Federal Updates

Reminder of changes effective July 1

Do you have a big red circle around July 1 in your planner? The various changes to the Title IV programs that have been authorized in the last year — many with July 1, 2008, effective dates — may have left your mind swirling, but a review of the upcoming changes impacting the financial aid industry should help put your mind at ease.

Let's start with the College Cost Reduction and Access Act (CCRAA), signed into law on September 27, 2007. Although some provisions have already gone into effect, others will become effective July 1. The CCRAA:

• Reduces the interest rate for subsidized Stafford loans for undergraduate students first disbursed on or after July 1, 2008, and before July 1, 2009, from 6.8 percent to 6.0 percent,
• Permits a FFELP borrower to consolidate his or her FFELP loans into a Direct Consolidation loan if the borrower intends to use the public service loan forgiveness program
• Increases the Pell grant maximum
• Implements the TEACH Grant Program

For further information on the CCRAA, see Shoptalk Online editions 427, 428, and 437. ED provided clarification on several CCRAA issues in DCL GEN-08-01.

On November 1, 2007, final rules for both the general provisions and the loan provisions were published in the Federal Register. While schools and financial institutions were permitted to implement some of the provisions early, all of the changes must be implemented by July 1. Items of particular interest in the final rules include:

Loan provisions

• Revises the definition of "eligible lender"
• Provides a non-exhaustive list of prohibited inducements
• Provides an exhaustive list of permitted activities
• Establishes the criteria and disclosure requirements for preferred lender lists (PLL)
• Eliminates the 12-month maximum loan period
• Establishes loan counseling requirements for Grad PLUS loan borrowers
• Simplifies the deferment process

General provisions

• For schools using passive loan confirmation, changes timeframes for certain activities
• Revises the treatment of loan funds when a student withdraws before beginning class
• Removes the requirement for school to obtain permission for direct payment via EFT to a bank account
• Establishes timeframes for issuing a check
• For payment of minor, prior-year charges using current-year Title IV aid, changes permissible amount and removes exception
• Extends the timeframe for the delivery of a late disbursement to 180 days and removes the ED appeal process

For further information on the November 1, 2007, final rules, see Shoptalk Online editions 431, 432, 433, 434, 439, 440, and 442. ED provided additional guidance regarding PLLs in DCL GEN-08-06.

The Ensuring Continued Access to Student Loans Act of 2008 (P.L. 110-270) was signed into law on May 5, 2008. The legislation includes provisions intended to assist FFELP borrowers in obtaining student loans. Effective July 1, 2008, P.L. 110-270:

• Increases Stafford annual and aggregate loan limits for undergraduate students
• Gives a parent PLUS borrower the option to postpone repayment
• Temporarily removes or eases certain adverse credit criteria for PLUS borrowers

For further information on P.L.110-270, see Shoptalk Online editions 453, 454, and 456.

Questions
As always, Shoptalk Online will keep readers informed of any new developments and ED guidance regarding the implementation of legislative and regulatory requirements. In the meantime, 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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Variable interest rates drop

ED announced last week that for the first time since 2004, interest rates on Stafford and PLUS loans with variable interest rates will drop, by 3.01 percent. The new rates will be effective from July 1, 2008, to June 30, 2009.

Stafford and PLUS loans first disbursed on or after July 1, 1998, and before July 1, 2006, have variable rates that reset annually on July 1 based on the last 91-day T-bill auction in May. Note that this rate change is independent of the upcoming reduction in the fixed interest rate — from 6.8 percent to 6.0 percent — on subsidized Stafford loans for undergraduate students, effective for loans first disbursed on or after July 1, 2008, and before July 1, 2009.

How low will they go?
On July 1, 2008, interest rates on Federal Stafford and PLUS loans that are subject to the variable-rate provision will be as follows:

• 3.61 percent for Stafford loans during in-school, grace, and deferment periods,
• 4.21 percent for Stafford loans during repayment and forbearance, and
• 5.01 percent for PLUS loans.

More rates to come
Some older PLUS and Supplemental Loan for Students (SLS) loans have variable interest rates based on the weekly average of the one-year constant maturity Treasury yield for the last calendar week ending on or before June 26. As a result, new rates on such loans won't be available until late June.

Another interest rate not expected until late June is the one applicable to the Health Education Assistance Loan (HEAL) portion of Federal Consolidation loans, which is based on the average of the bond equivalent rates of the 91-day T-bills auctioned for the quarter ending June 30.

More information
ED's press release on the new interest rates is available online at http://ifap.ed.gov/eannouncements/0527InterestRate20082009.html.

For questions about the interest rate changes, contact TG customer assistance at (800) 845-6267 or send an e-mail to cust.assist@tgslc.org.

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