Lender

1
Lender Guarantor Issues (Team I) Final Rules
2009

• Ed Brandt ACS
• Laura Kowalski TG
• Nancy Masten Great Lakes
• Vicki Shipley NCHELP

2
Negotiated Rulemaking 2009

• To implement the provisions from HEOA
• Five Teams
• Team I Loans - Lender General Loan Issues
• Team II Loans School-based Loan Issues
• Teams I and II reached consensus
• Final Regulations issued on 10/28/09 (Team II)
  and 10/29/09 (Team I), generally effective 7/1/10

3
Total and Permanent Disability (TPD) Discharge
Regular

• Current definition condition of an individual
  who is unable to work and earn money due to an
  injury or illness that is expected to continue
  indefinitely or result in death
• Effective until 7/1/10
• 682.200(b)

4
TPD Discharge RegularJuly 2010 Changes

• New and revised definitionseffective 7/1/10
• Substantial gainful activitylevel of work
  performed for pay or profit that involves doing
  significant physical or mental activities, or
  combination of both
• Totally and permanently disabledthe condition of
  an individual who is unable to engage in any
  substantial gainful activity by reason of any
  medically determinable physical or mental
  impairment that
• (1) Can be expected to result in death
• (2) Has lasted for a continuous period of not
  less than 60 months or
• (3) Can be expected to last for a continuous
  period of not less than 60 months
• Trigger event applications received on or
  after
• HEA 437(a)(1) 682.200(b)

5
TPD Discharge RegularJuly 2010 Changes

• No more up-front 3-year conditional period
• If eligible, final discharge granted
• Borrower notified by Department of reinstatement
  conditions
• Department allowed to reinstate and resume
  collection on loans that have been discharged if
  borrower
• Receives a Title IV loan or TEACH grant or
• Earns income in excess of poverty line
• 682.402(c)

6
TPD Discharge RegularJuly 2010 Changes

• If loan reinstated, borrower not responsible for
  past interest
• Department will notify borrower of reasons for
  reinstatement
• Department will provide contact information for
  questions about reinstatement or if borrower
  believes the decision is made on
  incorrect information
• 682.402(c)

7
Total and Permanent Disability Veterans

• The condition of an individual who has been
  determined by the Secretary of Veterans Affairs
  to be unemployable due to a service-connected
  disability
• Borrower does not have to provide other
  documentation of disability
• HEOA change effective on date of
  enactment
• HEA 437(a)(2)

8
Total and Permanent Disability Veterans

• Borrowers who have been certified as totally and
  permanently disabled by Veterans Affairs
  automatically eligible for discharge
• Not subject to 3 year post-discharge monitoring
  period
• Must be certified as unemployable due to
  service-connected condition
• Must sign and date a TPD application
• Must provide documentation from VA
• No documentation from physician required
• 682.402(c)(8)

9
Total and Permanent Disability Veterans

• Borrower notification of discharge made by lender
  and not guarantor
• Change from NPRM to Final Rule
• Aligns with notification requirements for
  regular TPDs
• 682.402(c)(8)

10
Total and Permanent Disability Veterans

• Borrower can receive new loan after discharge but
  subject to same provisions as regular TPD
• Physicians certification that borrower can
  engage in substantial gainful activity
• Acknowledge new loan cannot be discharged for
  same condition, unless condition substantially
  deteriorates
• Final Rule Preamble, Page 55976

11
Servicemembers Civil Relief Act (SCRA) Interest
Rate Cap

• Caps the borrowers interest rate at 6 for the
  duration of the borrowers active duty service
  period
• Applies only to loans made prior to the
  borrowers military service, and to interest
  accruing on or after 8/14/08

682.202(a)(8)
12
SCRA - Definition of Interest

• Imposes the definition of interest found in
  Section 207(d) of the SCRA, which stipulates that
  interest includes any service charges, renewal
  charges, fees, or any other charges (except bona
  fide insurance) attributable to the loan

