Perfecting Your EndGame Strategy

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Perfecting Your End-Game Strategy
2006 NCHELP FALL TRAINING CONFERENCE

• Laura Kowalski
• TG, Asst. Mgr., Policy Regulatory Affairs
• Nancy Masten
• Great Lakes, Senior Policy Analyst

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Agenda

• Institutional Refunds (R2T4)
• Loan Consolidation
• Teacher Loan Forgiveness
• False Cert/Identity Theft
• Defaulted Loans
• Miscellaneous Issues

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• Return of Title IV Funds
• (R2T4)

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R2T4 Issues

• Reduces grant overpayment student must return to
  amount that exceeds
• 50 of total grant assistance received
• Amounts more than 50 (per program)
• Extends timeframe to return title IV program
  funds not earned by student
• From 30 days to 45 days

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• R2T4 Issues
• Revised worksheets are available on IFAP
• Effective for withdrawals that occur on or after
  7/1/2006, regardless of start of period of
  enrollment

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R2T4 Issues

• Post-withdrawal disbursement
• Once school has determined a borrowers
  eligibility for a PWD of loan funds,
  school must
• Contact borrower to offer disbursement
• Explain obligation to repay the loan funds

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• R2T4 Issues
• Post-withdrawal disbursements
• The school must then
• Obtain borrowers confirmation that loan funds
  are still required
• Document borrowers file with result of
  contact and final determination
  of disbursement

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Post-withdrawal disbursements
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R2T4 Issues

• Post-withdrawal disbursements
• If school releases loan funds to cover school
  charges, must also release loan funds to cover
  non-school expenses
• There is a timeframe for obtaining borrowers
  permission (14 days)

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• R2T4 Issues
• Order of return of grant funds now includes ACG
  and National SMART Grants
• Pell
• ACG
• National SMART
• SEOG

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• Consolidation Loans

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Consolidation Loans

• Changes intended to
• Add parity between Direct and FFELP Consolidation
  loans
• Place more restrictions on Consolidation loans
  regardless of the program

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Consolidation Loans

• Before HERA, the HEA required parallel terms,
  conditions, benefits, and amounts for FFELP and
  Direct Stafford and PLUS loans but not
  Consolidation
• Direct Consolidation loans added to this
  requirement
• Effective for applications received by Direct
  Loans on or after 7/1/2006

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Consolidation Loans

• DL Consolidation borrowers must meet the
  same eligibility requirements as FFELP
  Consolidation borrowers
• The Secretary has to comply with the same
  requirements as a FFELP Consolidation lender

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Consolidation Loans

• Eliminates in-school consolidation in both the
  Direct Lending and FFEL programs
• Removes a borrowers ability to request early
  repayment before the end of the
  grace period
• Effective for borrower requests received by
  lenders on or after 7/1/2006

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Consolidation Loans

• Eliminates spousal consolidation
• Applies to both FFEL and Direct Loans
• Effective for Consolidation applications received
  on or after 7/1/2006

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Consolidation Loans

• Eliminates a borrowers ability to reconsolidate
  a consolidation loan between the FFEL and DL
  programs
• There is an exception if
• A FFELP Consolidation borrower seeks a DL
  Consolidation to obtain an income-contingent
  repayment plan, and
• The FFELP Consolidation loan has been submitted
  to the guarantor for default aversion
  assistance
• Both conditions must be met

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Consolidation Loans

• Additional condition originally contained in HERA
  that was subsequently repealed
• Allowed a borrower to consolidate through DL only
  after first being denied a Consolidation loan or
  a Consolidation loan with an income-sensitive
  term
• Repealed through Emergency Supplemental
  Appropriations Act of 2006 Pub. L. 109-234

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Consolidation Loans

• Emergency Supplemental Appropriations Act returns
  the HEA language to what it was previously
• Allows a borrower to obtain a DL Consolidation
  loan if the borrower is unable to obtain a FFELP
  Consolidation loan or one with income-sensitive
  repayment terms

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• Teacher Loan Forgiveness

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• Teacher Loan Forgiveness
• HERA makes permanent the TLF provisions in the
  Taxpayer-Teacher Protection Act of 2004 (TTPA)
• TTPA was passed as a budget bill, as a result, it
  expired at the end of the fiscal year
  9/30/2005
• HERA retroactively eliminated the ending date for
  TLF ensuring no break in benefits

