FFEL Loan Participation Program

1
FFEL Loan Participation Program

• Participation Operations Part 2
• August 8, 2008

2
Presenters

• Jeff Baker
• Director Policy Liaison Implementation
• Federal Student Aid
• U.S. Department of Education
• Jay Hurt
• Chief Financial Officer
• Federal Student Aid
• U.S. Department of Education

3

• Introduction
• Jeff Baker
• Director Policy Liaison Implementation
• Federal Student Aid
• U.S. Department of Education

4
Logistics

• Title Loan Participation Program
• Participation Operations Part 2
• Date August 8, 2008
• To Participate You Must
• Logon at URL provided in registration
  confirmation email and
• Dial in to 1-888-324-6476 Confirmation number
   MGERHARD
• Additional information on the Loan Purchase
  Programs at www.federalstudentaid.ed.gov/ffelp

5
Webinar Objectives

• Purpose To provide a high level overview of the
  operational processes involved in monthly
  reporting and to answer questions from
  Participation Operations Webinar Part 1
• Target Audience Personnel at servicers, lenders
  and custodians who are responsible for record
  keeping
• Limitations Will not include operational
  details of the Auditing requirements or winding
  down the participation, specifics regarding legal
  documents or any matters concerning the Loan
  Purchase (PUT) Commitment Program. This
  information will be provided in other formats,
  including in subsequent Webinars
• Loan Participation Operations Webinar - Part 3
  will be held on August 15, 2008

6
Legal Authorities

• Ensuring Continuing Access to Student Loans Act
  of 2008 (P.L. 110-227)
• HR 5715
• Signed by the President on May 7, 2008
• Strengthened GA Lender of Last Resort Program
• Provided Secretary authority to purchase FFEL
  loans.
• Cannot provide advanced funding to lenders
• Federal Register Notice
• Required by statute
• Draft Posted to IFAP on June 24, 2008
• Official Publication July 1, 2008

7
Program Objectives

• Ensure that eligible students and parents receive
  federal student loans for the 2008-2009 academic
  year
• Support the FFEL Program as a successful
  private/public partnership
• Ensure no net cost to the federal government

8
Two Programmatic Components

• Loan Purchase Commitment Program
• Commitment by ED to purchase eligible 2008-2009
  FFEL loans through September 30, 2009
• Called put
• Any FFEL lender/holder
• Loans must be fully disbursed to be purchased
• 45 day advance notice of loans to be sold
• EDs commitment has value in financial markets

9
Two Programmatic Components

• Loan Participation Purchase Program
• Commitment by ED to purchase participation
  interests in eligible 2008-2009 FFEL loans
  through September 30, 2009
• EDs purchase will provide immediate liquidity
• To terminate EDs participation interest lender
  repays ED with defined yield.
• Loans can be re-purchased by lender
• Loans can be sold (put) to ED

10

• Loan Participation Purchase Program Process
  Overview
• Jay Hurt
• Chief Financial Officer
• Federal Student Aid
• U.S. Department of Education

11
Agenda

• Custodian Approval Process
• Changes to Funding Request Process
• Monthly Reporting
• Monthly Rolling Forecast
• Monthly Settlement Date Report
• Monthly Loan Schedule
• Change Control Procedures
• Previous Questions/Issues
• New Questions

12
Process Overview

• New Processes
• Initial Approval Package EA 10
• Custodian Approval Process EA 14
• Pre-Approval Steps
• Funding Requests EA 16 13
• Monthly Reporting Cash Sweep
• EA 15, 17, 18
• Audits
• Existing Processes
• 799 Billing
• Form 2000 Reporting

13
Custodian Approval Process

• Custodian Approval Submission Process posted to
  website as EA 14
• Added the address and delivery instructions
• List of ED-approved custodians posted today by
  4PM and updates added everyday by 4PM
• Sponsor submission may include
• Previously approved custodian
• New proposed custodian, who must submit an
  approval package.

14
Changes to Funding Request Process

• No weekday assignments
• Still only one submission allowed per week
• Will process in order that Loan Schedule is
  received in SAIG mailbox
• Rejected files may not need to wait until the
  next week for re-submission, at the discretion of
  the Department operations staff
• Transactions with hard edits still excluded from
  submission and must be re-submitted following
  week.
• New Security Release Certification form and
  process in EA 16
• Header Field 6 (Form799PaymentReceived) has been
  deleted
• Loan Level Field definitions have been clarified

15
Monthly Reporting Cash Sweep

• Monthly Rolling Forecast in EA 15
• Treasury cash flow planning helps to reduce
  risk of payment delays
• Credit Reform Act accounting
• Must provide prior to first funding request
  payment
• Monthly Settlement Date Report in EA 17
• Reconciles to Loan Schedule
• Supports reconciliation of Departments Yield
  and Class A Participation Certificate balance by
  ED
• Use Participant Yield Rate through 9/30/2008 as
  published in EA 18 3.25
• Provides status of delinquency/default
• Supports cash activity relating to loans
• Monthly Loan Schedule supporting Monthly
  Settlement Date Report
• All cash is swept from the Collection Account and
  applied first to the Departments Yield and then
  to the Class A Certificate Balance
• May be swept via Pay.Gov more frequently if
  Settlement Date Report Loan Schedule is
  provided as of that date

