1. Loan Rehabilitation and Related Collection Cost Issues
Moderator: Lynn Heineman, ACT
Presenters: Tim Fitzgibbon, NCHER
Doug St. Peters, Navient
Phillip Cervin, TG
Len Hyde, ECMC

2. What We Will Cover Tim Fitzgibbon – NCHER
BBA of 2013 – Cuts to GA rehab retention, mandatory assignment if no rehab buyers
July 1, 2014 New Regulations – new R&A rules, $5 minimum monthly payment, AWG release
July 10, 2015 DCL regarding collection costs
Pending Litigation

3. What We Will Cover Doug St. Peters – Navient
Changes to the loan rehabilitation market
Ratings downgrade of FFELP Asset Backed Securities has reduced value of rehab loans
Considerations to sell at discount or assign to ED

4. What We Will Cover Phillip Cervin – TG
Performance of post-7/1/14 rehabilitation loans, by:
Step 1 (15%) or Step 2 (R&A)
Monthly payment amount
Age of account
Use of ACH
Loan Balance
If delinquency was cured

5. What We Will Cover Len Hyde – ECMC
Revisiting the impact of the 2014 rehabilitation regulatory changes:
Changes in setup and retention rates
Impact on payment amounts
Step 1 (15%) vs. Step 2 (R&A) percentage
Treatment of 60 day collection cost rule

6. Bipartisan Budget Act of 2013
To be used as a pay-for to reach a budget agreement, the BBA of 2013 made severe cuts to revenues guaranty agencies receive for successfully rehabilitating a defaulted student loan.
GA retention reduced to zero from 18.5%.
Collection costs reduced to 16% from 18.5%
Provision requiring the assignment to ED for rehabilitation loans that cannot be sold to a private lender.

7. July 1, 2014 New Regulations
Redefined the calculation for determining a “reasonable and affordable” payment to be tied to income and allowed to be as low as $5 per month.
Step 1 caps payment at 15% of AGI, as defined in regulations.
Step 2 allows borrower to complete a financial disclosure form that can be used by the GA/PCA to calculate a potentially lower R&A amount.
Requires the release of AWG after 5th qualifying payment.

8. July 10, 2015 Dear Colleague Letter
“In this letter we restate and clarify the rules that bar a guaranty agency from charging collection costs…”
“A guaranty agency cannot charge collection costs to a defaulted borrower who, within the 60-day period following the initial notice, enters into a repayment agreement, including a rehabilitation agreement, and who honors that agreement.”
“Few borrowers in the Department's portfolio enter into repayment within that initial period.”

9. July 10, 2015 Dear Colleague Letter
In adopting the FFELP regulation in 1992, the Department:
“expressly considered guaranty agencies' years of experience under the Federal tax refund offset program;”
“required a guaranty agency to provide the borrower an initial notice and opportunity to resolve the debt in all circumstances, not just for offset purposes:” and
“required the guarantor, for the first time, to charge collection costs.”

10. July 10, 2015 Dear Colleague Letter
NCHER is gathering data from GA’s to show that ED reviewers were very much aware of the “standard” application of this provision by GA’s over two decades and hundreds of GA reviews.
OMB Circular A-133 was changed in 2010 to state that “A guaranty agency may choose not to charge collection costs to a borrower who enters into a voluntary repayment agreement with the guaranty agency during the 60-day period after notice from the guaranty agency…”

11. Litigation Tied to New DCL
Two related lawsuits, both involving USA Funds.
Bryana Bible v USA Funds: sent back to the District Court for further discovery and a decision on class certification.
USA Funds v U.S. Department of Education, alleging ED failed to follow proper administrative procedures in issuing new regulations: pending a motion to dismiss filed by ED.

12. Assignment of Rehabs to ED

13. Litigation Tied to New DCL

14. Rehabilitation Funding market Quick review
4th qtr 2008 Financial liquidity crisis - rehab funding market stopped
1st qtr Limited funding, but with steep discounts
4th qtr 2009 Market buyers increased, discounts decreased
2nd qtr 2010 Even more buyers lead to rehab purchase premiums
Funding is “normal”
7/1/2014 Department of Education new regs., including ability to assign rehabilitations if no buyer (from the 2013 Bipartisan Budget Act).
3rd qtr 2015 Bond rating agencies downgrade rehab securitization funds, funding becomes more challenging.

