Beyond September 11th Implementation of Disaster Relief

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Beyond September 11thImplementation of Disaster
Relief

• Laura Kowalski
• Lei Oie
• Walter Witthoff

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Dear Partner Letter Guidance

• GEN-01-11 addresses immediate needs of affected
  Title IV loan borrowers in repayment.
• GEN-01-12 describes procedures for affected
  schools requesting extensions of institutional
  reporting deadlines.
• GEN-01-13 provides guidance related to military
  mobilization.

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GEN-01-11 published September 17, 2001

• Provides info to Title IV loan holders regarding
• Forbearances for eligible borrowers,
• Collection activities and defaulted borrowers,
• Discharges, and
• Due diligence timelines.

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Borrowers Who Reside or Work in Designated
Disaster Area

• FFELP lenders authorized to grant mandatory
  administrative forbearance.
• No supporting documentation/written agreement
  required.
• Forbearance period from 9/11/2001 to 1/31/2002.

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Forbearance for Other Borrowers

• For a period that ends no later than January
  31, 2002.
• No supporting documentation or written agreement
  required.
• Must be based upon request from borrower,
  borrowers family, or another reliable source.

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Suspension of Collection Activities for Defaulted
Borrowers

• For defaulted borrowers who reside or work in the
  designated disaster area (New York
  City).
• GA authorized to suspend collection activities
  from 9/11/01 through 1/31/02.
• GA can suspend collection activities without
  borrower request.

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Death Discharges

• Encourages FFELP lenders, guaranty agencies, and
  Perkins schools to use reliable information of
  borrowers death.
• Suspension of collection activities for period
  needed to process death discharge.
• FFELP lenders not required to have ED or guaranty
  agency approval.

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Due Diligence Timelines

• Applicable for FFELP lenders, Guaranty Agencies,
  and Perkins schools for the period of 9/11/2001
  through 10/31/2001.
• ED will not enforce time-sensitive deadlines for
  loan due diligence activities.

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GEN-01-13published September 25, 2001

• Applicable for
• Persons called to active duty for National Guard
  or Ready Reserves, or
• Active duty personnel reassigned to other duty
  stations.

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Military Mobilization Loan IssuesFor borrowers
in school, in an in-school deferment, or in
grace period

• Lender must take the following actions
• Maintain loan in existing status during period of
  active duty or reassignment.
• Include time necessary for borrower to resume
  enrollment, if applicable.
• Period not to exceed a total of 3 years.

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Military Mobilization Loan IssuesFor borrowers
in repayment (other than in-school deferment)

• Loan holder must grant borrower forbearance.
• Based on request of borrower, borrowers family,
  or reliable source.
• Begins on first day of active duty, not to exceed
  one year.
• No written agreement or supporting documentation
  required.

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Military Mobilization Loan IssuesBorrowers in
default

• Loan holder must
• Cease all collection activities for expected
  period of borrowers military service through
  9/14/02, unless ED extends period.
• Resume collection activities no later than 30
  days after end of borrowers military service,
  or 9/14/02, whichever is earlier.

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Institutional Charges and Refunds

• ED strongly encourages schools to provide
• Full refund of required tuition, fees, and other
  institutional charges or
• Credit in a comparable amount against future
  charges should student later decide to
  re-enroll.

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Return of Title IV (RT4) Calculations

• If Title IV eligible student withdraws due to
  mobilization or call to active duty, school must
  do RT4 calculation.
• If school is required to return funds to Title IV
  program, it must do so.
• If overpayment of grant funds is owed by student,
  school is not required to collect.

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Soldiers and Sailors Civil Relief Act of 1940

• Provides for reduced commercial loan rates for
  certain borrowers in military service.
• This Law caps interest at 6.
• Does not include FFELP loans.

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Implementation

• Operational Considerations

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Terrorist Attacks

• Forbearance
• identifying borrowers
• forbearance request
• documentation
• forbearance period
• default prior to Sept 11
• automatic payment set-ups

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Terrorist Attacks

• Resuming Collection
• interest accrual / capitalization
• prior delinquency

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Military Mobilization

• Forbearance
• identifying borrowers
• forbearance request
• documentation
• forbearance period
• default prior to active duty
• automatic payment set-ups

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Military Mobilization

• Resuming Collection
• interest accrual / capitalization
• prior delinquency

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Military Mobilization

• Disrupted in-school / grace periods
• NSLDS reporting
• guarantor status reporting
• lender/servicer system constraints

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Defaulted Borrowers

• Ceasing Collection (Terrorist Attack or Military
  Mobilization)
• who qualifies
• identifying borrowers
• cessation period
• resuming collection activities
• automatic payment set-ups

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Defaulted Borrowers

• Review of Consecutive Payments
• no payments made
• late payments (outside of 15 day window)

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Defaulted Borrowers

• AWG payments
• notify employer to cease versus continue to
  collect
• non-compliant employers

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Defaulted Borrowers

• IRS Offset
• pre-offset notice
• whether to certify
• refunds "after-the-fact"

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Defaulted Borrowers

• New Defaults (borrower gt 270 days delinquent
  prior to Sept 11 or date called to active duty)
• claim payment
• sending the 682.410(b)(5)(vi) notice
• administrative review period
• credit bureau reporting
• collection cost assessment

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Defaulted Borrowers

• Soldiers' and Sailors' Civil Relief Act of 1940
• interest rates
• litigation

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Borrower Relief - Soldiers' and Sailors' Civil
Relief Act of 1940
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Borrower Relief - Soldiers' and Sailors' Civil
Relief Act of 1940

• 50 U. S. Code Appendix War and National Defense
  ActOct 17, 1940, CH. 888, 54 STAT. 1178This Act
  (sections 501 to 593 of the Appendix) may be
  cited as the Soldiers' and Sailors' Civil Relief
  Act of 1940

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GENERAL

• We are under no obligation to disclose
  information about the Act to our borrowers called
  to active military service.
• The Act does not totally relieve active duty
  personnel from their financial obligations. It
  suspends enforcement of these obligations until
  military service no longer affects their ability
  to repay.
• For our purposes this generally pertains to
  military personnel who incurred obligations prior
  to periods of active duty.

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Interest Rate Reduction

• For any obligation incurred before a serviceman's
  entry into active military service, the Act
  entitles the serviceman to an automatic reduction
  in the interest rate to 6 per annum.
• The payment amount must be reduced to conform to
  new rate.
• This reduction may be retroactive from the point
  he or she entered active duty.
• This would be for the period of active duty.

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Interest Rate Reduction (Cont.)

• Any interest over 6 earned following the
  beginning of active duty must be forgiven, not
  deferred.
• In this case APR rate of interest, so
  origination fees must be considered.

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Default Judgment

• The Act may prevent a creditor from taking a
  default judgment against a serviceman during his
  or her period of military service at the least
  the Act makes it difficult to do so.

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Stays

• At any point in a legal proceeding the court may
  stay proceedings if it believes that the
  borrower's military service affects his or her
  defense. This applies also to executing a
  judgment or attaching assets or garnishing
  paychecks.

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Payment Relief

• A serviceman may apply to a court to suspend
  payments. This may occur during active duty or
  within six months of its termination.

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Dependents

• A dependent of a serviceman on active duty may
  also be granted relief. This might include
  parents, spouse and children.

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Co-Borrowers

• Co-Borrowers may also be given relief.