FFEL Loan Participation Program

1
FFEL Loan Participation Program

• Participation Operations Part 3
• August 15, 2008

2
Presenters

• Jeff Baker
• Director Policy Liaison Implementation
• Federal Student Aid
• U.S. Department of Education
• Jay Hurt
• Chief Financial Officer
• Federal Student Aid
• U.S. Department of Education

3

• Introduction
• Jeff Baker
• Director Policy Liaison Implementation
• Federal Student Aid
• U.S. Department of Education

4
Logistics

• Title Loan Participation Program
• Participation Operations Part 3
• Date August 15, 2008
• To Participate You Must
• Logon at URL provided in registration
  confirmation email and
• Dial in to 1-888-324-6476 Confirmation number
   MGERHARD
• Additional information on the Loan Purchase
  Programs at www.federalstudentaid.ed.gov/ffelp

5
Webinar Objectives

• Purpose To answer questions from Participation
  Operations Webinars Part 1 and Part 2
• Target Audience Personnel at servicers, lenders
  and custodians who are responsible for record
  keeping
• Limitations Will not include matters concerning
  the Loan Purchase (PUT) Commitment Program. This
  information will be provided in other formats,
  including in subsequent Webinars
• Loan Purchase (PUT) Commitment Program Webinar -
  part 1 will be held on August 22, 2008

6
Legal Authorities

• Ensuring Continuing Access to Student Loans Act
  of 2008 (P.L. 110-227)
• HR 5715
• Signed by the President on May 7, 2008
• Strengthened GA Lender of Last Resort Program
• Provided Secretary authority to purchase FFEL
  loans.
• Cannot provide advanced funding to lenders
• Federal Register Notice
• Required by statute
• Draft Posted to IFAP on June 24, 2008
• Official Publication July 1, 2008

7
Program Objectives

• Ensure that eligible students and parents receive
  federal student loans for the 2008-2009 academic
  year
• Support the FFEL Program as a successful
  private/public partnership
• Ensure no net cost to the federal government
• No statutory authority to provide advance funding

8
Two Programmatic Components

• Loan Purchase Commitment Program
• Commitment by ED to purchase eligible 2008-2009
  FFEL loans through September 30, 2009
• Called put
• Any FFEL lender/holder
• Loans must be fully disbursed to be purchased
• 45 day advance notice of loans to be sold
• EDs commitment has value in financial markets

9
Two Programmatic Components

• Loan Participation Purchase Program
• Commitment by ED to purchase participation
  interests in eligible 2008-2009 FFEL loans
  through September 30, 2009
• EDs purchase will provide immediate liquidity
• To terminate EDs participation interest lender
  repays ED with defined yield.
• Loans can be re-purchased by lender
• Loans can be sold (put) to ED

10

• Loan Participation Purchase Program
• Topics from Previous Webinars
• And Loan.Participation_at_ed.gov

11
Agenda

• Technical Requirements/ED Policy
• Approval Process, Eligibility, MPN
• Operations
• 799, LIDs, Loan Modifications, Participants
  Yield, Monthly Reporting
• GA Matters
• Guarantee terms, LIDs, Reporting
• New Questions

12
Approval Process

• Certificate of Good Standing
• Office of the Comptroller of the Currency issued
  "Certificate of Corporate Existence" is
  acceptable for National Banks
• Certificate of Incorporation
• OCC Charter Certificate is acceptable for
  National Banks
• An ELT affiliated with a Sponsor cannot serve as
  Custodian for that Sponsor

13
Loan Eligibility

• Borrower Benefits
• An unconditional upfront borrower fee reduction
  that is made prior to or at the time of the final
  disbursement on the loan.
• Reductions in interest rates of not more than
  0.25 percent, contingent on the borrowers use of
  automatic payment process.
• No other benefits associated in any way with the
  loan at the time of participation are permitted.

14
Loan Eligibility

• Notice of Intent to Participate
• All historical holders of a loan do not need to
  submit the NOI, only the originating lender and
  current holder who is the Sponsor.