15. Rehabilitation Loan to Maturity
The various income-based repayment plans extend life of loan to 25 years       

16. Rehabilitation funding market today
Previous market participants are stopping further purchases
Lenders still purchasing are only doing so at a discount
Typical discount at 3%
How do lenders look at loans (segments) (90.8%-101%)
Stafford/PLUS/SLS pre 10/1/07                               Stafford/PLUS post 9/30/07                                     
Consolidation pre 4/1/06 between 4% and 5%     
Consolidation pre 4/1/06 between 5% and 6.5% (best)
Consolidation pre 4/1/06 6.5% and greater          
Consolidation pre 4/1/06 below 4%                     
Consolidation between 4/1/06 and 10/1/07         
Consolidation post 9/30/07 (worst)                    

17. Rehabilitation selling options
Selling to open market at a discount
Sell to Dept. of Ed (if no buyer)

18. TG Stats on 15% and R & A Rehabs
Month of Rehab Sale
Type of Rehab
# Sold
% Delinquent After 60 Days in Repayment
MAR15
REHAB 15%
728
30.9
REHAB R & A 82
18.3
APR15
1,324
32.9
161
36.0
MAY15
1,408
35.3
169
32.5
JUN15
1,509
31.7
236
28.4

19. TG Stats on 15% and R & A Rehabs
Month of Rehab Sale
Monthly Rehab Payment
# Sold
% Delinquent After 60 Days in Repayment
MAR15
$5.00
554
33.0
$6 to $25 52
25.0
$26 to $50
199
24.6
$51 to $100
193
25.4
$101 to $150
105
21.9
$151 to $200 67
20.9
More Than $200
144
18.1
APR15
1,027
37.5 61
29.5
111
26.1
131
27.5 92
19.6 66
15.2
141
16.3
MAY15
1,042
40.1 68
32.4 93
24.7
146
28.8
101
21.8 75
17.3
176
19.3
JUN15
1,195
34.4 96
28.1
107
29.9
148
23.6 86
24.4
28.4
156
16.7

20. TG Stats on 15% and R & A Rehabs
Month of Rehab Sale
Age of Account
# Sold
% Delinquent After 60 Days in Repayment
MAR15
1 Year or Less
288
29.2
1 to 2 Years
476
31.5
2 to 3 Years
250
24.0
3 to 4 Years
155
23.2
More Than 4 Years
145
18.6
APR15
325
33.5
600
33.2
342
36.3
197
27.9
165
19.4
MAY15
223
35.9
652
36.7
421
34.2
242
28.9
163
25.2
JUN15
27.8
629
477
32.9
308
218
20.2

21. TG Stats on 15% and R & A Rehabs
Month of Rehab Sale
Rehabilitated with ACH?
# Sold
% Delinquent After 60 Days in Repayment
MAR15 No
492
19.9
Yes
845
30.9
APR15
528
25.2
1,116
34.9
MAY15
24.8
1,178
37.6
JUN15
496
1,373
32.8

22. TG Stats on 15% and R & A Rehabs
Month of Rehab Sale
Rehab Balance
# Sold
% Delinquent After 60 Days in Repayment
MAR15
$5,000 or less
130
30.8
$5,001 to $10,000
153
28.1
$10,001 to $20,000
214
33.2
$20,001 to $30,000 99
28.3
$30,001 to $49,999
117
24.8
$50,000 to $74,999 61
24.6
$75,000 to $99,999 16
25.0
$100,000 or more 20
50.0
APR15
248
28.6
327
30.3
380
35.3
180
33.3
197
37.1 91
36.3 23
39.1 39
38.5

23. TG Stats on 15% and R & A Rehabs (continued)
Month of Rehab Sale
Rehab Balance
# Sold
% Delinquent After 60 Days in Repayment
MAY15
$5,000 or less
251
31.1
$5,001 to $10,000
342
36.8
$10,001 to $20,000
389
33.7
$20,001 to $30,000
191
36.6
$30,001 to $49,999
215
34.9
$50,000 to $74,999
102
37.3
$75,000 to $99,999 40
37.5
$100,000 or more 47
40.4
JUN15
313
29.4
32.7
447
29.5
230
33.9
216
31.9
125
28.0 32

24. TG Stats on 15% and R & A Rehabs
# Delinq
Cured?
Cured by Forb? No
Yes %
Delinq Begin
Monthly Payment
MAY15
$5.00
205
61.5
38.5
68.8
31.2
$6 to $25 18
72.2
27.8
83.3
16.7
$26 to $50 14
50.0
71.4
28.6
$51 to $100 19
57.9
42.1
73.7
26.3
$101 to $150 6
66.7
33.3
$151 to $200 7
57.1
42.9
More Than $200 12
JUN15
739
72.1
27.9
76.5
23.5 34
88.2
11.8 29
69.0
31.0
79.3
20.7 58
67.2
32.8
75.9
24.1 30
70.0
30.0 22
86.4
13.6 46
69.6
30.4
84.8
15.2
JUL15
381
82.9
17.1
86.9
13.1 21
90.5
9.5
100.0 20
90.0
10.0
94.1
5.9
97.1
2.9 16 13
69.2
30.8
85.3
14.7
91.2
8.8

25. Impact of Income Based Repayment
PIF / Repayment
Rehabilitation
PIF/Repayment
Consolidation
Rehabilitation or Consolidation
Consolidation
Rehabilitation
Rehabilitation

26. Rehabilitation Payment Trends

27. Rehabilitation Completion Rate Trends

28. Pipeline Retention Rates

29. Question & Answer Session