NASFAA National Conference

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NASFAA National Conference

• Seattle, Washington -- July 5 - 8, 2006
• Washington State Convention
• Trade Center

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Loan Forgiveness, Cancellation and Discharge

• Gail McLarnon
• U.S. Department of Education

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Todays Agenda

• Teacher loan forgiveness in the Federal Direct
  Loan and the Federal Family Education Loan (FFEL)
  Programs
• Teacher loan cancellation in the Federal Perkins
  Loan Program
• Permanent and total disability loan discharges in
  the Title IV Loan Programs

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Teacher Loan Forgiveness in the FFEL and Direct
Loan Programs

• FFEL and DL loan forgiveness of up to 5,000
  adopted in the Higher Education Amendments of
  1998
• Taxpayer-Teacher Protection Act of 2004 (TTPA)
  increases loan forgiveness to up to 17,500 until
  September 30, 2005
• TTPA requires all teachers to be highly
  qualified

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Teacher Loan Forgiveness in the FFEL and Direct
Loan Programs

• Higher Education Budget Reconciliation Act (HERA)
  makes up to 17,500 in loan forgiveness permanent
  (retroactive to October 1, 2005)
• HERA extends loan forgiveness to certain private
  school teachers effective 7/1/06

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Teacher Loan Forgiveness in the FFEL and Direct
Loan Programs

• Resources
• FFEL Program regulations 682.215
• Direct Loan Program regulations 685.217
• Dear Colleague Letter GEN-04-14 summarizes
  teacher loan forgiveness provisions of TTPA
  http//ifap.ed.gov/dpcletters/GEN0414.html
• Dear Colleague Letter GEN-06-02 summarizes HERA
  changes to teacher loan forgiveness
  http//ifap.ed.gov/dpcletters/GEN0602.html

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Teacher Loan Forgiveness in the FFEL and Direct
Loan Programs

• Resources (cont.)
• Teacher loan forgiveness application and
  forbearance forms http//ifap.ed.gov/dpcletters/GE
  N0502Revised.html
• Look for Interim Final Regulations with Comments
  in late July implementing TTPA and HERA changes
  to teacher loan forgiveness on http//ifap.ed.gov
  

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Teacher Loan Forgiveness in the FFEL and Direct
Loan Programs

• TTPA changes to teacher loan forgiveness
• Loan forgiveness of up to 5,000 if a teacher
  teaches five years in an elementary or secondary
  school with a population of 30 of more
  low-income children
• Teacher must be highly qualified

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Teacher Loan Forgiveness in the FFEL and Direct
Loan Programs

• A highly qualified teachers is
• Fully certified or has passed a state licensing
  exam licensed by the State in which he or she
  teaches
• A new teacher who holds a B.A. and passes a
  rigorous State test demonstrating knowledge and
  teaching skills secondary teachers also must
  complete major, graduate degree, or coursework
  equivalent to a major in teacher areas
• Any other teacher who demonstrates competence in
  subject areas in which he or she teaches based on
  uniform State standards

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Teacher Loan Forgiveness in the FFEL and Direct
Loan Programs

• TTPA authorizes loan forgiveness up to 17,500 if
  a teacher
• Meets the previous requirements AND
• Teaches special education in elementary or
  secondary school OR
• Teaches mathematics or science in secondary school

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Teacher Loan Forgiveness in the FFEL and Direct
Loan Programs

• Teachers who began qualifying service before the
  new law was enacted
• Do not have to meet the new requirements to get
  the 5,000, but
• Must meet the new requirements to get the 17,500

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Teacher Loan Forgiveness in the FFEL and Direct
Loan Programs

• All Bureau of Indian Affairs Schools are
  considered low-income schools
• Statutory interpretation of highly qualified
  changedNo longer tied to NCLB date of enactment

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Teacher Loan Cancellation in the Federal Perkins
Loan Program

• Higher Education Act authorizes up to 100 loan
  cancellation over a five year period for
• Full-time teachers in a school serving students
  from low-income families
• Full-time special education teachers, including
  teachers of infants, toddlers children or youth
  with disabilities
• Full-time teachers of mathematics, science,
  foreign languages, bilingual education of any
  other field of expertise determined by a State
  education agency to have a shortage of qualified
  teachers

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Teacher Loan Cancellation in the Federal Perkins
Loan Program

• Cancellation Rates
• 15 of principal and interest for first and
  second years of teaching
• 20 of principal and interest for third and
  fourth years of teaching
• 30 of principal and interest for fifth and final
  year of teaching

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Teacher Loan Cancellation in the Federal Perkins
Loan Program

• Borrowers placed in deferment during periods of
  teaching service in anticipation of loan
  cancellation
• The Department of Education does not approve or
  supply Perkins Loan cancellation and deferment
  forms.

