loan schools

87 FFEL Program Lender and GA Prohibited Inducements Affects lender eligibility and participation and GA participation Prior regulations primarily reflect statutory provisions

88 FFEL Program Lender and GA Prohibited Inducements Regulations codify current interpretive and clarifying guidance on prohibited inducements and retain Prohibited and Permissible Activities format of 1989 DCL guidance (89-L-189, February 1989)

89 FFEL Program Lender and GA Prohibited Inducements Regulation introduce use of: -- “rebuttable presumption” in formal enforcement actions Expands use of Federal Trade Commission’s (FTC) “Holder Rule” to loans for all schools

90 FFEL Program Prohibited Inducements -Lenders Lender definition in § forbids an eligible lender, directly or through an agent from: - Offering directly or indirectly, points, premiums, payments or other inducements to a school or any party to secure FFEL applications or loan volume

91 FFEL Program Prohibited Inducements -Lenders Such as:  Payments to prospective borrowers, including prizes and additional financial aid

92 FFEL Program Prohibited Inducements - Lenders  Payments or other benefits to a school, school-affiliated organization, or other individual for loan apps, volume of loans, or placement on a preferred lender list  Payment and service on lender advisory boards

93 FFEL Program Prohibited Inducements - Lenders  Payments or other benefits to student lender reps on campus or other solicitors to secure loan applications from prospective borrowers

94 FFEL Program Prohibited Inducements - Lenders  Payment of referral fees, or processing fees not required to comply with federal or state law, to another lender or other party

95 FFEL Program Prohibited Inducements - Lenders  Payment of conference or training registration, transportation, and lodging costs for school or school- affiliated organization employees  Payment of entertainment expenses related to lender- sponsored activities for the same

96 FFEL Program Prohibited Inducements - Lenders  Undertaking philanthropic activities in exchange for FFEL applications, volume, or placement on a school’s preferred lender list

97 FFEL Program Prohibited Inducements - Lenders  Providing staffing services to a school, except a foreign school, other than on a short-term, non- recurring emergency basis, including compensated and third- party contractual services

98 FFEL Program Prohibited Inducements - Lenders § provides that an eligible lender may ONLY provide: Assistance to schools comparable to that provided DL schools by the Secretary

99 FFEL Program Prohibited Inducements - Lenders Support for or participation in student aid/financial literacy outreach with schools and guaranty agencies, except in- person initial and exit counseling

100 FFEL Program Prohibited Inducements - Lenders Reasonable costs of meals, refreshments, and receptions for meeting, training, or conferences if open to all attendees Toll-free numbers for FFEL info and school loan data transmission

101 FFEL Program Prohibited Inducements - Lenders Reduced origination fees (statutorily authorized) Reduced interest rates (statutorily authorized)

102 FFEL Program Prohibited Inducements - Lenders Payment of Federal Default fees (not statutorily prohibited) Borrower benefits under repayment incentive and certain loan forgiveness programs Items of nominal value

103 FFEL Program Prohibited Inducements – GAs § (e) same as lenders, except GAs permitted to pay: -- travel and lodging expenses related to school employee service on GA advisory or governing board

104 FFEL Program Prohibited Inducements – GAs -- reasonable costs of meals and refreshments for GA- sponsored training, workshops, and forums permitted

105 Negotiated Rulemaking and subsequent years Federal Register notice Fall 2007 Regional hearings in Fall 2007 Negotiating committees TBD

106 Negotiated Rulemaking Committees expected to meet January – March 2008 NPRMS in June 2008 Final regulations by November 1, 2008

107 Other Regulations and Forms

108 Revised Final Regulations 9/28/07 Part of HEA Extension – P.L Loan Discharge for 9/11 spouses and parents Interim Final Regulations – December 28, 2006

109 Revised Final Regulations 9/28/07 Revised Final Regulations – September 28, 2007 –Spouse of eligible public servant –Parent of eligible victim –Includes portion of Consolidation Loan

110 Forms MILITARY DEFERMENT (HERA) -Form Posted to IFAP June 11, 2007-GEN Requires CCRAA revisions 9/11 DISCHARGE APPLICATION - Form Posted to IFAP November 9, 2007–GEN-07-08

111 Forms Federal Consolidation Loan Application and Promissory Note -Form Posted to IFAP 3/12/07 -Requires CCRAA addendum PLUS MPN -Form approved by OMB and to be posted to IFAP with CCRAA changes

112 Forms Federal Stafford MPN -Requires CCRAA addendum Teacher Loan Forgiveness – undergoing ED review prior to entering Paperwork Act clearance process

113 Contact Information We appreciate your feedback and comments. We can be reached at: Phone:(202) Fax: (202)