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Federal Updates

Shoptalk Online 134, December 11, 2001

Federal Updates

ED Seeks Nominations for Spring 2002 Negotiated Rulemaking

ED announced in the December 5, 2001 Federal Register that it will hold negotiated rulemaking (Neg Reg) sessions in spring 2002. ED is also soliciting nominations of individuals to participate in the negotiations.

There will be two negotiating committees: one addressing student loan issues, the other dealing with other program issues. ED is accepting nominations for participation on the negotiating committees through December 19, 2001, and requests that nominated persons represent individuals or organizations that have in their population key stakeholders in student financial assistance programs.

During this Neg Reg, ED intends to address proposals that would streamline current federal student financial assistance program regulations, without requiring statutory amendments, while maintaining or improving program integrity. Many of the proposals derive from concerns submitted by the student financial aid community in response to the Fed.Up initiative sponsored by the House Subcommittee on 21st Century Competitiveness of the Education and Workforce Committee.

What is Neg Reg?
Since 1992, federal law requires ED to obtain the advice and recommendations of organizations affected by regulatory topics before creating regulations. Negotiated rulemaking is the process that has evolved to fulfill this statutory requirement.

Generally, ED establishes committees to address specific regulatory topics. A committee is composed of representatives from the financial aid community who have experience with the assigned topics. For example, a guarantor (like TG) is more likely to participate on a committee dealing with student loan issues and less likely to participate on a committee dealing with grant or work-study issues. In the December 5 announcement, ED is soliciting nominations for participation on these committees.

Each committee holds three to five negotiating sessions, lasting several days each. At the sessions, the negotiators (including ED), under the mediation of an independent facilitator, discuss issues and draft proposed regulations. There will be three sessions during the spring 2002 Neg Reg.

After the negotiations, the regulations that the committees propose are offered to the financial aid community for comment. After assessing the comments, ED publishes the final rules, or final regulations, in a Federal Register along with their implementation dates.

Thus, Neg Reg provides a forum for all financial aid program participants to have a voice in creating regulations.

For questions regarding negotiated rulemaking, call TG Customer Assistance at (800) 845-6267 or send an message to

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2003 Interest Rate Problem: The Problem and Possible Solution

There's been a lot of talk for the past few months about the 2003 interest rate problem. What's it all about? Is there really a problem? Is there a solution?

The Background
The saga started over eight years ago with the Student Loan Reform Act of 1993. This act changed the way Stafford and PLUS loan interest rates would be calculated for loans originated beginning July 1, 1998. It also changed the instrument used to determine interest rates from a Treasury bill (T-bill) to a "comparable maturity" (CM) instrument.

The Clinton Administration believed that the newly created Federal Direct Loan Program (FDLP) would quickly dominate student lending and subsequently replace the FFELP. It was anticipated that by 1998 only a few lenders would still remain in the FFELP and that they would quickly drop out of the program because of decreased revenue due to the change in interest rate calculations.

However, by 1998, three factors combined to postpone implementation of the new interest rates:

  • The FDLP had not gained the lion's share of the market, as anticipated. It had gained only about one-third of the market and had long since lost its initial momentum.
  • Because the FFELP continued to play such an important role in funding higher education, the FFELP community was successful in making the case that elimination of the FFELP would severely reduce access to higher education for millions of students.
  • Lastly, the political environment in Washington, D.C., had changed significantly since 1993. Congressional support for the FFELP had strengthened in the face of significant improvements in the Program by the FFELP participants.

As a result, the 1998 implementation of these provisions was delayed until July 1, 2003.

The Problem
As stated above, lenders maintain that under provisions now scheduled to take effect in 2003, the return on student loans potentially could decline to a level below the cost of funds on loans. Many FFELP lending institutions believe that in such a situation they would be forced to leave the program, leading to a lack of availability of FFELP loan funds.

A solution to the problem is needed soon. The FFELP industry has to raise more than $24 billion to fund FFELP loans every year. The bond issuances and other financing used to raise this money are only possible if it is clear that the student loan program is stable. The process involved in raising these funds in the bond market is a complicated and lengthy one. If the problem is not resolved quickly, funds may not be secured in time for the 2003-2004 school year.

The Possible Solution
Recently, key players in Congress, lenders, and school and student groups have agreed on a permanent solution. The fix involves retaining the current T-bill formulas for borrower interest rates until 2006, at which time they would convert to a fixed rate of 6.8 percent for Stafford loans and 7.9 percent for PLUS loans.

Now that an agreement has been reached, this fix can be introduced and moved through the legislative process. Recent comments by Congressional staff in both Houses of Congress and across party lines provide hope that this issue will be resolved before the current session of Congress ends in about two weeks.

For questions regarding the 2003 Interest Rate Problem, call TG Customer Assistance at (800) 845-6267 or send an message to

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Perkins Prom Note Corrected

ED has announced corrected versions of the new Perkins Loan Program and National Direct Student Loan (NDSL) promissory notes that were recently released in Dear Partner Letter CB-01-13. (See Shoptalk Online, Edition 132, for more information about the substantive changes to the new note.) The corrected versions, which are attachments to more recently released CB-01-15, fix a few typographical errors and contain the appropriate Office of Management and Budget (OMB) control number: 1845-0061.

To access CB-01-15 and the correct versions of the Perkins and NDSL promissory notes, visit the IFAP website at

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Closed School Corner

Newly Reported Closures

School Name/
School Address

ED's Official Closure


New Image Careers
301 S. Main St.
Corbin, KY 40701



Note: All students completed their training at the time of closure.

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