Loan Forgiveness and Discharge

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Loan Forgiveness and Discharge

• Session Moderator
• Byron Henderson
• Louisiana Office of Student Financial Assistance

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The Guarantor/Holder Perspective
Loan Forgiveness and Discharge

• Change Focus away from Recovery of the Debt
• Utilize Separate Unit for Determinations
• Tracking System

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Loan Forgiveness and Discharge

• Session Presenters
• Pamela Moran
• Office of Postsecondary Education
• U. S. Department of Education
• Connie Jesse and Lynel McFadden
• Office of the Ombudsman
• U. S. Department of Education

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Loan Forgiveness and Discharge
Session Presenter Pamela Moran Office of
Postsecondary Education U. S. Department of
Education [phone] Pamela.Moran_at_ed.gov
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Loan Forgiveness and Discharge

• Statutory and Regulatory Overview
• Teacher Loan Forgiveness
• Death and Disability Discharges

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FFEL and Direct LoanTeacher Loan Forgiveness

• Enacted as part of 1998 Amendments to Higher
  Education Act Section 428J of HEA
• Regulations 34 CFR 682. 215 published November
  1, 2000
• effective July 1, 2001

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FFEL and Direct LoanTeacher Loan Forgiveness

• Must be new borrower
• no outstanding balance on October 1, 1998 or on
  date loan is obtained after October 1, 1998
• 5,000 in combined forgiveness after 5
• consecutive years of full-time teaching
• At least one of 5 years after date of enactment
• Qualifying loan must be made prior to end of
• 5th year of qualifying service

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FFEL and Direct LoanTeacher Loan Forgiveness

• Eligible Teaching
• Low-income (Title I eligible) public or nonprofit
  private school (same as Federal Perkins Loans)
  with 30 or more Title I eligible enrolled
  students
• Direct classroom or classroom type teaching
  (includes special education does not include
  librarians, guidance counselors, administrators)

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FFEL and Direct LoanTeacher Loan Forgiveness

• Elementary
• State defines
• Knowledge and teaching skills in reading, writing
  and mathematics
• Secondary
• Teaching in subject area of academic major

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FFEL and Direct LoanTeacher Loan Forgiveness

• Forbearance granted during qualifying service if
  payments will reduce benefit amount
• Annual forbearance application and lender
  determination

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New Teacher Loan Forgiveness Provisions

• P. L. 108-409 Taxpayer-Teacher Protections Act
  of 2004 Enacted October 30, 2004
• Loan forgiveness of up to 5,000 if teacher
• Teaches five years in an elementary or secondary
  school with 30 or more Title I enrollment
• Is highly qualified

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New Teacher Loan Forgiveness Provisions

• Highly Qualified teachers are
• Those who are fully certified or passed a state
  licensing exam and are licensed by State in which
  teacher teaches
• New teachers who hold a B.A. and pass a rigorous
  state test demonstrating knowledge and teaching
  skills secondary teachers also must complete
  major, graduate degree, or coursework equivalent
  to a major in teaching areas
• Other teachers who demonstrate competence in
  subject areas in which they teach based on
  uniform state standards

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New Teacher Loan Forgiveness Provisions

• Loan forgiveness up to 17,500 if teacher
• Meets same requirements as for up to
• 5,000 forgiveness AND
• Teaches special education in elementary or
  secondary school OR
• Teaches math or science in secondary school

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New Teacher Loan Forgiveness Provisions

• Teachers who began qualifying service before 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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New Teacher Loan Forgiveness Provisions
Qualifying service started before October 30,
2004

• old requirements for up to 5,000
• must be highly qualified full-time elementary
  or secondary school teacher
• for up to 5,000
• must be highly qualified full-time mathematics
  or science teacher in secondary school or highly
  qualified special education teacher for up to
  17,500

Qualifying service started on/after October 30,
2004
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New Teacher Loan Forgiveness Provisions
Teacher previously received or almost eligible to
receive benefits under prior law

• can receive difference between 17,500 and 5,000
• prior service counts if highly qualified

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New Teacher Loan Forgiveness Provisions

• Immediate Implementation
• DCL GEN-04-14 summarizes provisions
• Revised Application and Forbearance forms posted
  to IFAP as
• GEN-05-2/FP-05-02

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FFEL and Direct Loan Discharge Regulations
Death

• Regulations Effective July 1, 2001
• Require original or certified copy of death
  Certificate for discharge
• Provide exceptional circumstances discharge
  without death certificate upon approval of
  guaranty agency chief financial officer
• Require reliable documentation maintained
  separately available upon request

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FFEL and Direct Loan Discharge Regulations -
Disability

• Regulations Effective July 1, 2002
• Require initial school determination of
  eligibility and assignment of loan to Secretary
• Create a conditional discharge period up to 3
  years from date of disability
• Provide no payments need be made during
  conditional discharge period and no interest
  accrues

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FFEL and Direct Loan Discharge Regulations -
Disability

• Loan Holders Preliminary Determination
• Must be rigorous
• Requires additional documentation if
• not definitive or incomplete
• Clarify TPD definition and reaffirm
• certification with physician
• Report to OIG suspicious patterns

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FFEL and Direct Loan Discharge Regulations -
Disability