NPRM Preamble, Page 36565
13
SCRA - Co-maker/Endorser Service

• NPRM Preamble stipulates that
• If either party to a co-made loan or an endorsed
  PLUS loan is the active duty servicemember, the
  rate cap applies to the loan as a whole
• In cases where the endorser is the servicemember,
  the rate cap applies only if the endorser signed
  the Endorser Addendum to the PLUS MPN before
  entering active duty status
• NPRM Preamble, Page 36565

14
SCRA - What Final Rule Does NOT Cover

• Recalculation of monthly payment under SCRA
  section 207(a)(3), though the Department did
  acknowledge verbally during neg reg that the 50
  minimum payment still applies
• 180-day deadline for borrowers written request
  under SCRA section 207(b)(1)
• Neither provision clarified in NPRM

15
SCRA - Special Allowance

• In the case of a loan first disbursed on or after
  7/1/08, the Special Allowance rate for the period
  of the borrowers active duty military service is
  calculated in the normal fashion, but based on an
  interest rate of 6
• No new SAP codes established ED simply modified
  the edits for PLUS loans and unsub. Stafford
  loans to accommodate the 6 rate
• 682.302(h) FSA e-mail dated 8/31/09

16
TLF Changes

• Allows teaching service at educational service
  agencies that are Title I eligible
• Clarifies borrowers may not receive TLF and
  other loan forgiveness for the same service
  (double benefits) if borrower receives benefit
  under
• National and Community Service Act of 1990
• Public Service Loan Forgiveness program or
• Service in Areas of National Need
• HEA 428J(b) (c) 682.216

17
TLF Changes

• Effective date/trigger event
• Applications received on or after 8/14/08, but
  only if the consecutive five-year period includes
  qualifying service performed after the 2007-2008
  academic year
• Final Rule Preamble, Pages 55978 55979

18
PLUS Loans - Interest Capitalization

• Permits lenders/servicers to capitalize the
  unpaid interest accrued from the date of the
  first disbursement to the date repayment begins
• No quarter-end capping during this period

682.202(b)(2)(i)
19
PLUS Loans - Graduate PLUS Borrowers

• Applies to loans first disbursed on/after 7/1/08
• Requires the up-front granting of the six-month
  post-enrollment deferment period originally
  stipulated in the HEOA
• No restriction on how applied (separate deferment
  or extension of in-school deferment)
• 682.210(v)(1)(ii) Final Rule Preamble, Page
  55977

20
PLUS Loans - Parent PLUS Borrowers

• Applies to loans first disbursed on/after 7/1/08
• Allows borrower to defer their loans, upon
  request, while the dependent student for whom
  they obtained the loan is enrolled at least half
  time

682.210(v)(2)(i)
21
PLUS Loans - Parent PLUS Borrowers

• The borrower may also, upon request, defer for
  the six-month post-enrollment period (following
  the dependent students or their own enrollment)
• Again, no restriction on how applied

682.210(v)(2)(ii) Final Rule Preamble, Page
55977
22
PLUS Loans - New Administrative Forbearance

• Available to borrowers who have PLUS loans made
  prior to 7/1/08, along with PLUS loans made
  on/after 7/1/08 and/or Stafford loans
• Applies to the borrowers pre-7/1/08 PLUS loans,
  to cover the same period as the post-enrollment
  deferment on the newer PLUS loans or the
  traditional grace period on the Stafford loans
• 682.211(f)(15)

23
PLUS Loans - New Administrative Forbearance

• Can be granted up front
• If granted this way, lender/servicer must
  immediately notify the borrower and give them the
  opportunity to cancel
• Early implementation (11/1/09) authorized

682.211(f)(15) Final Rule, page 55972
24
Rehabilitation Limitations

• Loan-based borrower can only rehabilitate a
  defaulted loan once
• Allows rehabilitation for a borrower with
  previously rehabilitated defaulted loans if the
  borrower was in a rehabilitation program on or
  before 8/14/08
• Consolidation loan considered new loan and
  borrower would again be eligible to
  rehabilitate if rehabilitated underlying loans
• HEA Sec. 428F(a)(5) 682.405 Final Rule
  Preamble, Page 55979

