July 1st and Other Changes

1
July 1st and Other Changes What You Need to Know
Now
Presented by Betsy Mayotte Director of
Regulatory Compliance and Privacy American
Student Assistance International Financial Aid
Conference June, 2008
2
Agenda

• Whats New H.R. 5715
• Whats Now Changes effective July 1st, 2008
• What to Expect July 1st, 2009 Changes

3

• Whats New
• Ensuring Continued Access to Student Loans Act of
  2008 (H.R.5715)

Confidential and Proprietary Information
4
Background

• Response to Student Loan credit crisis
• Senate introduced S. 2815 April 3rd.
• Ensuring Continued Access to Student Loans Act of
  2008 (H.R.5715) introduced by the House and
  amended and passed by the House Rules Committee
  on April 14
• Bill passed by the House (383 to 27) on April 17,
  2008.
• Bill passed by the Senate (unanimously) with
  amendments on April 23, 2008
• House passed bill April 24, 2008 (388-21) with
  all Senate Amendments.
• Bill signed in law by President Bush on May 7,
  2008.

Confidential and Proprietary Information
5
Background

• Effective date July 1, 2008 unless otherwise
  noted
• Waiting for Dear Colleague Letter (DCL) from
  Secretary for further guidance
• May be out by end of month (she thought in May.)
• Well have it before the effective date of July
  1st (she hoped in June..)

Confidential and Proprietary Information
6
Loan Limits

• Adds 2,000 to annual unsubsidized Stafford
  eligibility for dependant undergraduates

Confidential and Proprietary Information
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Loan Limits

• Adds 2,000 to annual unsubsidized Stafford
  eligibility for independent undergraduates and
  dependant undergraduates whos parents are denied
  PLUS loans.

Confidential and Proprietary Information
8
Loan Limits

• Undergraduate dependant aggregate loan limit
  increased
• From 23K to 31K of which no more than 23K can
  be subsidized
• Undergraduate independent or dependant with PLUS
  denial aggregate loan limit increased
• From 46K to 57,500K of which no more than 23K
  can be subsidized
• Graduate annual and aggregate loan limits have
  not changed
• Some indistinct changes regarding preparatory
  coursework
• Trigger event is loans first disbursed on or
  after July 1, 2008
• Will likely also be restricted to loans whose
  loan period contains the date of July 1st
• Earlier DCL changed health profession aggregates
  from 189,185 to 224,000.

Confidential and Proprietary Information
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PLUS Loan Changes

• Today PLUS loans go into repayment 60 days after
  the loan is fully disbursed
• Only deferred if parent or graduate borrower is
  in school at least half time
• Loans disbursed on or after July 1, 2008 go into
  repayment either
• 60 days after the loan is fully disbursed or
• Six months after the dependant for whom the loan
  was borrowed drops below ½ time enrollment status
• During this period borrower can pay interest
  monthly or quarterly or it will be capped no more
  frequently than quarterly

Confidential and Proprietary Information
10
PLUS Loan Changes

• Credit requirements for all PLUS loans include
  allowance for extenuating circumstances
  including
• Up to and including 180 delinquency on mortgage
  loan payments for the period beginning January 1,
  2007 and ending December 31st, 2009
• Not be restricted to first mortgages but is
  restricted to mortgages on primary residences
• Up to and including 180 day delinquency on
  medical payments
• Other debts not more than 89 days delinquent
  (same as today)
• Trigger is credit decisions made on or after May
  7th, 2008
• Borrowers will likely have to file appeal citing
  one of the above
• Borrowers with past denials may be able to
  reapply if loan period not completed

Confidential and Proprietary Information
11
Lender of Last Resort

• Allows institution-wide designation of LLR
• School may be required to show they are unable to
  secure lenders and
• A certain of borrowers have been rejected by
  eligible lenders
• Further guidance in anticipated DCL
• Process will likely be assisted by guarantors
• Ability to designate school-wide LLR expires June
  30th, 2009
• Student by student LLR eligibility still allowed