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• Teacher Loan Forgiveness
• TTPA provides for increased TLF of up to 17,500
  for Stafford borrowers meeting certain teaching
  requirements
• TTPA became effective 10/30/2004

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• Teacher Loan Forgiveness
• To qualify for up to 17,500 in TLF, the teacher
  must meet the standard requirements and also be
• A full-time secondary school math or science
  teacher, or
• A special education teacher, and
• Highly qualified as defined in No Child Left
  Behind (NCLB)

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• Teacher Loan Forgiveness
• HERA defines highly qualified for
  non-profit private school teachers not subject to
  state certification
• Must pass grade level and subject matter
  competency test accepted by at least
  5 States
• Score must meet or exceed average passing
  score
• Effective for TLF applications received on or
  after 7/1/2006

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• False Certification
• Identity Theft

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Identity Theft

• New condition for discharge was added to the HEA
  false certification as a result of a crime of
  identity theft
• Applies to student and parent borrowers and
  students on whose behalf a parent borrowed
• Available to loans made on or after
  1/1/1986

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Identity Theft

• Until regulations issued, if the borrower
  presents reasonably persuasive evidence of
  identity theft on or after 7/1/2006
• Lenders may provide administrative
  forbearance
• Guarantors may suspend default collection
  activities

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Identity Theft

• Definition
• Interim regs define identity theft as
• The unauthorized use of the identifying
  information of another individual that is
  punishable under 18 U.S.C. 1028, 1029, or 1030,
  or substantially comparable State law

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Identity Theft

• Definition
• Identifying information includes, but is not
  limited to
• Name, SSN, date of birth, official State or
  government issued drivers license or
  identification number, alien registration number,
  government passport number, and employer or
  taxpayer identification number
• Unique biometric data (such as fingerprints,
  voiceprint, retina or iris image, or unique
  physical representation)

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Identity Theft

• Definition
• Identifying information includes, but is not
  limited to
• Unique electronic identification number, address,
  or routing number or
• Telecommunication identifying information or
  access device as
  defined in 18 U.S.C. 1029(e)

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Identity Theft

• Eligibility
• Discharge is for victim of identity theft
• Available only to individuals who did not
  knowingly accept the benefits of the
  falsely-certified loan
• Individual must certify that (s)he did not, with
  knowledge that the loan had been made, receive or
  accept the benefit of the loan

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Identity Theft

• Eligibility
• To receive discharge, borrower must certify that
  (s)he
• Did not sign the promissory note by wet or
  electronic signature
• Did not receive or benefit from the proceeds of
  the loan with knowledge that the loan had been
  made without authorization

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Identity Theft

• Documentation
• Borrower must also provide the loan holder a copy
  of a local, State, or Federal court verdict or
  judgment that
• Conclusively determines that the individual who
  is the named borrower was the victim of identity
  theft
• and
• That the loan in question was a result of that
  identity theft

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Identity Theft

• Documentation
• Prosecution does not have to be based on the
  loan
• If conviction/judgment does not expressly
  reference the loan, borrower must
• Provide authentic examples of his/her
  identification credentials
• Explanation of facts that demonstrateto the
  satisfaction of EDthat the identity theft
  (criminal conduct) resulted in the school
  certifying the individuals eligibility to
  borrow, and, as a result, the loan was made

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Identity Theft

• If identity theft crime was committed by employee
  or agent of the lender, or the lender knew of the
  identity theft at the time the loan was made
• ED does not pay reinsurance and does not
  reimburse the holder for any amount disbursed on
  the loan and
• Any amounts received by a holder as interest
  benefits and SAP must be refunded

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Identity Theft

• Claim paid
• After claim paid, a guarantor must
• Within 30 days, demand payment in full from the
  perpetrator
• If payment not received, pursue collection action
  against the perpetrator

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Identity Theft

• Common Form
• FFELP community developing common form for
  borrowers and lenders to use in documenting and
  filing a claim of identity theft

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• Defaulted Loans

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• Defaulted Loans
• HERA provides incentives for rehabilitation of
  defaulted borrowers,
• and
• Disincentives for bringing borrowers out of
  default through consolidation

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Defaulted Loans

• Rehabilitation
• Required borrower payments reduced from 12
  payments to
• 9 payments during 10 consecutive
  months
• Each of the 9 payments must be made within
  20 days of due date

