session ga-04

Session GA-04

What’s New for Guaranty Agencies and Lenders

Pamela Moran

2

Agenda

• Legislation Update

• Loan Access Initiatives

• Regulations Update

Legislation

4

Legislation Update

• Higher Education Reconciliation Act (HERA) (P.L. 109-171) – February 8, 2006

• College Cost Reduction and Access Act (CCRAA)(P.L. 110-84) – September 27, 2007

5

Legislation Update

• Ensuring Continued Access to Student Loans Act (ECASLA) (P.L. 110-227) – May 7, 2008

• Higher Education Opportunity Act (P.L. 110-315) (HEOA) – August 14, 2008

• H.R. 6889 (P. L. 110-350) – October 7, 2008

6

HERA

• Reauthorized FFEL Program until 2012

• Increased Loan Limits

• Phase-Out of Borrower Origination Fees

• Grad/Prof PLUS Introduced

7

HERA

• Aligned Repayment Plans –FFEL/DL

• Disbursement Relief – Cohort Default Rate Waivers for Schools

• Reduced PLUS Interest Rates

8

HERA

• Identity Theft Discharge

• Military Deferment

• Loan Rehabilitation Relief – FFEL/DL

9

HERA

• Consolidation Loan – Married/In-school/Early Conversion eliminated

• School-as-Lender/Use of Lender Trustee

• Lender Reduced Insurance/“Negative SAP”

10

CCRAA

• Reduced FFEL/DL Interest Rates for Undergrad Subsidized Loans

• New Income-Based Repayment Plan –FFEL/DL

• New Public Service Loan Forgiveness - DL

11

CCRAA

• Revised Deferments:– Economic Hardship – Changed

Eligibility Standards– Military Service Expanded and

Post-Active Duty Added

12

CCRAA

• Lender (Offsets):– Exceptional Performer Status Eliminated– Insurance Reduced– Loan Fees Increased– Special Allowance Payments Reduced

• Origination Auction for PLUS (First-time Parent PLUS)

13

CCRAA

• Guaranty Agency (Offsets):

– Collection Retention Allowance Reduced

– Account Maintenance Fees

14

ECASLA

• Increased FFEL/DL Annual and Aggregate Loan Limits

• Parent PLUS Grace Period/Relief

15

ECASLA

• Lender-of-Last Resort Authority Enhanced

• ED Granted Authority to Purchase Loans and Participation Interest in Loans to ensure FFEL loan access

16

ECASLA

FFEL/DL LOAN LIMITS – • New $2,000 annual Unsub Stafford loan

amount for dependent undergraduate students

• Additional $2,000 Unsub Stafford annual loan amount for dependents with no PLUS, independent undergrads, and for non-degree preparatory coursework for undergrad programs

17

ECASLA

FFEL/DL LOAN LIMITS - unchanged• $7,000 Additional Unsub Stafford for non-

degree preparatory coursework for grad/professional programs

• $7,000 Additional Unsub Stafford for non-degree teacher certification coursework

18

ECASLA

FFEL/DL LOAN LIMITS - • Increased Aggregate total for dependent

undergrads from $23,000 to $31,000 (no more than $23,000 subsidized)

• Increased Aggregate total for independent undergraduate students from $46,000 to $57,500 (no more that $23,000 subsidized)

19

ECASLA

FFEL/DL LOAN LIMITS -

• Aggregate total for graduate/professional remains at $138,500 (no more than $65,000 subsidized)

20

ECASLA

PLUS Loan Changes - • Optional delayed repayment start date for

parent PLUS borrowers based on dependent’s enrollment status

• Extenuating circumstances for PLUS adverse credit may include delinquency of up to 180 days on mortgage or medical bill payments

21

ECASLA- Loan Access Initiatives

FFEL Lender-of-Last-Resort -• Mandates LLR coverage for all loan types

– Subsidized and Unsubsidized Stafford and PLUS for parents and graduate/professional students

• Authorizes institutional designation for LLR through June 30, 2009

22

ECASLA-Loan Access Initiatives

ED FFEL Loan Purchase Authority - • Terms and conditions established by the

Secretary in consultation with Treasury and OMB

• May produce no “net” cost to the Federal government

• Includes no advance funding for lenders

23


• Loan Purchase Commitment Program - • ED Commitment to purchase eligible

2008-2009 FFEL loans through September 30, 2009 from any FFEL lender/holder

• Loans must be fully disbursed to be purchased

• 45-day advance notice from lender of loans to be sold

24


• Loan Participation Purchase Program - • ED Commitment to purchase

“participation interests” in eligible 2008-2009 FFEL loans

• Purchase provides liquidity to lender• To terminate ED interest, lender

repays ED by redeeming loans or selling them to ED

25


Go to www.ifap.ed.gov and hit ECASLA link for ECASLA DCLs and Legislative and Legal Notices, Electronic Announcements, and Implementation Webinars on Loan Purchase Programs

