Dealing with the Aftermath

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Dealing with the Aftermath
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Moderator
• Tom Wantuck Vice President, Debt Recovery for
  KHEAA and The Student Loan People.
• Todays panel
• Larry Laskey - V. P. Counsel, Van Ru Credit
  Corporation
• David Hammond Jr. - Management and Program
  Analyst
• Department of Education
• Steve Navega - American Student Assistance
• J. Chris Lang - Vice President, Client
  Partnerships and Services
• Collection Technology, Inc.

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Dealing with the HERA Aftermath in AWG
Lawrence A. Laskey V. P. Counsel, Van Ru Credit
Corporation
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Higher Education Reconciliation Act of 2006

• 15 AWG effective July 06
• Issues to consider
• Revisiting challenges
• Transition to 15
• Common Issues
• Similar to DCIA

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Debt Collection Improvement Act of 1996

• Clarity of terms
• Hearing management
• Enhanced due process

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Revisiting Old Challenges

• Burden(s) of proof
• Multiple garnishments
• Due process

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Transition issues

• 15 after 10 Notice/Order
• Due process notice and meaningful opportunity
• amount of the taking (?)
• New law v amendment

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
DCIA Transition

• New opportunity to object
• Whether at Notice (no hearing yet) or Order
  status
• But
• Continue garnishment
• Reconsiderationof renewed objections

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
HERA Transition

• Hearing is/can be timely
• Order issued or pending
• New opportunity to object?
• Two garnishments?

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Hearing Is/Can Be Timely

• Hearing before garnishment
• 10 objections apply to 15
• Inefficiency of two hearings
• Do over

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Order Issued

• Garnish 10 New Notice
• Objections
• Apply to 10?
• Untimely for 10?
• Reconsider prior objections?

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Non-Hardship Objections

• Apply to full 15
• Reconsideration?
• Timely as to 10?
• Continue 10 garnishment?
• Not the likely scenario

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Hardship Objections

• What is the objection?
• Limit the objection?
• untimely as to 10
• Reconsider (material change) prior objections
• Limit the Notice?

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Common Issues

• 60 day rule
• Burdens of proof
• Hardship standards
• Multiple garnishments
• Reconsideration

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
THANK YOU!Please be sure to complete your
conference evaluation forms after the conference!
Lawrence A. Laskey V.P. Counsel, Van Ru Credit
Corporation
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Dealing with the Aftermath
David S. Hammond Jr Management and Program
Analyst Department of Education
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
DOEs Experience

• Decisions
• Increase borrowers in GAR from 10 to 15
• Workload considerations
• System issues

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
DOEs Experience

• Increase all borrowers present and future to 15
• Create a phased approach
• Ensure that borrowers currently in process
  continued on the path initiated. 10 followed 10

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
DOEs Experience

• Borrower Education
• Letter advising of increase authority along
  with Hearing form.
• Given 30 days to Respond
• 10 day Grace period

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
DOEs Experience

• Employer Education
• Employer sent letter 40 days later if borrower
  failed to respond
• OGC developed letter to be sent to Employer
  explaining increase
• Limited capabilities to determine 10 from 15

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
DOEs Experience

• Phased approached 72,703
• 50,696 over 6mths at 10
• 12,700 transitioned each month over a 4 month
  period
• Highest dollar value first
• PIF in 36 mths excluded

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
DOEs Experience

• Second category accounts less than 6 months old
  in Garnishment
• 22,046 Phased in after the first 4 month phase
• Borrowers in this category given 30 days to object

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
DOEs Experience

• Anticipated a 75 increase in Workload roughly
  9375 borrowers who could potentially respond.
• PCAs would respond to 90 of those via Hardship
  determinations (8435)

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
DOEs Experience

• 940 Handled by DOE personnel Approximately 9000
  new orders each month in addition to those being
  converted
• ED and Contract personnel meetings to discuss
  workload increases frequent.

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
DOEs Experience

• System issues
• DCIA HEA Order
• Validation
• Letters and Process Flow

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
DOEs Experience

• System issues
• AWG subsystem redesign
• Validation-New
• Letters and Process Flow
• New Letters that gave language relative to new
  authority for increase.

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
DOEs Experience

• System issues
• Manual Process created to ensure that accounts
  stayed with the flow
• Letters
• Status in AWG subsystem
• etc

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
DOEs Experience

• Hearings Process
• PCAs evaluate whether AWG action should be used
  to collect.
• PCA Determines AWG notifies ED ED sends AWG
  notice.
• Borrower has option to request Hearing.

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
DOEs Experience

• Hearings Process
• Borrower can also request to pay voluntarily at
  15 in addition to a hearing.
• Borrower can object to Garnishment on grounds
  other than financial hardship.
• In our experience 75 are hardship claims.

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
DOEs Experience

• Hearings Process
• Until hearings process resolved borrower still
  has the ability to pay voluntarily at garnishment
  rate.
• PCAs gather information from the borrowers
• Financials
• Supporting documents
• EDs customer service contractor prepares draft
  sends to DOE personnel for final review.

