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Federal Updates

Shoptalk Online 210, June 24, 2003

Federal Updates

Final rules flashback

It seems like it was just yesterday that ED released the 2002 final rules. But now, eight months later, these new federal regulations are officially about to become effective. All of the 2002 final rules must be implemented July 1, 2003. You may have already implemented most of the final rules that pertain to your institution, however, since they could be implemented early on or after the date that they were approved — November 1, 2002.

The final rules brought changes to many areas of federal student aid administration, including return of Title IV funds, entrance and exit counseling, and loan deferment and forbearance. See "Final Rules Highlights" in Shoptalk Online Edition 182, for a summary of the rules.

Supplemental information available for Consolidation loan borrowers

Included in the final regulations issued by ED in the November 1, 2002, Federal Register, are provisions that permit FFELP Consolidation loan borrowers to receive loan discharges that would have been available if their original loans had not been consolidated. Specifically, a Consolidation loan borrower with an underlying PLUS loan, or a married couple with a joint Consolidation loan, may qualify for partial discharge under certain circumstances (see "Conditions for Discharge," below). These provisions, which become effective July 1, 2003, are not included on the current version of the Consolidation Loan Application and Promissory Note (see "Update on Consolidation loan forms," below). Therefore, lenders are encouraged to disclose these provisions to new Consolidation loan borrowers for loans made on or after July 1, 2003, as well as to existing Consolidation loan borrowers.

Disclosing the new benefits
To assist lenders in disclosing these new benefits to borrowers, the National Council of Higher Education Loan Programs (NCHELP) has created a Supplemental Information sheet, approved by ED, that explains these discharge provisions. The Supplemental Information sheet is available for download from TG Online at www.tgslc.org/forms/frms_con.cfm.

Conditions for discharge
In the circumstances outlined below, a borrower may qualify for a partial discharge of his or her Consolidation Loan if the borrower submits required documentation.

Death of a dependent student when a PLUS loan obtained for the student has been consolidated.
Upon the death of a dependent student, the portion of a Consolidation loan attributable to a PLUS loan obtained for that student is eligible for discharge. The parent borrower of the Consolidation loan remains responsible for repaying the remainder of the Consolidation loan.
Death of a joint Consolidation loan borrower.
If one of the borrowers of a joint Consolidation Loan dies, the portion of the Consolidation loan attributable to that borrower is eligible for discharge. The surviving borrower remains responsible for repaying the remainder of the Consolidation loan.
Total and permanent disability of a joint Consolidation loan borrower.
If one of the borrowers of a joint Consolidation loan becomes totally and permanently disabled, the portion of the Consolidation loan attributable to that borrower may be eligible for discharge. Both borrowers remain responsible for repaying the remainder of the Consolidation loan.

Additional considerations
The revised regulations are consistent with current regulations that allow partial discharge of Consolidation loans due to school closure, false certification of a borrower's loan eligibility, and unpaid refunds. Borrowers may take advantage of the new discharge ability regardless of the date on which the Consolidation loan was made or the date the discharge condition was met. However, a borrower who would have qualified for a discharge of a Consolidation loan under the new regulations may not apply for a discharge of a loan that has already been paid in full.

Update on Consolidation loan forms
The common Consolidation Loan Application and Promissory Note is set to expire on June 30, 2003, but because the form is currently still under ED review, lenders should keep using the current form until a revised one is made available. Shoptalk Online will keep you posted when the revised form is released for industry use.

More information
For more information about the new loan discharge provisions and other regulatory changes that will take effect on July 1, 2003, see "Final Rules Highlights" in Shoptalk Online Edition 182.