26

HR 6889- Loan Access Initiatives

Extends Loan Purchase Programs through 2009-2010 academic year

27

Higher Education Opportunity Act (HEOA) Reauthorization of the HEA• Signed into law August 14, 2008 • Authority for insurance of FFEL

loans and to make Consolidation Loans extended to 2014

• Provisions effective August 14, 2008, unless otherwise specified

28

HEOA -Implementation

• Six Hearings Concluded 10/15/09 • Notice Announcing Formation of

Committees and Soliciting Nominations for Non-Federal Negotiators – 11/08

• Committees Established - 12/08• Negotiations – 2/09 – 4/09

29

HEOA -Implementation

• NPRM Prepared/Cleared by OMB –4/09-7/09

• NPRM Published - 8/09• Comment Period Ends – 9/09• Final Regulations Prepared/Cleared by

OMB – 9/09-10/09• Final Regulations Published – 11/1/09

30

HEOA – Lenders and GAs

• Lender forbearance disclosures for forbearances on or after August 14, 2008:– Impact of capitalization as interest

and total interest for life of loan– Contact every 180 days regarding

capitalization and options to pay accruing interest or end forbearance

31


• Lender methods of granting in-school deferment includes confirmation of borrower’s enrollment status using NSLDS, if requested by school

• Required borrower notice upon loan transfer, sale, or assignment must include date of transfer and date new servicer will accept payments

32


• Guaranty Agency default notice for claims received on or after August 14, 2008:– Two separate notices to borrower– Simple and understandable terms– Options to exit default and related

costs and conditions

33


• Defaulted Loan Rehabilitation Consumer Credit Reporting:– Applies to GA and all prior holders of the

loan– Required request to consumer reporting

agency to remove default record– Loan rehabilitations on or after August 14,

2008• GA required to provide rehabilitated

borrowers with economic and financial materials

34


• Lender Consolidation Loan Disclosures to Federal Perkins and Direct Loan borrowers at time of application:– Must be simple and understandable– Must include statement that simply

applying does not obligate the borrower– Information on any loss of Perkins and

Direct Loan benefits upon consolidation

35


• Lender Consolidation Loan Disclosures to Federal Perkins and Direct Loan borrowers at time of application (cont.):– Information on consolidation loan or

repayment plans and options to change plan, options and information to prepay or pay over shorter period

– Information on consequences of default – Must include statement that lender-based

benefits may vary

36


• Revised and new FFEL borrower disclosures

• Required lender disclosures for each private education loan based on section 128(e) of Truth in Lending Act

• Required lender reporting and certification

37


• Before Loan Disbursement:– Notice of whether lender will pay required

fees– Types of repayment plans– Forbearance circumstances– Types of loan forgiveness and eligibility

requirements– Notice of option to pay accrued interest

and capitalization frequency if unpaid

38


• Before repayment:– Timing change to no more than 150 days before

first payment due date– Name of loan servicer, if applicable– For PLUS borrowers, repayment start date after

in-school deferment– Repayment plans and option to change plans– Info on lender-offered repayment benefits and

limits/conditions– Options to avoid default and any associated

costs– Projected total interest and amount of any

interest paid– Resources for advice and assistance

39


• Sample projections for PLUS and Unsub Stafford Loans must include loan costs of paying or capitalizing accruing interest

• New disclosures during repayment for loans with first payment due date on or after July 1, 2009– Required bill or statement for all

borrowers– Required disclosures for borrowers having

difficulty making payments– Required disclosures for delinquent

borrowers

40


• Required lender annual reporting for preferred lender arrangements:– ED identified minimum information to

institutions and institution-affiliated organizations

– Information to ED on reasonable expenses paid to FAO staff or others with education loan responsibilities

• Required lender certification of compliance with HEOA section 120 requirements no later than February 4, 2010, and as part of lender compliance audit

41


• Prohibited inducement provisions revised for activities undertaken by lenders or GAs on or after August 14, 2008

• For GAs(changes):– Prohibited payments include stock or other

securities, prizes, travel, entertainment expenses, tuition payment or reimbursement, or other inducements to school or its employees, or any lender and its agents, employees, or independent contractors to secure guarantees

– School exit counseling excluded from prohibited school-required functions a GA can perform or pay to have performed

42


• For Lenders(changes):– Prohibited payments same as GAs, but

also includes lender payments for referrals and processing or finder’s fees, provision of information technology at below-market value, and additional financial aid funds to any school or its employees

– Consulting arrangements or contracts to provide services to lender with FAO employees or other school employees with student loan responsibilities prohibited

43


• For Lenders (cont.):– School exit counseling excluded from

prohibited school-required functions a lender can perform or pay to have performed