16
Monthly Reporting - Matrix
17
Monthly Rolling Forecast - Example
Monthly rolling forecast covers May 2008 through
September 2009 Disbursements, Loans Redeemed, and
Loans Put information will also include unit
counts
18
Monthly Rolling Forecast - Example
Monthly rolling forecast covers May 2008 through
September 2009 Disbursements, Loans Redeemed, and
Loans Put information will also include unit
counts
19
Monthly Rolling Forecast - Example
Monthly rolling forecast covers May 2008 through
September 2009 Disbursements, Loans Redeemed, and
Loans Put information will also include unit
counts
20
Monthly Rolling Forecast - Example
Monthly rolling forecast covers May 2008 through
September 2009 Disbursements, Loans Redeemed, and
Loans Put information will also include unit
counts
21
Monthly Rolling Forecast - Example
Monthly rolling forecast covers May 2008 through
September 2009 Disbursements, Loans Redeemed, and
Loans Put information will also include unit
counts
22
Monthly Rolling Forecast

• Historical information will replace projections
  as factual information overrides forecasts as
  each month passes.

23
Monthly Settlement Date Report

• Information for each Servicer ID
• Borrower Principal and Accrued Interest balances
• Information aggregated for the Custodian ID
• Delinquency status ( and )
• Participant (i.e., Departments) Yield
  Calculation
• Using Yield Rate as published in EA 18 3.25
• Collection Activity
• Ties to CashCollections field on Loan Schedule
• 799 Payments
• Investment Income
• Distribution Summary
• Pay Participant Yield, Participant Principal,
  then Sponsor
• Class A Participant Principal Rollforward

24
Monthly Loan Schedule

• Loan Schedule in the same form as submitted on
  the Participation Purchase Request
• See EA 16 for updated details on Loan Schedule
  preparation/submission
• Must support information included in the Monthly
  Settlement Date Report
• Loan Schedule Edits EA13
• File vs. Transaction Edits
• Hard vs. Soft Edits

25
Change Control Procedures

• Forms and instructions will be updated via
  Electronic Announcement (EA) postings.
• Loan Schedule changes will be coordinated with
  you
• Proposed Loan Schedule layout edit
  modifications will be announced via EA
• EAs will include schedule for implementation
• Schedule will allow for testing with the
  Department
• Schedule will specify mandatory cutover date
• First change to occur within next 30 days

26

• Loan Participation Purchase Program
• Previous Questions/Issues

27
Loan Guaranty

• Loan Guaranty and Agency - the guaranty that was
  granted to the lender (now the Sponsor) remains
  in effect while the loan is in the Participation
  Facility, without regard to the transfer of title
  to the Custodian.
• Sponsor-Guaranty Agency relationship is
  maintained.
• When removed via a repurchase by the Sponsor, the
  guaranty remains
• When removed by a put to ED, the guaranty ends.

28
Loan Defaults

• No defaulted loans may be placed in the facility.
• When a loan becomes 255 days past due, it must be
  removed by the Sponsor from the facility, either
  by re-purchase or put to ED.
• If loan then defaults
• Normal school CDR calculation will apply.
• If loan had been repurchased normal GA CDR will
  apply.
• If loan had been put, no GA CDR.

29
Security Release

• What happens if substantiation of security
  release upon settlement of first Participation
  Purchase Request is not provided to ED?
• ED will withhold approval of subsequent
  Participation Purchase Requests until security
  release is demonstrated (i.e., custodian provides
  Security Release Certification form)

30
Consolidation of Loan

• What happens if the borrower includes a loan that
  is in the participation program in a new
  consolidation loan?
• The loan must treated as if it were repaid by the
  borrower. When funds from the consolidating
  lender (including the DL Program) are received by
  the Sponsor, they must be remitted to the
  Custodian for deposit in the Collections
  Account.
• Custodian will make appropriate adjustments to
  loan balance.

31
Legal Title and 799

• When does 799 reporting change in relation to the
  date title in the loan goes from Sponsor to
  Custodian?
• Title transfers on the same day that funding
  transfers
• Sponsor reports through date of title transfer
• Custodian reports beginning day after title
  transfer
• Note Slides from previous webinar were
  incorrect.

32
Eligible Loans

• Under clause (xv) of Eligible Loan in the MPA,
  all of the Borrowers other Stafford Loans must
  be transferred, how will this work for loans
  originated before the May 1, 2008 cut-off period?
• Per clause (xv), only the Borrowers other
  Eligible Loans are required to be participated.
  Originations before May 1, 2008 are not Eligible
  Loans and may not be participated.

33
Notice of Intent

• Suppose there are 3 holders of a loan, both the
  originating lender and current holder timely
  filed Notices of Intent to Participate but the
  intermediate holder did not. Is this loan an
  Eligible Loan?
• Yes, only the original lender and current holder
  must file the Notice of Intent to Participate in
  order to establish loan eligibility.

34
Notice of Intent

• Participation Operations Webinar 1 indicated a
  confirmation of a Notice of Intent to Participate
  would be sent within 2 business days. If I have
  submitted my Notice of Intent to Participate, but
  have not received confirmation from ED, what
  should I do?
• You should contact the FFEL Agreement Process
  Team at ffel.agreementprocess_at_ed.gov

35
Questions

• Questions may be asked now or submitted to the
  following e-mail address, starting Monday, for
  consideration in next weeks webinar
• Loan.Participation_at_ed.gov