Federal Updates

A glimmer of hope for reauthorization

In recent weeks, Congress has made significant progress toward completing the long-delayed reauthorization of the Higher Education Act (HEA). As we reported in Shoptalk Online edition 429, although the Senate passed a reauthorization bill (S 1642) last summer, and House Republicans introduced their version of reauthorization in October (HR 3746), momentum stalled as House Democrats focused on reauthorization of the No Child Left Behind (NCLB) Act. Unfortunately, the expected reauthorization of the NCLB has also failed to materialize, so once again Congress has turned its attention to the HEA. On November 9, House Democrats introduced HR 4137, the College Opportunity and Affordability Act, which would reauthorize the HEA for five years and make numerous changes to the statute.

Issues addressed in the legislation include student loan reforms, college cost containment, increases in Pell Grant amounts, FAFSA simplification, modification of the 90/10 rule, and public service loan forgiveness.

The House Education and Labor Committee has completed the mark-up process and the bill is expected to be considered by the entire House when Congress returns from its holiday break. If approved by the House, a conference committee composed of members of the House and Senate will work to craft a compromise bill that is acceptable to both chambers.

More information
To access the text of HR 4137, go to Thomas, the U.S. Congress Web site, at http://thomas.loc.gov/. In the space for "Search Bill Text," enter "HR 4137," click on "Bill Number," and click "Search."

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Final rules 101: Loans, loans, loans

We continue this week with our coverage of changes resulting from ED's recent release of final rules for loans and general provisions (see Shoptalk Online edition 431 for our previous discussion). In this article we will focus on changes to loan discharge programs and changes that will impact the Perkins Loan Program.

Loan discharge for total and permanent disability
One of the topics during negotiated rulemaking (Neg Reg) that generated a great deal of concern over its potential impact on borrowers was ED's proposed changes to the loan discharge for total and permanent disability (TPD).

While there will be few changes to the administrative responsibilities of lenders and guarantors, and no change to ED's definition of "totally and permanently disabled," the new rules indicate a shift in ED's approach to the determination of whether or not a borrower meets that definition. Currently, a borrower's three-year conditional discharge period begins from the date the borrower's disability began, as determined by a physician; in some cases, that date could be retroactive, effectively granting the borrower an immediate loan discharge.

Under the new rules, the borrower's three-year conditional period will begin on the date the physician completes and certifies the discharge application, regardless of when the qualifying condition actually began. This will allow ED to monitor each borrower's status throughout the conditional period to ensure he or she continues to meet the eligibility criteria before granting a final discharge. During the application process, or during or at the end of the conditional discharge, ED will have the authority to require additional evidence of the borrower's medical condition and an evaluation of the borrower's disability by an independent physician at no cost to the borrower.

If, at the end of the three-year conditional period ED determines that the borrower qualifies for a final discharge, it will notify the borrower of its decision and refund any payments received on the loan after the date the physician certified the discharge application.

In response to community concerns, ED stated in the preamble to the final rules that the new discharge process will be effective for borrowers who apply for a discharge on or after July 1, 2008 — borrowers in the process of having the application certified on that date will not be subject to the new rules.

Loan discharge for false certification as a result of identity theft
The final rules have made several changes to the administration of this discharge program, some of which provide additional relief to affected borrowers as well as lenders. The changes under the new rules will include:

• Allowing lenders to file a claim for up to three years after receipt of a valid identity report, if additional supporting documentation is submitted.
• Requiring lenders to suspend all credit bureau reporting for up to 120 days after receiving a valid identity theft report or a report of identity theft from a credit bureau, while making a determination of the enforceability of the loan.
• Allowing lenders to grant an administrative forbearance on a loan for up to 120 days while investigating the loan's enforceability.
• Requiring lenders to delete from the borrower's credit report any information about a loan that has been discharged due to identity theft.
• Clarification that a local, state or federal judicial determination is one that conclusively determines that a FFEL or Direct Loan was falsely certified due to the crime of identity theft only if the decision identifies the perpetrator of the crime.
• Finally, the final rules include a prohibition on a lender's collection of special allowance and interest benefits on a loan that has been determined to be unenforceable.

Perkins loan changes
Although the changes in the loan issues final rules concern primarily the FFEL and Direct Loan Programs, ED also introduced several changes pertaining to specifically the Perkins Loan Program.

• Child or family service cancellation
  These changes are not new to the community, having previously been provided in a 1995 Dear Colleague Letter (DCL GEN-05-15) as well as the Federal Student Aid Handbook. The new rules will simply re-affirm and codify ED's long-standing policy that only service provided directly and exclusively to high-risk children — and their families — from low-income communities meets the cancellation eligibility requirements.
  
  
• Reasonable collection costs
  Currently, the limits on Perkins loan collection costs pertain only to rehabilitated loans. The new rules will establish maximum collection costs that a school may assess on a defaulted Perkins loan. For first collection efforts, the new rules will limit collection costs to 30 percent of the outstanding principal, interest, and late charges; for second and subsequent collection efforts, the costs will be limited to 40 percent. Costs for collection efforts due to litigation will also be limited to 40 percent plus court costs.
  
  
• Mandatory assignment
  Although schools and school associations offered strong resistance, ED retained the mandatory assignment provisions it introduced in the proposed rules last June. Under the new rules, a school could be required, at ED's request, to assign a defaulted Perkins loan if the loan has been in default for more than seven years, the balance on the loan is more than $100, and no payment on the loan has been received in the last 12 months (unless the reason no payment was received was because the loan was in an authorized deferment or forbearance). Recognizing that some older Perkins promissory notes may not include the borrower's Social Security Number, ED will accept a mandatorily-assigned loan without the borrower's SSN.

For more information
If you have any questions, please contact TG customer assistance at (800) 845-6267, or send an e-mail message to cust.assist@tgslc.org.

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