– Lender reimbursement of reasonable incurred expenses for school employee service on lender advisory boards permitted

– Payments permitted to school’s student as lender’s representative if student is otherwise employed by lender and disclosure of employment made

44


• GAs required to develop and make available educational programs and materials on budgeting and financial management for students and parents

• Must be presented in simple and understandable formats

• Must address cost of using high interest loans

• Programs and materials may be provided to Direct Loan only schools

• Considered default reduction activities for section 422(h)(4)(B) of HEA

45

HEOA –Student Loan ProgramsBorrowers• Estimated Financial Assistance Excludes all

Veterans’ Education Benefits • Servicemembers Civil Relief Act (SCRA)

applied to FFEL and Direct Loan Borrowers– 6% interest rate cap during active duty

service beginning date of enactment– Does not apply to PLUS endorsers

46

HEOA – Borrowers

• SCRA - continued–Borrower must make written request

–Related special allowance change for loans first disbursed on/after July 1, 2008

47

HEOA – Borrowers

• PLUS Loan deferment for:– in-school period–up to six months for post-half-time enrollment period

48

HEOA – Borrowers

• PLUS Loan deferment –At specific request of parent PLUS borrower based on dependent’s status

–Granted automatically to grad/prof borrower for post-enrollment period with required notice

49

HEOA – Borrowers

• Capitalization of PLUS Loan deferment-related accrued interest may be paid monthly or quarterly or capitalized no more frequently than quarterly for all borrowers

50

HEOA – Borrowers

• PLUS Loan “adverse credit standard” clarified for special extenuating circumstances to be existing regulatory standard

51

HEOA – Borrowers

• Income-Based Repayment limited to borrower with defaulted loans assigned to ED

• Rehabilitation of defaulted loans limited to one opportunity – borrower-based eligibility continues unless redefault on previously rehabilitated loan

52

HEOA – Borrowers

• Loan Forgiveness expanded, if Congress appropriates funds, for:– Early Childhood Educators– Nurses– Foreign Language Specialists– Librarians– Higher Qualified Teachers serving

students who are limited English proficient, from low-income communities, and from underrepresented populations

53

HEOA – Borrowers

• Loan Forgiveness expanded, if Congress appropriates funds, for:– Child Welfare Workers– Speech-Language Pathologists and

Audiologists– School Counselors– Public Sector Employees– Medical Specialists– Mental Health Professionals

54

HEOA – Borrowers

• Loan Forgiveness expanded, if Congress appropriates funds, for:– Dentists– Nutrition Professionals– STEM Employees– Physical Therapists– Occupational Therapists– Superintendents, Principals, and

other Administrators – Civil Legal Assistance Attorneys

55

HEOA – Borrowers

• Total and Permanent Disability discharge available, July 1, 2010, subject to regulations: – If borrower unable to engage in

substantial gainful activity based on documented medical or mental impairment expected to result in death, or has lasted or can be expected to last for continuous period of not less than 60 months

• Reinstatement authorized if new title IV loan or income exceeds poverty line

56

HEOA – Borrowers

• Total and Permanent Disability discharge available for applications received on/after August 14, 2008: – If borrower provides Department of

Veterans Affairs (DVA) documentation showing DVA determination that borrower unemployable due to service-connected condition. No other medical documentation required.

57

HEOA – Borrowers via Direct Loan Program for Military Service • “No Interest Accrual” for no more than

60 months for Direct Loan borrowers who: – are serving on active duty during

war or other military operation or national emergency, or in qualifying National Guard duty during the same, and

– are serving in an area of hostility that qualifies for special pay

58

HEOA – Borrowers via Direct Loan Program for Military Service

• FFEL borrowers may consolidate or reconsolidate FFEL consolidation loan in Direct Loan program to qualify for benefit

59

HEOA – Borrowers via Direct Loan Program • “Public Service Job” for Direct Loan

Public Service Loan Forgiveness amended: – government job excludes time in US

Congress – jobs in public health, public interest

law services, and faculty teaching in “high needs areas” clarified

60

HEOA – Borrowers via Direct Loan Program • “Public Service Job” (cont.):

–childhood education as separate category, including Head Start and State-funded pre-kindergarten

• Applies to service on/after 10/1/2007

61

HEOA – Schools

• Institutions of Higher Education (IHE) and IHE-affiliated organizations must adopt “codes of conduct” governing relationships with financial institutions

• Specific student/family disclosure requirements for IHEs with preferred lender arrangements for FFEL and/or private education loans (minimum information requirements and model disclosure to be provided by ED)

62

HEOA – Schools

• Preferred Lender List (PLL) requirements added to institutional PPA for IHEs with PLL arrangements for title IV and/or private education loans

• Specific IHE and IHE-affiliated organization reporting requirements to ED on PLL arrangements