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
DOEs Experience

• Letter Examples and FAQ out on FSA-Collections
  website

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
THANK YOU!Please be sure to complete your
conference evaluation forms after the conference!
David S. Hammond Jr. Management and Program
Analyst Department of Education
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New Rehabilitation Rules
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• NCHELP Debt Management Conference
• April 4-7, 2006
• Steve Navega
• American Student Assistance

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Rehab the old way
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• One voluntary reasonable and affordable full
  payment each monthreceived by the GA (or its
  agent) within 15 days of the scheduled due date
  for 12 consecutive months.

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Rehab the new way
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• 9 payments within 20 days of the due date during
  a period of 10 consecutive months.
• All loan rehab agreements beginning on or after
  7/1/2006 must incorporate 9-month standard.

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Crossover Rehabs
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• For loan rehab agreements that began prior to
  7/1/2006, a GA will have the option of
  considering a borrower to have met the new rehab
  standard if at least one of the borrowers
  payments is made on or after 7/1/2006.
• GA must treat all borrower in this situation the
  same!

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Rehab the ASA-VFA way
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• 9-month rehab 9 consecutive monthly payments of
  1 or greater of the balance.
• 12-month rehab 12 consecutive monthly payments
  with last 6 at 1 or greater.
• 15-month rehab Judgment accounts after 15
  payments sign rehab agreements, judgment
  vacated.

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Reasonable Affordable
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Based on borrowers total financial
  circumstances.
• Considers borrowers and spouses disposable
  income and reasonable and necessary expenses.
• Documented if less than 50 or monthly interest
  accrual, whichever is greater.

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Income Sensitive Rehab
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Pros repayment amount reasonable affordable
  based on borrowers financial circumstances.
  More affordable for borrower.
• Cons payment amount will increase after rehab
  loan still must amortize over 108 month period.
  Higher risk of re-default?
• Enter balance sensitive

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Balance Sensitive Rehab
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• For high balance accounts, repayment is amortized
  over consolidation loan period.
• Borrower agrees to consolidate after rehab sale.
• Pros still affordable to borrower risk of
  re-default mitigated.

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Concerns with new Rehab
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Is it better for borrowers?
• Risk of rehab re-default.
• How do we mitigate risk of re-default?
• Better counseling.
• Critical communications upon transfer.
• Utilize ACH to ensure continued repayment.

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ASA Rehabs FY00-FY06
2006 NCHELP DEBT MANAGEMENT CONFERENCE
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Rehabs as of Total Recoveries
2006 NCHELP DEBT MANAGEMENT CONFERENCE
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THANK YOU!Please be sure to complete your
conference evaluation forms after the conference!
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Steve Navega
• American Student Assistance

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Dealing with the HERA Aftermath
J. Christopher Lang Vice President, Client
Partnerships and Services Collection Technology,
Inc.
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Consolidation -Retention Excess Proceeds
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
What IS Retention ?

• Definition Guarantor retention is the dollar
  amount, expressed as a percentage, that a
  Guaranty Agency keeps (retains) of the total
  dollars collected including principal, interest
  and collection costs on a defaulted student loan
  after remitting to the Secretary, the Secretarys
  equitable share as defined in law or regulation.

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
SECTION 428 (c) (6) (6) SECRETARYS EQUITABLE
SHARE.(A) For the purpose of paragraph (2)(D),
the Secretarys equitable share of payments made
by the borrower shall be that portion of the
payments remaining after the guaranty agency with
which the Secretary has an agreement under this
subsection has deducted from such payments
(i) a percentage amount equal to the complement
of the reinsurance percentage in effect when
payment under the guaranty agreement was made
with respect to the loan and (ii) an amount
equal to 24 percent of such payments for use in
accordance with section 422B, except that,
beginning on October 1, 2003, this subparagraph
shall be applied by substituting 23 percent for
24 percent. (B) A guaranty agency shall (i)
on or after October 1, 2006 (I) not charge the
borrower collection costs in an amount in excess
of 18.5 percent of the outstanding principal and
interest of a defaulted loan that is paid off
through consolidation by the borrower under this
title and (II) remit to the Secretary a portion
of the collection charge under sub-clause (I)
equal to 8.5 percent of the outstanding principal
and interest of such defaulted loan and (ii) on
and after October 1, 2009, remit to the Secretary
the entire amount charged under clause (i)(I)
with respect to each defaulted loan that is paid
off with excess consolidation proceeds. (C) For
purposes of subparagraph (B), the term excess
consolidation proceeds means, with respect to
any guaranty agency for any Federal fiscal year
beginning on or after October 1, 2009, the
proceeds of consolidation of defaulted loans
under this title that exceed 45 percent of the
agencys total collections on defaulted loans in
such Federal fiscal year.