Confidential and Proprietary Information
12
Lender of Last Resort

• No LLR loans can include borrower benefits
  including
• Interest rate discounts
• Origination fee discounts or rebates
• Default fee discounts or rebates
• Other terms more favorable than the maximum
  allowed under the HEA for the loan type

Confidential and Proprietary Information
13
Lender of Last Resort

• Clarifies ability of ED to advance funds to GAs
  for the purpose of making LLR loans
• After loan is fully disbursed, ED will require
  subrogation to ED
• Loans will likely remain FFELP loans but unclear

Confidential and Proprietary Information
14
Lender of Last Resort

• Provides temporary authority for ED to purchase
  FFELP loans
• 1st disbursed on or after 10/1/2003 and before
  07/01/2009
• No consolidations
• Loans may continue to be serviced in the FFELP as
  long as cost is not more than DL
• Lenders must use funds for further FFELP activity

Confidential and Proprietary Information
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Miscellaneous

• Requires study of effect of increased loan limits
  on cost of education
• All provisions exempt ED from following
  negotiated rulemaking calendar except ACG/SMART
  provisions

Confidential and Proprietary Information
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Whats Now

• 2006-2007 Negotiated Rulemaking and Other Changes

17
2008-2009 Interest Rates

• Federal fixed-loan interest rates for loans first
  disbursed on or after July 1, 2008 are as
  follows
• Subsidized Stafford Loan (Undergraduate Students)
  - 6.0
• Subsidized Stafford Loan (Graduate Students)
  6.8
• Unsubsidized Stafford Loan (All) - 6.8
• FFEL PLUS Loan (All) - 8.5
• Variable rate loans made to borrowers prior to
  July 1, 2006, will decrease by more than 3
  percent on July 1st, the biggest annual decline
  in rates in the history of the program. 
• The variable loan interest rates for FFEL
  originated prior to July 1, 2006, are as follows
  
• Stafford Loans (In-School / Deferment / Grace) -
  3.61
• Stafford Loans (Repayment or Forbearance) - 4.21
  
• PLUS Loans - 5.01

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Graduate PLUS Certification

• Prior to certifying a Grad PLUS, the school must
• Determine Stafford loan eligibility
• If borrower has not requested maximum Stafford
  amount the school must
• Notify the borrower of their maximum Stafford
  eligibility
• Provide a comparison of terms between Stafford
  and Grad PLUS including when interest accrues,
  interest rates and when loans enter repayment
• Provide the borrower an opportunity to request
  Stafford funds
• Must be completed prior to certification of
  Graduate PLUS loan
• May be done via award letter

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Grad PLUS Entrance Counseling

• First time Grad PLUS borrowers must receive
  entrance prior to first disbursement
• Requirements vary depending on whether the
  borrower has Stafford loans
• General Rule there is no such thing as too much
  counseling
• Schools not required to have multiple versions of
  entrance counseling

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Grad PLUS Entrance Counseling

• All Grad Entrance Counseling must include
• Existing entrance requirements
• Average indebtedness of Grad PLUS borrowers at
  the school, or in a specific program of study or
• Average indebtedness of borrowers who have both
  Stafford and Grad PLUS loans at the school or in
  a specific program of study or
• A range of monthly payment amounts based on level
  of indebtedness

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Grad PLUS Entrance Counseling

• Grad PLUS borrower with Stafford Loans
• Prior slide info
• Average Sample repayment amount (already
  required) must include both PLUS and Stafford
• The maximum interest rates for both Stafford and
  PLUS loans
• Periods when interest accrues on both Stafford
  loan and PLUS loans and
• The point at which both Stafford and PLUS loans
  enter repayment

22
Exit Counseling

• Not required but encouraged.
• But if you have to do it anyway and
• If Stafford borrower has PLUS loans, average
  monthly payment amount must include both Stafford
  and PLUS.