63

HEOA – Schools

• Specific disclosure requirements for Direct Loan schools

• Marketing limitations on preferred lender arrangements for private education loans

• New FAA professional judgment authority to offer dependent student Unsub Stafford if parent discontinues financial support and refuses to complete FAFSA

64

HEOA – Schools

• Entrance Counseling for first-time FFEL and DL borrowers added to law--consistent with regulations, except:– Borrower’s acknowledgement of

receipt and understanding required – Must explain interest

accrual/capitalization and borrower’s option to pay interest

65

HEOA – Schools

• Entrance Counseling --consistent with regulations, except:– Must define half-time enrollment

status at the school and impact of less-than-half-time status

– Must explain importance of office contacts when withdrawing

– Must provide information on NSLDS and how to access

66

HEOA – Schools

• Exit counseling requirements amended –consistent with regulations, except:– More detailed repayment plan info

required, including impact of interest paid/unpaid

– Info on impact of consolidation on repayment, including underlying loan benefits

– Options to prepay and change repayment plans

– Info on available tax benefits– Statement that lender-based benefits vary

67

HEOA – Schools

• School cohort default rate-related disbursement waivers and exceptions amended for loans first disbursed on/after October 1, 2011-less than 15%

• School cohort default rate formula changed to use three-year period for FY 2009 and beyond with transition period

68

HEOA – Schools

• School cohort default rate penalty threshold % increased to 30% for FY 2012 and beyond

• Default prevention plan required at 30% cohort default rate

69

HEOA – Schools

• FFEL School Lender annual lender audit now requires determination that interest, special allowance, and other loan proceeds used only for need-based grants and allowable administrative and other expenses

• Also applies to annual audit of eligible lender trustee used by school

70

HEOA – Schools

• Foreign Nursing Schools eligible for FFEL loans (excludes consolidation loans) on/after July 1, 2010 if school meets certain requirements

• Secretary authorized to waive annual foreign school audit if schools received less than $500,000 in preceding year; audit requirement for other foreign schools may be modified

71

Regulations

72

2007-08 Negotiated Rulemaking• Four Negotiating Sessions ending

April 2008• Consensus Reached • NPRM — July 1, 2008• Final Rule — October 23, 2008• Effective Date — July 1, 2009

73

2007-08 Negotiated Rulemaking• Public Service Loan Forgiveness• Income-based Repayment • Economic Hardship Deferments• Military Service Deferments• Not-for-Profit Loan Holder

Definition• Federal Preemption of Certain

State Laws

74

2007-08 Negotiated Rulemaking Public Service Loan Forgiveness

• Direct Loan Program Borrowers ONLY• Not in Default• Makes 120 Monthly On-time Payments:

– After October 1, 2007– Income-Based Repayment– Income-Contingent Repayment– Other Plans with a Minimum Payment

Amount• Full-time Employment in Qualifying Service

75

2007-08 Negotiated Rulemaking Income-based Repayment

• FFEL and Direct Loan Program Borrowers• Eligibility Tied to a “Partial Financial

Hardship”– Standard Payment Amount, AGI, Poverty

Income• Payment Attribution:

– Accrued Interest, Fees, Loan Principal• Stafford Interest Covered for Three Years• 25-year Loan Forgiveness

76

2007-08 Negotiated Rulemaking Economic Hardship Deferment

• Modified the Basic Income Criterion:–150% of the Poverty Level Income Appropriate to Family Size

• Eliminated the Debt-to-Income Criterion:–“20/220 Rule”

77

2007-08 Negotiated Rulemaking Military Service Deferments

• New HERA Military Service Deferment Modified by CCRAA

• New CCRAA Post-Active Duty Deferment

• Rules for Applying Benefits to Those Who Qualify for Multiple Benefits

78


• Military Deferment revised – –all title IV loans, not just loans made on/after July 1, 2001

–removes 3-year limit –adds a 180-day deferment period after demobilization

79


• New CCRAA Post-Active Duty Deferment added -

• Up to13-months of deferment for certain borrowers in school or in grace period when called to active duty

• Terminates at return to school• Not the same borrowers as Military

Service deferment eligible

80

2007-08 Negotiated Rulemaking Not-for-Profit Loan Holder Definition

• Differential SAP Rates for Lenders/Holders• HEA Defines an Eligible Not-for-Profit Holder:

– States/Others Eligible to Issue Tax-exempt Bonds

– Not-for-Profit Entity Under IRC 501(c)(3)– ELT Acting on Behalf of a State or NFP

Entity• Qualifying Lender Must Have Sole Beneficial

Ownership Interest

81

Contact Information

• We appreciate your feedback and comments. We can be reached at:– Phone: 202-502-7732– Email: [email protected]– FAX: 202-502-7873

session ga-04

Documents