25
Rehabilitation Reporting Requirements

• Within 45 days of the sale of a rehabilitated
  loan, the guaranty agency must
• Provide notice to the prior holder of the sale
• Request that any nationwide consumer reporting
  agency to which the default was reported remove
  the record of default from the borrowers credit
  history
• 682.405(b)

26
Rehabilitation Reporting Requirements

• Within 30 days of receiving notification from the
  guaranty agency of the rehabilitation, the prior
  holder of the loan must request that any consumer
  reporting agency to which the default claim
  payment or other equivalent record was reported,
  remove such record from the borrowers credit
  history
• 682.405(b)

27
Rehabilitation Financial and Economic Literacy

• Requires guaranty agencies to provide financial
  and economic educational materials to a borrower
  that rehabilitates his or her loans
• For loans that are rehabilitated on or after
  8/14/08
• HEA Sec. 428F(c) 682.405(c)

28
Disclosures - Electronic Delivery

• Regulations continue to allow electronic
  delivery, but...
• While confirmation of receipt is not required,
  e-mail bounces must be handled
• A link to a secured site, by itself, is not
  sufficient generic information, at least, must
  be provided in the e-mail itself

NPRM Preamble, Page 36572
29
Disclosure At or Prior to Disbursement

• Applies to Stafford and PLUS Loans
• Required at or before time of first disbursement
• Required information not lender or loan-specific
  is provided in the new MPNs and Plain Language
  Disclosures issued on 4/24/09

682.205(a) DCL FP-09-04
30
Disbursement Disclosure Newly Required
Information

• Use of the term nationwide consumer reporting
  agency, instead of national credit bureau
• An indication that the required reporting will be
  made to each reporting agency, and not just a
  credit bureau

682.205(a)(2)(ix) (xvi)
31
Disbursement Disclosure Newly Required
Information

• Amount of any up-front charges, including
  origination and Federal default fees, with an
  explanation of whether those charges will be
  deducted from the loan proceeds, paid by the
  borrower separately, or paid by the lender

682.205(a)(2)(vi)
32
Disbursement Disclosure Newly Required
Information

• A description of the repayment plans that will be
  available when the borrower enters repayment
• An explanation of any costs, including any fees,
  the borrower may be charged during repayment or
  in the collection of the loan.

682.205(a)(2)(x) (xviii)
33
Disbursement Disclosure Newly Required
Information

• For unsubsidized Stafford or Graduate PLUS
  borrowers, an explanation
• that the borrower may pay the interest while in
  school, and
• when and how often the interest will be
  capitalized if not paid

682.205(a)(2)(xxi)
34
Disbursement Disclosure Newly Required
Information

• For parent PLUS borrowers, an explanation
• that the parent may defer payment on the loan
  while the parent or the student beneficiary is
  enrolled at least half-time, and
• when and how often interest will be capitalized
  if not paid, and

682.205(a)(2)(xxii)
35
Disbursement Disclosure Newly Required
Information

• A statement summarizing the circumstances in
  which a borrower may obtain forbearance
• A description of, and requirements associated
  with, the available loan forgiveness options

682.205(a)(2)(xxiii) (xxiv)
36
Rights and Responsibilities Statement

• The borrowers Rights and Responsibilities
  Statement must now include a statement that,
  should the borrower default, the default will be
  reported to each nationwide consumer reporting
  agency.

682.205(b)
37
Disclosure Prior to Repayment

• Applies to Stafford and PLUS loans
• Must be provided between 30 and 150 days prior to
  first payment due date
• On PLUS loans, this timing is based on the final
  disbursement date of the loan, regardless of
  whether the borrower chooses to defer immediately

NPRM Preamble, Page 36571 682.205(c)(1)
38
Pre-repayment Disclosure Newly Required
Information

• The scheduled date the repayment period is to
  begin or the in-school and, if applicable,
  post-enrollment deferment is to end
• The projected balance, including capitalized
  interest, as of the date above or the date of the
  disclosure, whichever is later

682.205(c)(2)(ii) (iii)
39
Pre-repayment Disclosure Newly Required
Information

• The borrower's repayment schedule, based
  specifically on the repayment plan selected by
  the borrower as of the disclosure date
• The estimated total amount of interest to be paid
  over the life of the loan, and the amount of
  interest already paid by the borrower (if any)

682.205(c)(2)(vi) (viii) 682.205(d)
40
Pre-repayment Disclosure Newly Required
Information

• Information on any special loan repayment
  benefits offered on the loan, including those
  contingent on repayment behavior
• Any other potentially available benefits that
  would reduce the amount or length of repayment
• At the request of the borrower, an explanation of
  the effect of a reduced interest rate on the
  borrowers total payoff amount and time for
  repayment.