23
Standardized Definitions of..

• Full time student
• Minimum 12 term hours for undergrad
• No minimum for grad
• No longer possible to be classified as two
  different status depending on Title IV program
• Half time student
• Minimum ½ workload of full time student unless
• Correspondence student carrying at least six
  credit hours per semester. Correspondence
  students are never more than ½ time

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Standardized Definitions of..

• Graduate/professional student must meet all of
  the following
• (1) Is not receiving federal aid as an
  undergraduate student for the same period of
  enrollment
• (2) Is enrolled in a program or course above the
  baccalaureate level at an institution of higher
  education, or is enrolled in a program leading to
  a first professional degree and
• (3) Has completed the equivalent of at least
  three academic years of full-time study at an
  institution of higher education, either prior to
  entrance into the program or as part of the
  program itself.
• Dual degree programs consider the student an
  undergrad for the 1st three years.

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Standardized Definitions of..

• First Professional Degree
• A degree that signifies both completion of the
  academic requirements for beginning practice in a
  given profession and a level of professional
  skill beyond that normally required for a
  bachelors degree. Professional licensure is also
  generally required.
• Examples of a first professional degree include
  but are not limited to
• Pharmacy (Pharm.D.)
• Dentistry (D.D.S. or D.M.D.),
• Veterinary Medicine (D.V.M.),
• Chiropractic (D.C. or D.C.M.),
• Law (L.L.B. or J.D.),
• Medicine (M.D.),
• Optometry (O.D.),
• Osteopathic Medicine (D.O.),
• Podiatry (D.P.M., D.P.,or Pod.D.),
• Theology (M.Div., or M.H.L.).

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Length of Loan Period

• Eliminates 12 month maximum loan period
• Does not change definition of academic year
• Provided to add greater flexibility for
  non-standard terms or shorter non-term programs
• May reduce total loan eligibility but not
  intended for single loan to span multiple years.
• School choice but must be consistent

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Affirmative Confirmation

• Definition Written confirmation from borrower of
  types and amounts of Federal loans requested
  prior to fund delivery
• School has choice to do or not choice can be
  student by student or institution-wide

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Affirmative Confirmation - Timeframes

• Cancellation notice must be sent no earlier than
  30 days before and no later than 30 days after
  funds are credited to account
• Cancellation must be requested the later of the
  1st day of the payment period or 14 days from the
  notification date
• If student/borrower requests within that
  timeframe school is required to do so

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Non-Affirmative Confirmation -Timeframes

• Cancellation Notice must be sent no earlier than
  30 days before and 7 days after fund delivery
• Cancellation must be requested within 30 days of
  cancellation notification
• School is required to comply if cancellation
  request received within this timeframe

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Language of Notice

• Cancellation notice must contain
• Actual or anticipated date of disbursement
• Amount of disbursement
• Right to cancel some or all of loan
• Procedures and deadline to cancel

31
Unclaimed Loan Funds

• If school issued check is not negotiated, funds
  must be returned to lender no more than 240 days
  from date of initial delivery attempt
• If EFT is rejected or check returned, school may
  make additional attempts at delivery within 45
  days of rejection
• If no re-attempt is made funds must be returned
  to lender within 45 days
• All funds must be returned to lender within 240
  days of initial delivery attempt

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Delivery of Funds - Check

• Notice of check availability must contain
  location of where student may pick up check
• If check has not been picked up after 21 days
  school must immediately
• Mail check to student
• Initiate EFT
• Return funds to lender

33
Bank Accounts

• Defined as An an FDIC insured account, such as
  a checking or savings account, or a similar
  account that underlies a stored-value card or
  other transaction device
• School may not require student to obtain one.
• School may assist student in obtaining one
• School must obtain written permission from
  student