15
Master Promissory Notes

• True and exact copies are acceptable
  documentation
• Original MPNs do not need to be provided.
• The requirement that the Sponsor place all of a
  borrower's Stafford loans that it holds only
  applies to those loans that meet the definition
  of an "Eligible Loan" as defined in the Master
  Participation Agreement

16
Form 799

• When loan fully disbursed prior to Sponsor
  placing loan into the Participation
• Report under Sponsor LID (including all
  disbursements) up to day of title transfer
• Custodian LID from day of title transfer.
• Normal Process -- Net amounts are owed when
  amounts on 799 offset.

17
LENDER IDs

• Custodians will receive inactive LIDs during
  pre-approval phase once the Initial Approval
  Package is submitted
• LID will be activated upon approval
• LIDs will be in the 6 character series, padded at
  the end to reach 8 characters
• LIDs will expire at the end of the Participation
• Custodians will receive a unique LID for each
  Custodian/Sponsor relationship

18
Loan Adjustments

• Any loan adjustments to upcoming disbursements
  may be changed, but need to be updated in all
  applicable fields of the Loan Schedule
• Example school cancels a second/final
  disbursement
• Loan will be shown as fully disbursed on next
  loan schedule
• GA/NSLDS reporting will change to Custodian LID

19
Cancellations

• Disbursement Cancellation Prior to Placement
• When cancellation on a disbursement occurs prior
  to participation, treat as though there was no
  earlier disbursement.
• Example -- Loan with two scheduled disbursements
  but first is canceled prior to placement of loan
  into participation
• First disbursement date reported upon
  participation is the disbursement that was made
  and not cancelled.
• Number of disbursements reported is 1

20
Cancellations

• Disbursement Cancellation After Placement
• When cancellation on a disbursement occurs after
  participation, original disbursement information
  must remain and funds returned to Sponsor must be
  remitted to the Custodian for month-end sweep
• Example After first disbursement of a two
  disbursement loan, the first is disbursement is
  canceled.
• First disbursement date reported to ED remains
  the original first disbursement date that ED
  purchased.
• Number of disbursements remains at 2.
• Returned funds remitted to Custodian for sweep.

21
Disbursement Re-Issues

• Disbursement Cancellation and Re-Issue
• See prior slide example for the cancellation.
• Re-Issue is treated as a subsequent
  disbursement.
• Example, first disbursement cancelled after
  placement in participation then re-issued
• First disbursement date reported to ED remains
  the original first disbursement date that ED
  purchased.
• Re-issued disbursement is new disbursement with
  its own date.
• Number of disbursements will be three.

22
Monthly Reporting

• First monthly reporting period will begin with
  the September 30, 2008 as of date
• Monthly Rolling Forecast must still be submitted
  to ED prior to funding the initial request
• Monthly Settlement Date Report will have Servicer
  detail in the Loan Schedule, but not in the
  summary report
• Monthly Rolling Forecast
• Amount Disbursed should be the gross amount of
  the disbursement (not cash disbursed to the
  student as described in the instructions)

23
Monthly Reporting

• Updated monthly reporting instructions will
  provide additional guidance relating to Loan
  Adjustments
• Updates will be announced prior to the first
  monthly reporting date

24
Participants Yield

• Departments Participant yield accrues daily on
  a simple, non-compounded basis using ending daily
  participation certificate balances
• Available cash at the custodian is swept monthly
• Departments Participant Yield might not be paid
  in full each month, but will continue to accrue
  using the methodology described above (without
  compounding)

25
Loan Guarantee

• The guarantee that was granted to the lender (now
  the Sponsor) remains in effect while the loan is
  in the Participation Facility, without regard to
  the transfer of title to the Custodian.
• Sponsor-guaranty agency relationship is
  maintained.
• Amendments to the Guarantee Agreements between
  the Lender/Sponsor and the original Guaranty
  Agency may be required as required by the
  Guaranty Agency.
• When removed via a repurchase by the Sponsor, the
  guaranty remains
• When removed by a put to ED, the guarantee ends.

26
Guaranty Agencies

• Reporting
• After loan fully disbursed, the Sponsor/Custodian
  reports loan to lenders original GA under
  Custodians LID.
• GAs report loans to NSLDS under Custodians
  LID after final disbursement.

27
Questions

• Questions may be asked now or submitted to the
  following e-mail address for consideration
• Loan.Participation_at_ed.gov
• Please include your contact information with your
  e-mail
• Name
• Phone Number