682.205(c)(2)(x)
41
Pre-repayment Disclosure Newly Required
Information

• If the lender provides a repayment benefit
• any limitations on that benefit,
• any circumstances in which the borrower could
  lose that benefit, and
• whether and how the borrower may regain
  eligibility for that benefit

682.205(c)(2)(xi)
42
Pre-repayment Disclosure Newly Required
Information

• A description of all available repayment plans
  and a statement that the borrower may change
  plans at least annually
• A description of, and any costs associated with,
  the options available to the borrower to avoid or
  be taken out of default
• This can be general in nature and does not need
  to be borrower-specific

682.205(c)(2)(xii) (xiii) NPRM Preamble, Page
36571
43
Pre-repayment Disclosure Newly Required
Information

• Any additional resources, including nonprofit
  organizations, advocates and counselors,
  including the Department of Educations Student
  Loan Ombudsman, from which the borrower may
  obtain additional information.
• Ombudsmans website http//www.ombudsman.ed.gov/

682.205(c)(2)(xiv) NPRM Preamble, Page 36571
44
New Disclosures During Repayment

• Applies to all FFELP loans for which the first
  payment is due on or after 7/1/09
• Must be provided within each installment time
  period for which the borrower owes a payment
  (e.g., monthly)
• May be made at the loan, account, or borrower
  level, according to the lender/ servicers
  current policies

682.205(c)(3) NPRM Preamble, Page 36572 DCL
GEN-08-12, page 128
45
Monthly Disclosures Required Information

• Original principal amount of the loan
• Current balance as of the date of the statement
  or bill
• Interest rate

682.205(c)(3)(i)-(iii)
46
Monthly Disclosures Required Information

• Total amount of interest paid by the borrower
  during the preceding installment period
• Total amount paid by the borrower on the loan,
  separated into fees, accrued interest, and
  principal

682.205(c)(3)(iv)-(v) NPRM Preamble, Page 36571
47
Monthly Disclosures Required Information

• Description of each fee charged to the borrower
  for the most recent installment period
• Date by which payment must be made to avoid
  additional fees, as well as the payment amount
  and the fee amount

682.205(c)(3)(vi)-(vii)
48
Monthly Disclosures Required Information

• Address and toll-free telephone number of the
  lender or servicer for discussing repayment
  options, payments, and billing errors

682.205(c)(3)(viii)
49
Monthly Disclosures Required Information

• A reminder that the borrower may change repayment
  plans, a list of the available plans, and
  directions on how to request a different
  repayment plan
• A link to the Departments website for repayment
  plan information

682.205(c)(3)(ix)
50
New Disclosure Repayment Difficulty

• Applies to all FFELP loans for which the first
  payment is due on or after 7/1/09
• Must be provided
• Each time the borrower expresses difficulty
  making payments no grace period
• Even if the difficulty is resolved during a
  contact with the borrower (i.e., verbal
  communication)

Final Rule Preamble, Page 55979 DCL GEN-08-12,
page 128
51
Repayment Difficulty Disclosure Required
Information

• A description of the available repayment plans
  and how to request a change in plan
• A description of the requirements for obtaining
  forbearance and any associated costs
• A description of the options available for
  avoiding default and any fees or costs associated
  with those options

682.205(c)(4)
52
New Disclosure 60 Days Delinquent

• Applies to all FFELP loans that become delinquent
  on or after 7/1/09
• Must be sent within 5 calendar days of the loan
  becoming 60 days delinquent
• Does not need to be re-sent if already sent
  within preceding 120 days