34
Never Enrolled

• Definition If school is unable to document
  student attended any class during that period.
• If funds have been disbursed the school, within
  30 days, must
• Return all loan funds credited to the students
  account for that period
• Return all payments made by or on behalf of the
  student for that period up to the loan amount
  within 30 days (shorter than normal return
  timeframes)
• Any remaining outstanding monies must be reported
  to lender so final demand may be sent

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Never Enrolled

• If school knew student would not begin
  attendance, school must return funds delivered to
  student
• If funds delivered to student by lender, school
  must only notify lender. School is not
  responsible to return funds

36
Late Disbursements

• Extends time frame from 120 days to 180 days from
  the end of the loan period or withdrawal date
• Removes appeal option

37
Prior Year Charges

• School may now pay prior year charges up to 200
  with current funds
• No permission needed if for tuition, fees room or
  board
• Written permission needed for all other
  educationally related charges

38
Deferments

• Lenders may now rely on other lenders info to
  process deferments
• must be same deferment
• must be for same timeframe
• borrower must initiate
• may use NSLDS

39
Death Discharge

• Photocopies of death certificates now allowed
• Applies to FFEL, DL and Perkins
• Faxes not allowed
• Electronic Copies not allowed

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Questions..
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Inducements and Preferred Lender Lists
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Inducements - Summary

• No quid pro quo
• Lenders and guarantors given exhaustive may and
  non-exhaustive may not lists
• Lenders must bear burden of rebuttable
  presumption
• Schools could be just as guilty for soliciting
  inducements
• School also defined as alumni associations, etc
  (any organization that wouldnt exist without the
  school)

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Lenders May Not

• Offer points, premiums, payments, additional
  financial aid, prizes to a school or borrower in
  exchange for applications, referrals or volume
  percentage
• Pay or reimburse conference fees, travel, meals,
  entertainment, sporting events for schools
• Provide grants or financial contributions in
  exchange for volume
• Provide staffing other than on a short-term or
  emergency basis
• Send unsolicited mailings

44
Lenders May

• Provide financial literacy outreach, including in
  partnership with a school or guarantor, as long
  as no new loans are advertised
• May not perform in person exit or entrance
  counseling
• Provide reasonable meals in conjunction with
  industry training, or meeting, or conference
  assuming all are invited
• Provide toll free numbers for use by schools to
  obtain loan status info and to provide enrollment
  updates
• Provide reduced origination and default fees or
  interest rates

45
Lenders May

• Other borrower incentives that requires the
  borrower to make a minimum of one payment to
  receive
• Offer nominal valued marketing/advertising items
  to schools

46
Guarantors May Not

• Offer points, premiums, payments, additional
  financial aid, prizes to a school, lender or
  borrower in exchange for applications, referrals
  or volume percentage or lender volume percentage
• Pay or reimburse meals, entertainment, sporting
  events for schools or lenders
• Provide grants or financial contributions in
  exchange for volume
• Provide staffing other than on a short-term or
  emergency basis
• Send unsolicited mailings

47
Guarantors May

• Perform default aversion activities
• May not perform in person exit or entrance
  counseling
• Provide assistance to schools comparable to that
  of the Department
• Provide meals and reasonable travel in
  conjunction with training, advisory committee
  meetings or service facility tours
• Provide reasonable meals in conjunction with
  industry training, or meeting, or conference
  assuming all are invited
• Provide toll free numbers for use by schools and
  others to obtain loan info and to provide
  enrollment updates
• Offer nominal valued marketing/advertising items
  to schools or lenders

48
Preferred Lender Lists

• Allowed if
• Contains no less than 3 lenders not affiliated
  with each other
• Does not contain lenders who offered or was
  solicited to offer financial aid or other
  benefits in exchange for inclusion on the list or
  certain volume
• The list is not used to deny or impede borrower
  lender choice
• DCL GEN-07-01 Reminder

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Preferred Lender List

• If a school has one they must include on the
  list
• The method and criteria used by the school to
  select the list
• Provide comparative info regarding interest rates
  and benefits for the lenders on the list
• Ensure benefits offered are offered to all
  borrowers at the school
• A prominent statement that a borrower is not
  required to use a lender from the list