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
SEC. 422B. 20 U.S.C. 1072b AGENCY OPERATING
FUND

• (1) IN GENERAL.Funds in the Operating Fund shall
  be used for application processing, loan
  disbursement, enrollment and repayment status
  management, default aversion activities
  (including those described in section 422(h)(8)),
  default collection activities, school and lender
  training, financial aid awareness and related
  outreach activities, compliance monitoring, and
  other student financial aid related activities,
  as selected by the Guaranty Agency
• Retention DOES NOT Equal Collection Costs

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Math 101

• Most Famous Formula
• EMC²
• Second Most Famous Formula Make Whole
• __1__
• (1-cr)

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
What DOES this all mean?

• Guarantors now Keep 10 of Principal and
  Interest
• ( 18.5 - 8.5 10)
• Retention is 8.44
• What did he say?

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
EXAMPLE Principal and Interest (PI)
1,000 Maximum Collection Costs (MCC)
18.5 Equation (PI) x 18.5 MCC 1,000 x
.185 185 Total to Be Collected 1,000 185
1,185
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Example Principal and Interest (PI)
1,000 Guarantor Retention (GR) 10 of
(PI) Equation (PI) x .10 GR 1,000 x .10
100 Guarantor Retains 100
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
What IS Retention ?

• Definition Guarantor retention is the dollar
  amount, expressed as a percentage, that a
  Guaranty Agency keeps (retains) of the total
  dollars collected including principal, interest
  and collection costs on a defaulted student loan
  after remitting to the Secretary, the Secretarys
  equitable share as defined in law or regulation.

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Example Total Amount to Be Collected (TA)
1,185 Guarantor Retained (GR)
100 Equation GR / TA GR 100 / 1,185
0.084388 Guarantor Retention 8.44
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Still Confused?

• Prior to October 1, 2006 Guarantor Kept 18.5 of
  Principal and Interest
• On or after 10/1/2006 Guarantor Keeps 10 of
  Principal and Interest
• As of 10/1/2006 overall revenues on
  Consolidations will be reduced by 45.95

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Example GA previously kept 18.5 10/1/06 GA
will keep 10 Losing 8.5 (Secretarys
Share) 18.5 - 10 8.5 8.5 / 18.5
0.459459 Reduced Revenues 45.95
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2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Example
• GA annual Consolidation Recovery prior to 10/1/06
  in Principal and Interest was 20,000,000.
• Added Kept 18.5 Collection Cost
• 20,000,000 x .185 3,700,000
• Total annual recovery of 23,700,000
• GA Retained 3,700,000
• GR 3,700,000 /23,700,000
• GR 15.61

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2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Example (c0nt.)
• GA annual Consolidation Recovery on or after
  10/1/06 in Principal and Interest was
  20,000,000.
• Added 18.5 Collection Cost
• 20,000,000 x .185 3,700,000
• Total annual recovery of 23,700,000
• Keeps 10 of Principal and Interest
• 20,000,000 x .10 2,000,000
• 3,700,000 - 2,000,000 1,700,000 1,700,000 /
  3,700,000 45.95

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Excess Consolidation Proceeds

• SECTION 428 (c) (6) (B) A guaranty agency
  shall. . . . .
• (ii) on and after October 1, 2009, remit to the
  Secretary the entire amount charged under clause
  (i)(I) with respect to each defaulted loan that
  is paid off with excess consolidation proceeds.

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
What ARE Excess Consolidation Proceeds ?
SECTION 428 (c) (6) (ii) (C) For purposes of
subparagraph (B), the term excess consolidation
proceeds means, with respect to any guaranty
agency for any Federal fiscal year beginning on
or after October 1, 2009, the proceeds of
consolidation of defaulted loans under this title
that exceed 45 percent of the agencys total
collections on defaulted loans in such Federal
fiscal year.
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
This Means

• Federal Fiscal Year October 1 Through September
  30.
• Total Annual Collection Recoveries must consist
  of less than 45 in Consolidation Recoveries.
• Otherwise. . .

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
GA must remit ALL Collection Costs on those
excess Consolidation Recoveries to the
Secretary.(YOU KEEP 0.00 above the 45)
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
OH, By the Way

• SECTION 428 (c) (2) The guaranty agreement
• (A) shall set forth such administrative and
  fiscal procedures as may be necessary to protect
  the United States from the risk of unreasonable
  loss there under, to ensure proper and efficient
  administration of the loan insurance program, and
  to assure that due diligence will be exercised in
  the collection of loans insured under the
  program, including
• (i) a requirement that each beneficiary of
  insurance on the loan submit proof that the
  institution was contacted and other reasonable
  attempts were made to locate the borrower (when
  the location of the borrower is unknown) and
  proof that contact was made with the borrower
  (when the location is known) and
• (ii) requirements establishing procedures to
  preclude consolidation lending from being an
  excessive proportion of guaranty agency
  recoveries on defaulted loans under this part

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
By July 1, 2006

• GA must establish procedures to preclude --
• i.e. prevent prohibit exclude bar avoid
  avert stop --
• Consolidation Payments from being an excessive
  proportion of recoveries on defaulted FFEL loans.

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
THANK YOU!Please be sure to complete your
conference evaluation forms after the conference!
J. Christopher Lang Vice President, Client
Partnerships and Services
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Q A
Please be sure to complete your conference
evaluation forms after the conference!
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