682.205(c)(5)(ii) DCL GEN-08-12, page 128
53
60-Day Disclosure Required Information

• Date the loan will default if no payment is made
• Minimum amount the borrower must pay, as of the
  date of the notice, to avoid default this can be
  either the current amount due or the full loan
  payoff amount

682.205(c)(5)(i)(A)-(B)
54
60-Day Disclosure Required Information

• A description of the available options to avoid
  default, including deferment and forbearance, as
  well as any fees or costs associated with those
  options
• Available loan discharge options

682.205(c)(5)(i)(C)-(D)
55
60-Day Disclosure Required Information

• Additional resources of which the lender is aware
  where the borrower can obtain additional advice
  and assistance on loan repayment. Such resources
  include nonprofit organizations, advocates and
  counselors, and the Departments Ombudsman

682.205(c)(5)(i)(E)
56
New Disclosures Skip Tracing

• New disclosures not required if the borrowers
  current address is unknown
• However, if a valid address is obtained before
  the 241st day of delinquency, all required
  disclosures must resume, with any missed
  disclosures (other than the monthly disclosure)
  made up

682.205(j)
57
Disclosure Requirements Consolidation Loans

• There are new disclosures required at the time
  the lender provides a Consolidation loan
  application to the borrower

682.205(i)
58
Consolidation Disclosures Required Information

• Whether consolidation will result in a loss of
  certain benefits (e.g., deferment, loan
  forgiveness) applicable to the borrowers
  existing FFELP or Direct loan.

682.205(i)(1)
59
Consolidation Disclosures Required Information

• Confirmation that, if the borrower consolidates a
  Perkins loan, they will lose
• Any interest-free periods available during in
  school, grace, and deferment periods
• Any cancellation benefits specific to Perkins
  loans (lender must include a list of such
  benefits)

682.205(i)(2)
60
Consolidation Disclosures Required Information

• Available repayment plans on the Consolidation
  loan
• Options to prepay, pay on a shorter schedule, or
  change repayment plans
• Confirmation that the borrower benefit programs
  (incentives) vary among lenders
• Consequences of default on the Consolidation loan
• 682.205(i)(3)-(6)

61
Consolidation Disclosures Required Information

• Confirmation that applying for the Consolidation
  loan does not obligate the borrower to accept it
• The process and deadline by which the borrower
  may cancel the Consolidation loan

682.205(i)(7)
62
Consolidation Loans Making the Loan

• Upon receipt of all properly completed LVCs, the
  consolidating lender must
• Give the borrower the option to cancel the loan
  and the deadline for doing so (no less than 10
  calendar days from the date of such notice)
• 10-day period cannot be waived, even by the
  borrower
• 10-day waiting period is not required for 180-day
  add-ons
• 682.206(f)(1)(ii) NPRM Preamble, Page
  36563-36564

63
Consolidation Loans Re-consolidation Limitations

• Permits re-consolidation into Direct for the
  purposes of providing the no accrual of interest
  for active duty servicemembers benefit
• Benefit applies only to the part of the loan
  attributable to the original underlying loans
  that were made on/after 10/1/08

682.201(e)(5)(ii) Final Rule Preamble, Page
55977
64
Consolidation Loans Re-consolidation Limitations

• Also permits re-consolidation of a defaulted
  Consolidation loan for the purposes of allowing
  the borrower to repay under IBR
• Permitted under the CCRAA

682.201(e)(4) NPRM Preamble, Page 36563
65
Consolidating Defaulted Loans IBR

• Allows borrowers to consolidate their defaulted
  loans into a FFELP Consolidation loan, if they
  agree to repay the Consolidation loan under an
  income-sensitive or income-based repayment plan
• Regulations previously allowed only Direct
  consolidation for the purposes of repaying under
  IBR, and only ISR for FFELP

682.201(d)(1)(i)(A)(3)
66
Other Required Disclosures When Forbearance
Granted

• Required when forbearance is granted
• Requires the lender/servicer to provide
  information to assist the borrower or endorser
  in understanding the impact of capitalization of
  interest on the loan principal and total interest
  to be paid over the life of the loan