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Preferred Lender Lists

• A school may not
• Assign a lender to a first time borrower
• Not cause any unnecessary delays for borrowers
  who use a lender not on the list
• Refuse to certify or delay certifying a loan
  based on the borrowers choice of lender or
  guarantor

51
Preferred Lender Lists

• Schools who cannot find 3 lenders for a PLL may
  provide list of lenders willing to make loans to
  their students but must
• Make clear that its borrowers choice
• Must not endorse any particular lender(s)
• Consideration will be given for circumstances out
  of schools control
• Schools may also
• Provide comprehensive list of all lenders who
  made loans to schools students in past 3-5 years
• Clarification that only three lenders on any PLL
  must be unaffiliated

Confidential and Proprietary Information
52
Questions?
53
Whats Coming

• 2007-2008 Negotiated Rulemaking

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Income Based Repayment (IBR)

• Based on income AND family size
• Eligible if annual due on all federal FFEL and DL
  loans exceeds 15 of the borrowers income minus
  the poverty line for borrowers family size
• Payments are set at no more than 15 of borrowers
  AGI minus family size poverty line
• Excess interest accrual on subsidized loans is
  paid by ED for 1st three years
• Remaining balance after 25 years is forgiven
• Trigger is payments made on or after July 1, 2009
  (except in the case of income contingent
  repayment plan

55
Income Based Repayment Things to Remember

• Parent PLUS loans not eligible
• Spouses filing jointing will have both incomes
  included
• spouses filing separately will not
• Consider outstanding accrued interest
• Will cap once borrower leaves IBR or goes into a
  different status
• Many borrowers will not qualify for forgiveness
• Forgiveness amount may be taxable

56
Public Service Loan Forgiveness

• Only Direct Loan borrowers eligible
• FFEL borrowers may consolidate into DL to qualify
  for program
• Borrowers must work full time in public service
  field for 10 years
• Borrower must make 120 payments during this
  service under
• Standard 10 years repayment
• Income contingent repayment or
• Income based repayment

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Public Service Loan Forgiveness

• Examples of Eligible Fields
• Social Work
• Library Science
• Public Child Care
• Teaching at a Tribal College
• Working at a 501(c)(3)
• Teaching in a high needs area
• Emergency Management

• Government
• Military Service
• Public Safety
• Law Enforcement
• Public Interest Law
• Public Service with the Disable
• Public Service with the Elderly
• Public Health

58
Military Deferments

• Intended to synchronize all existing military
  deferments
• Biggest changes include
• Borrowers get an additional 6 months deferment
  once off active duty
• Borrowers in school get an additional 13 months
  to return to school
• All borrowers now eligible for military
  deferments
• Three year deferment limit eliminated

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Economic Hardship Deferments

• Definition changes from 100 of the poverty line
  for a family of two to 150 of the poverty line
  applicable to the borrowers family size.
• Debt burden test (used by many medical residents)
  eliminated for deferments granted on or after
  July 1, 2009

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Resources

• Bill language
• http//www.nchelp.org/elibrary/BudgetReconciliatio
  nHEAReauthorization/2007HEALegislation/BillsIntro
  duced/HR571520--20text20of20bill.pdf
• Loan Limit Chart
• http//www.nasfaa.org/PDFs/2008/5715AnnualLoanLimi
  ts.pdf
• Preferred Lender DCL
• http//www.ifap.ed.gov/dpcletters/attachments/GEN0
  806.pdf

Confidential and Proprietary Information
61
Resources

• www.ifap.ed.gov
• www.nchelp.org
• www.nasfaa.org
• www.thomas.loc.gov
• Search Deficit Reduction Act of 2005

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Street, Suite 1600 Boston, MA 02114
[phone] [phone] F A X (800)
999-0923 T D D
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