• Assignment
• TPD Application (original signed or certified
  copies)
• Supporting Documentation
• Listing of payments or total sum of payments on
  or after date of disability
• Original promissory note and any
  judgement/bankruptcy documents

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FFEL and Direct Loan Discharge Regulations -
Disability

• Provides that Secretary will make final
  determination of eligibility
• During conditional period
• No earnings in excess of poverty line for family
  of 2
• No receipt of additional Title IV loan for school
  attendance
• Provides that ineligible borrowers loans remain
  with the Secretary for collection

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FFEL and Direct Loan Discharge Regulations -
Disability

• Ongoing Issues
• Retroactive conditional periods
• New Loans outside the conditional period but
  before final discharge
• Substantial deterioration of a medical condition

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FFEL and Direct Loan Discharge Regulations -
Disability

• Credit bureau reporting
• Tracking the transfer and status of the loan
• Treatment of joint consolidation borrowers during
  the conditional discharge period

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ED Contacts - Disability

• Regulations
• Pamela Moran (OPE)
• Jon Utz (FSA)
• [phone]
• Program Management
• Jennifer Ryder
• Program Manager
• Conditional Disability
• Discharge Unit (CDDU)
• [phone]

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ED Contacts - Disability
Conditional Total and Permanent Disability
Assignments

• Customer Service 1-888-869-4169
• Assignments by U. S. Mail
• U. S. Department of Education
• Conditional Disability/Discharge Unit
• P.O. Box 7200
• Utica, New York 13504

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Loan Forgiveness and Discharge Session
Presenters Connie Jesse and Lynel
McFadden Office of the Ombudsman Federal Student
Aid U. S. Department of Education
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Loan Forgiveness and Discharge

• The Borrower Perspective

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Loan Forgiveness and Discharge . . . questions
are among the most frequently received by the
FSA Ombudsman Office
More than 1 in 10 of all inquiries are about Loan
Forgiveness and Discharge. . .

• 2,028 of 16,707 total cases in FY2002 12
• 2,147 of 17,664 total cases in FY2003 12
• 1,845 of 14,688 total cases in FY2004 12
• 767 of 6,362 cases in FY05 thru 03/15/05 12

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Loan Forgiveness and Discharge . . . questions
are a larger share of research cases

• 510 of 3,305 research cases in FY2002 15.4
• 686 of 3,621 research cases in FY2003 18.9
• 635 of 3,697 research cases in FY2004 17.2
• 326 of 1,833 research cases in FY2005 17.7
• (through 03/15/05)

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Ombudsman Research Case Characteristicsby
Sub-CategoryFiscal Year 2005 To Date
Half of the Questions are about Disability
Discharge..
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Customers Want to Know

• Whats the process?
• How does it apply to me?
• What do I do next?

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How We Work With Them

• Explain the Rules/Processes
• Do Thorough Research/Analysis
• Define Options and Next Steps
• For Their Situation

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And

• Share Case Details and Statistics with FSA and
  Department of Education Leadership, e.g.
  relationships of rules-based and process-driven
  questions
• Identify Ways to Improve our Consumer Information
  with More Self-Help Options, e.g. website update.

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A Few Case Examples

• TEACHER LOAN FORGIVENESS
• Borrower asked for assistance with Teacher Loan
  Forgiveness. His first loan was for
  8/25/98-5/4/99. His first disbursement was
  9/15/98. Because he had a balance on 10/1/98,
  he is ineligible for the Teacher Loan Forgiveness
  Program.

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A Few Case Examples

• Teacher Loan Forgiveness. . .
• Customer consolidated all loans in 2002.
  Underlying loans (all FFEL) were disbursed before
  1998. She teaches full time in a school serving
  low income students, which is on the list of
  schools recognized by Department of Education.
  Loan payments are difficult for her to meet.
  Shes been told that she doesnt qualify for the
  teacher loan forgiveness program but doesnt
  understand why.

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A Few Case Examples
TOTAL AND PERMANENT DISABILITY. . . Customer
has one (1) FFEL Subsidized Stafford Loan and one
(1) Perkins Loans to attend School A and four (4)
FFEL Subsidized Stafford Loans and one (1)
Perkins Loan to attend School B. Each school
received a Loan Discharge Application Total and
Permanent Disability form, and sent the loans to
the Conditional Discharge Disability Unit (CDDU).
The Perkins Loans were discharged on 3/25/04.
No discharge application was received for any of
the five FFEL Subsidized Stafford Loans, which
were with the same guaranty agency and lender.
The customer doesnt believe he should have to do
another application.
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A Few Case Examples
TOTAL AND PERMANENT DISABILITY . . . Borrower
received notification that his loans were
preliminarily approved for discharge and assigned
to Department of Education. He expected an
immediate refund and did not understand that it
could be a year before he gets 1) permanent
discharge 2) the money
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Contact Information

• Internet www.ombudsman.ed.gov
• E-mail fsaombudsmanoffice_at_ed.gov
• Mail FSA Ombudsman
• U. S. Department of Education
• UCP III, 830 First Street, NE
• Washington, DC 20202-5144
• Office (202)-377-3800 Fax [phone]
• Connie Jesse [phone]
• Lynel McFadden [phone]
• Toll Free (for borrowers) 1-877-557-2575

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Loan Discharge and Forgiveness

• Questions?

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• Thank you!
• Please be sure to complete your 2005 DMC
  evaluation forms!