682.211(e)(1)
67
Other Required Disclosures During Forbearance
Period

• Required at least once every 180 days during
  forbearance
• Borrower or endorser (as applicable) must now be
  contacted and informed of
• Their outstanding obligation to pay the loan
• The fact that interest will accrue for the entire
  forbearance period

682.211(e)(2)(i) (iii)
68
Other Required Disclosures During Forbearance
Period

• Borrower or endorser (as applicable) must also be
  informed of
• Their option to discontinue the forbearance at
  any time
• The amount of interest that will be capitalized
  and the date on which that will occur
• Their option to pay the interest prior to
  capitalization

682.211(e)(2)(iv)-(vi)
69
Other Required Disclosures During Forbearance
Period

• Borrower or endorser (as applicable) must also be
  informed of
• The principal balance
• Any unpaid interest accrued since the last notice
  provided under this provision

682.211(e)(2)(ii)
70
Forbearance Disclosures - Exception to
Requirements

• If the forbearance being granted is a fully
  retroactive administrative forbearance, the
  lender/servicer is not required to provide the
  disclosures otherwise required under this
  provision

NPRM Preamble, Page 36573
71
Other Rules - Notification of Deferment

• Required on unsubsidized loans when or before the
  deferment is granted
• Requires the lender/servicer to provide
  information on, and an example of, the impact of
  capitalization of interest on the borrowers loan
  
• Information on new common deferment forms deemed
  sufficient

682.210(a)(3)(ii) Final Rule Preamble, Page
55977 NPRM Preamble, Page 36566
72
Other Rules - Use of NSLDS

• Requires the lender to obtain and use enrollment
  information from the NSLDS to grant an in-school
  deferment, upon a request from the school
• Clarifies that this is not intended to prohibit
  the up-front use of other NSLDS-based enrollment
  information it is intended only to provide an
  additional source of information

682.210(c)(1)(iv) NPRM Preamble, Pages
36565-36566
73
Other Disclosures - Loan Sales/Transfers

• Required within 45 days of sale or transfer (same
  as before)
• Requires the selling and purchasing lenders,
  either separately or jointly, to now notify the
  borrower of
• The effective date of the sale or transfer
• The date on which the purchasing lender (or their
  servicer) will begin accepting payments

682.208(e)(1)(v)-(vii)
74
Other Disclosures - Loan Sales/Transfers

• Selling and purchasing lenders must also notify
  the borrower of
• The date, if applicable, on which the selling
  lender (or their servicer) will stop accepting
  payments
• Not necessary if the selling lender continues to
  accept payments and forward them to the new
  servicer

682.208(e)(1)(vi) NPRM Preamble, Page 36572
74
75
Income-Based Repayment (IBR) PFH

• Partial financial hardship definition changed
• PFH calculation will be based on 10-year
  repayment period using the greater of
• Balance at time of entering repayment
• Balance at time of requesting IBR

682.215(a)(4)(i) NPRM Preamble, Pages
36566-36567
76
Income-Based Repayment (IBR)

• PFH definition also changed for married borrowers
  who file joint tax returns
• Caps IBR payment for these borrowers at 15
  rather than 30 as current regulations require
• Example
• PFH calculated on total debt (both spouses
  loans)
• Husband has 60 of debt wife has 40 of debt
• IBR payment will be applied accordingly 60 to
  husbands debt and 40 to wifes debt

682.215(a)(4)(ii) (b)(1)(ii) NPRM Preamble,
Pages 36566-36567
77
Other Provisions

• Prohibited Inducements
• School as Lender and ELT Audit Requirements
• Consumer Education Information from Guarantors
• New Part 601 Institution and Lender
  Requirements Related to Education Loans

78
Resources

• NCHELP e-Library
• Regulations
• NPRM, Final Rule, integrated regulations,
  side-by-side analysis documents
  http//nchelp.org/elibrary/index.cfm?parent1959
• HEOA
• P.L. 110-315, integrated HEA, side-by-side
  analysis documents http//nchelp.org/elibrary/ind
  ex.cfm?parent1945
• Training Modules