REDUNDANCY

1
REDUNDANCY

• LENDER
• AND
• SERVICER
• REVIEWS
• 2001 NCHELP Fall Training Conference Salt Lake
  City, Utah
• Bill Adams Sallie Mae Wanda Hall
  edamerica Pete Pundt - PHEAA

2
Guarantor Reviews

• Guarantors must
• Conduct comprehensive biennial on-site reviews
  (calendar year)
• Use statistically valid techniques

3
Guarantor Reviews

• Guarantors must review
• Lenders whose dollar volume, made or held, and
  guaranteed in the preceding year
• Equaled or exceeded 2 of the total of all loans
  guaranteed in that year by the agency
• 10 largest lenders whose loans were guaranteed in
  that year, or
• Lenders whose guarantee volume, made or held,
  equaled or exceeded 10 million in most recent
  fiscal year

4
Guarantor Reviews

• Guarantors must review (contd)
• Each lender (as defined in Act) located in the
  State in which a guarantor is the principal
  (designated) guarantor
• Optional Sallie Mae

5
Guarantor Reviews

• Alternative --
• Guarantor may propose substitutions with approval
  of Secretary

6
Independent Audit

• Required if lender originates or holds more than
  5 million in FFEL loans during its fiscal year
• Audit must be conducted by qualified independent
  person or organization

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Independent Audit

• Audit Requirement
• Examine compliance with the Act and Regulations
• Examine financial management of its FFEL program
  activities
• Must be conducted in accordance with U.S. GAOs
  Government Auditing Standards
• Conducted at least annually and submitted within
  6 months of the end of audit period

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Independent Audit

• Audit Period
• Initial began - first fiscal year that began
  after 7/23/92
• Subsequent audits to cover lenders activities
  for periods beginning no later than end of the
  period covered by the preceding audit

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Independent Audit

• Lender Type
• Governmental entity
• 31 U.S.C. 7502 and 34 CFR, part 80, Appendix G
• Non-Profit Organization
• OMB Circular A-133
• If eligible, may choose program-specific audit

10
Third-Party Servicer Audit

• What constitutes a Third-Party Servicer?
• Contracts with a lender, guarantor or school
• Conducts all its contractual obligations that
  apply to FFEL in accordance with FFEL regulations
• Has business systems, automated or manual,
  capable of meeting requirements of Act and
  regulations
• Has adequate personnel knowledgeable of FFEL
  program

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Third-Party Servicer Audit

• Reviews Performed by --
• Secretary
• Independent Audit
• Not required if contracts with only one lender or
  guarantor, and
• Audit involves every aspect of servicers
  administration of FFEL programs serviced

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Third-Party Servicer Audit

• Audit Requirements
• Examine compliance with Act and applicable
  regulations
• Examine financial management of its FFEL program
  activities
• Must be conducted with standards of audits issued
  by GAOs Standards for Audits of Government
  Organization, Programs, Activities and Functions
• Procedures are contained in an audit guide
  developed by and available from OIG of ED

13
Third-Party Servicer Audits

• Audit Period
• Conducted at least annually
• Submitted to Secretary within 6 months of the end
  of the audit period
• Initial period first full fiscal year on/after
  7/1/94
• Subsequent periods cover activities for the
  one-year period beginning no later than the end
  of period covered by preceding year

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Third-Party Servicer Audit

• Entity type
• Governmental entity
• 31 U.S.C. 7502 and 34 CFR 80, Appendix G
• Non-Profit organization
• OMB Circular A-133

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Overview of the issue from a servicers
perspective

• Annual lender/servicer audit
• Guarantor program reviews
• Federal audits

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Overview of the issue from a servicers
perspective

• Annual Lender/Servicer Audit
• --Areas of compliance review
• ED 799
• Individual Record Review
• Payment of Origination Fees
• Interest Benefits
• SAP
• Portfolio Principal Balance Accuracy

17
Overview of the issue from a servicers
perspective

• Annual Lender/Servicer Audit
• -- Areas of compliance review (contd)
• Reporting of Sales, Purchases and Transfers
• Recording Student Status Verification Changes
• Payment Processing
• Delinquency Processing
• Timely Claim Filing
• Reject Cures

18
Servicer Perspective on Guarantor Program and ED
Financial Partner Reviews

• Single GA may be reviewing same operational
  function for multiple lenders at a servicer
• Multiple GAs may be reviewing the same function
  within a servicer
• ED reviews can be wide ranging and non-standard

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May 2001 Industry Meeting in DC

• Participants ED, Servicers and Guarantors
• Discussion summary
• Proposal discussions
• U.S. Dept. of ED
• Student Loan Servicing Alliance (SLSA)

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May 2001 Industry Meeting in DC

• U.S. Department of Education proposal
• ED conduct reviews at largest servicers

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May 2001 Industry Meeting in DC

• SLSA Proposal
• Rely on and/or build upon requirements of the
  annual Lender/Servicer Audit Report

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May 2001 Industry Meeting in DC

• Recommendations
• Explore concepts within the industry to help
  reach a solution
• GAs plan reviews so that a servicer receives a
  single visit during the biennial cycle
• GAs coordinate reviews with each other
• GAs rely on each others review reports
• ED and industry work together to reduce the
  overlapping scope of audits/reviews

23
Redundancy Issues

• Current efforts at curbing redundancy
• Servicer Reviews
• Substitution
• Joint (with ED) reviews
• Off-site reviews

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Redundancy Issues

• Scope for Next Cycle -
• Compliance with an NSLDS component
• Inducements
• Lender or Universal guide
• Lender
• Servicer
• Trustee

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Redundancy Issue

• Where can we go from here?
• Community issue
• Work group
• Define the problem, including costs of current
  model
• Build community awareness
• Source creative solutions

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Redundancy Issue

• Where can we go from here?
• Work group (contd)
• Define relationships and roles
• Independent auditors
• Guaranty agencies
• ED OIG
• Identify synergies

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Redundancy Issue

• In the meantime
• Servicer reviews
• Joint reviews