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Defaulted Loans

• Rehabilitation
• Guarantors can charge and retain 18.5 in
  collection costs when the rehabilitated loan is
  sold to a lender
• Effective 7/1/2006 for all new rehab
  agreements

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Defaulted Loans

• Rehabilitation
• For rehab agreements prior to July 1, guarantor
  has option to apply new standard
• If at least one payment is made on or
  after July 1
• All borrowers are treated the same

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Defaulted Loans

• Consolidation
• Prior to 10/1/2006, collection costs cannot
  exceed 18.5
• Effective 10/1/2006 thru 9/30/2009
• Collection costs reduced from 18.5 to 10
• 18.5 charged to borrower, but
• Must remit 8.5 to ED

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Defaulted Loans

• Consolidation
• Effective on or after 10/1/2009
• Collection costs eliminated on excess
  consolidation proceeds
• Recoveries through consolidation greater than 45
  of total collections

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Defaulted Loans

• Consolidation
• Guarantor must establish and submit to ED for
  approval, procedures to ensure that consolidation
  loans are not an excessive proportion of the
  guarantors recoveries on defaulted loans

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Defaulted Loans

• Consolidation
• Generally no re-consolidation
• However, ED clarified that a borrower is allowed
  to consolidate a single defaulted FFELP
  Consolidation loan into the DL Program for
  purpose of obtaining an ICR plan

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Defaulted Loans

• Administrative Wage Garnishment
• Increases maximum rate from 10 to 15 of
  defaulters disposable pay
• Guarantor has option to increase withholding rate
  for pre-July 1 AWG borrowers

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Defaulted Loans

• Administrative Wage Garnishment
• If guarantor chooses to increase withholding rate
  for pre-July 1 AWG borrowers
• Notification to borrower required
• Borrower may request hearing on basis of undue
  hardship and
• Borrower may request reconsideration of debt if
  new information is available that was not present
  at initial AWG hearing

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• Miscellaneous Issues

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Miscellaneous Issues

• Account Maintenance Fee (AMF)
• Lender Insurance Rate
• Reinsurance on Exempt Claims
• Default Claim Filing
• College Access Initiative

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• Miscellaneous Issues
• Account Maintenance Fee (AMF)
• AMF payments from FY2007-2011 are mandatory
• Eliminates cap on AMF funds and sets AMF payment
  at an amount that shall not exceed the basis of
  0.10 of the original principal amount of
  outstanding loans

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• Miscellaneous Issues
• Account Maintenance Fee (AMF)
• HR 6138, the Third Higher Education Extension Act
  of 2006
• Requires AMF be calculated on the basis of
  0.10 of the original principal amount of
  outstanding loans

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Miscellaneous Issues

• Reduction in Lender Income
• For loans with a first disbursement on or after
  7/1/2006, default claims paid at 97 instead of
  98
• For default claims submitted to guarantor on
  or after 7/1/2006, lenders designated as
  exceptional performers, or a lender contracting
  with a servicer designated as an exceptional
  performer, paid at 99 instead of 100

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Miscellaneous Issues

• Reduction in Lender Income
• Pre-10/1/93 loans
• 682.401(b)(14)(i) states 100 guaranteed
• ED stated in Final Rule preamble that
  pre-10/1/93 loans paid at 99 for EP lenders

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• Miscellaneous Issues
• Reinsurance on exempt claims
• Qualify for reinsurance at 100
• Defined as ineligible borrower claims based
  solely on borrower error

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• Miscellaneous Issues
• Default Claim Filing
• Number of days guarantor has to file a claim for
  reinsurance on default claims reduced from 45 to
  30 days from date claim was paid

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• Miscellaneous Issues
• College Access Initiative
• Creates new section 485D in HEA
• Provides that each guarantor must work with the
  Secretary to gather and publicize college access
  information

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• Miscellaneous Issues
• College Access Initiative
• NCHELP formed committee to coordinate guarantor
  compliance
• Guarantors worked with ED and Mapping Your Future
  to provide information to public

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• Miscellaneous Issues
• College Access Initiative
• Information (by state) includes
• College planning
• Career preparation
• Paying for college
• Web site can be accessed at http//going2college.
  org/StateResources/

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2006 NCHELP FALL TRAINING CONFERENCE
THANK YOU!Please be sure to complete your
conference evaluation forms after the conference!
Laura Kowalski TG Asst. Mgr., Policy Regulatory
Affairs Nancy Masten Great Lakes, Senior Policy
Analyst