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Teacher Cancellation in the Federal Perkins Loan
Program

• Resources
• Perkins Loan Program regulations Subpart D of
  34 CFR 674
• Volume 6, Chapter 4 Financial Aid Handbook
  http//ifap.ed.gov/sfahandbooks/030106Vol6FSAHandb
  ook.html
• Campus-Based Program Materials
• http//ifap.ed.gov/IFAPWebApp/currentCBPMaterials
  Pag.jsp

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Requirements for FFEL, Direct and Perkins Loan
Forgiveness

• Borrowers cannot receive benefits for qualifying
  teaching service under both HEA and National
  Community Service Act
• Loan holders do not refund payments received
  during a period when borrower qualified for loan
  forgiveness/cancellation
• Directory of Designated Low-Income Schools for
  Teacher Cancellation Benefits used across Title
  IV loan programs-All BIA schools are low-income

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Total and Permanent Disability (TPD) Discharge of
Title IV Loans

• June 1999 Department of Educations Inspector
  General issues Report identifying weaknesses in
  the TPD process
• November 1999 Dear Colleague Letter GEN-99-36
  strengthens process http//ifap.ed.gov/dpcletters/
  doc0625_bodyoftext.htm
• November 2000 Final regulations issued changing
  eligibility for post-TPD discharge
  http//www.ifap.ed.gov/fregisters/1101200010.html

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Overview of TPD Discharge Process

• Borrower applies to the loan holder for a
  disability discharge and loan holder makes
  preliminary determination of TPD.
• If loan holder determines that borrower does not
  meet criteria for TPD, loan is returned to prior
  status.
• If loan holder determines borrower meets criteria
  for TPD, loan is assigned to Departments
  Disability Discharge Unit. For FFEL loans, both
  loan holder and GA determine borrower eligibility.

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Overview of TPD Discharge Process

• Department reviews all assigned loans to affirm
  borrower eligibility for TPD.
• Loan placed in conditional discharge status and
  monitored for 3 years if TPD affirmed.
• Final TPD discharge granted if borrowers
  earnings do not exceed poverty level for family
  of two and borrower does not receive any new
  Title IV loans during conditional period.

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TPD Discharge and Title IV Eligibility

• Title IV eligibility requirements vary depending
  upon date of TPD discharge
• Before July 1, 2001
• On or after July 1, 2001 and before July 1, 2002
• On or after July 1, 2002
• Refer to ISIR Codes and comments

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TPD Discharge and Title IV Eligibility

• Discharge before July 1, 2001
• Certification from physician that borrower can
  engage in substantial gainful activity (i.e., no
  longer TPD)
• (NOTE Need one per school)
• Borrower statement acknowledging no discharge of
  new loan for pre-existing conditions unless
  substantial deterioration
• (NOTE Need each loan)

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TPD Discharge and Title IV Eligibility

• Discharge on or after July 1, 2001 and before
  July 1, 2002 with new loan request within 3 years
  of TPD date
• Physician Certification
• Borrower Acknowledgement Statement
• Reaffirmation of Discharged loan
• After 3 years from TPD date only certification
  and borrower acknowledgement required

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TPD Discharge and Title IV Eligibility

• Reaffirmation
• If ISIR Discharge Date is within 3 years of new
  loan request, contact holder to identify 3 years
  from TPD date
• If reaffirmed, requires new promissory note or
  signed repayment schedule

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TPD Discharge and Title IV Eligibility

• Reaffirmation
• Do not certify/originate before holder confirms
  reaffirmation
• If defaulted prior to discharge, reaffirmed loan
  retains default status and satisfactory repayment
  arrangements are required
• Satisfactory repayment arrangements also applies
  during conditional period for conditional
  discharge

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TPD Discharge and Title IV Eligibility

• Discharge on or after July 1, 2002
• If final discharge granted same as before
  7/1/01
• If conditional discharge
• Physician certification and borrower
  acknowledgement for new loan
• Borrower acknowledgement that neither new loan
  nor conditionally discharged loan are
  dischargeable now or in the future based on
  pre-existing condition unless substantial
  deterioration
• Collection resumes on conditional loan/prior
  status applies

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NSLDS Tracking of TPD Discharges

• NSLDS uses Outstanding Principal Balance in
  conjunction with the loan status DS (disability)
  or DI (defaulted, then disabled), to distinguish
  between conditional and final discharge.
• Borrowers denied final TPD discharge are returned
  to repayment status on NSLDS.
• NSLDS May 2005 Newsletter on NSLDS Reporting
  http//ifap.ed.gov/nsldsmaterials/Newsletter10.htm
  l

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Department of Education Conditional Disability
Discharge Unit

• Conditional Disability Discharge Unit Website
• http//www.fsacollections.ed.gov/contractors/ga/cd
  d/index.asp
• Updates and Bulletins
• Forms and Applications
• FFEL Lender Performance Reports
• Dear Colleague Letters and NCHELP QA

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TPD Discharge Facts and Figures

• Common reasons TPD Discharge Assignments are
  rejected
• Promissory note missing
• Condition begin date missing/incomplete
• Payment history missing/incomplete
• Loan Discharge application missing/incomplete

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TPD Discharge Facts and Figures (cont.)

• Processing Statistics
• Of total TPD applications received since
  inception
• 50 of borrowers reinstated to prior status on
  loan
• 20 of borrowers received final TPD discharge
• 30 of borrowers still in conditional discharge
  period
• Borrowers reinstated to prior status on loan
  because
• 37 failed medical review
• 7.8 received a new title IV loan
• 54.6 failed to respond to request for income
  information
• Less than 1 had income that exceed poverty
  guidelines

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Upcoming TPD Discharge Dear Colleague Letters

• Dear Colleague Letter announcing new address for
  TPD assignments
• U.S. Department of Education
• Conditional Disability Discharge
• 6201 Interstate 30
• Greenville, TX 75402
• Dear Colleague Letter announcing credit bureau
  reporting for TPD Discharge Assignments
• Dear Colleague Letter announcing new TPD Forms

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Thank You !!Gail.McLarnon_at_ed.gov(202) 219
-7048