Federal Updates

ED provides more information on borrower benefits and the loan purchase program

On June 12, 2008, ED released an Electronic Announcement regarding the impact of FFELP borrower benefit programs on ED's offer to purchase certain FFELP loans.

Background
In a May 21, 2008, letter to FFELP lenders (reported in Shoptalk Online edition 456), ED announced that it would offer to purchase certain FFELP loans, as well as participation interests in pools of loans made for the 2008-09 academic year, in accordance with the Ensuring Continued Access to Student Loans Act (Pub. L. 110-227).

Since ED announced the loan purchase program, the financial aid community has expressed concern as to whether ED would continue to provide a loan's borrower benefits upon the purchase of the loan, or if the existence of those benefits would preclude ED from purchasing the loan. This latest announcement states that while some borrower benefit programs offered by FFELP lenders do not impact loan purchase eligibility, there are some borrower benefit programs that, if offered, would impact this eligibility.

Except as described below, ED will not assume a commitment made to a borrower by another entity; loans with such commitments cannot be included in the purchase program.

Payment of upfront fees will not impact eligibility
Since the 1.0 percent Stafford origination fee and the 1.0 percent Stafford and PLUS federal default fee, in effect for loans made on or after July 1, 2008, would have been paid prior to the purchase of the loan, a FFELP lender (or any other entity) may pay all or part of these two upfront fees without impacting the loan's purchase eligibility.

Interest rate reductions for electronic payments may impact eligibility
ED states that, for any 2008-09 loan that it purchases, it will likely offer a 0.25 percent interest rate reduction for a borrower who elects to make his or her payments automatically through an electronic debit process. Thus, although a reduction in excess of 0.25 percent would impact the loan’s purchase eligibility, a FFELP lender offering a borrower a 0.25 percent interest rate reduction under the same conditions would not jeopardize the loan’s purchase eligibility or the borrower's right to such an interest rate reduction.

Other borrower benefits will impact eligibility
Most other borrower benefit programs provide benefits later in the loan's lifecycle, after ED may have purchased the loan. ED states that an upcoming Federal Register notice will likely stipulate that one of the eligibility requirements for a loan to be purchased by ED, or placed in a participation agreement as described in the May 21 letter, will be that the loan carry no committed or implied borrower benefit other than the two benefit programs noted above, or those which are expressly provided for in the statute or in the promissory note.

An important note
ED emphasizes that the guidance in the Electronic Announcement does not imply or require that FFELP lenders must offer loans with terms and conditions identical to those offered by ED in the Direct Loan Program. Nor does it mean that ED will offer benefits ordinarily provided to Direct Loan borrowers on a FFELP loan that it purchased from a FFELP lender. It is also possible, but unlikely, that the upcoming Federal Register notice will further limit the purchase of loans on the basis of the benefits offered to borrowers.

More information
The Electronic Announcement is available on the Information for Financial Aid Professionals (IFAP) Web site at http://ifap.ed.gov/eannouncements/0612BorrowerBenefits.html.

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Reminder: Upcoming federal minimum wage increase

As reported in Shoptalk Online edition 411, last year Congress authorized three annual increases in the federal minimum wage; the second of those increases is quickly approaching:

• On July 24, 2008, the minimum wage will increase from $5.85 per hour to $6.55 per hour
• On July 24, 2009, the final increase authorized by this legislation will go into effect, increasing the minimum wage from $6.55 per hour to $7.25 per hour

School impact: Federal Work-Study students
As this change may impact some Federal Work-Study (FWS) students, it is important for FWS administrators to contact human resource and payroll staff, as well as FWS supervisors, to verify that all parties involved in FWS pay rate determination and payroll processing are aware of this change.

As a reminder, FWS employers may not pay their FWS employees a wage that is less than the federal minimum wage, and, in the event an FWS employee is subject to differing state and federal minimum wages, the employee must be paid the higher of the two pay rates.

If necessary, schools participating in the Perkins Loan Program should update their systems to use the increased minimum wage amount in calculating the maximum monthly gross income for the purpose of determining borrower eligibility for an economic hardship deferment.

Lender impact: Economic Hardship Deferment criteria
FFELP lenders and servicers should review their systems to ensure readiness to process Economic Hardship Deferment (HRD) and Working Mother Deferment (PLWM) Request forms using the increased minimum wage amount. The increased wage amount should be used for deferment requests received on or after July 24, 2008. Updated deferment forms will be available on TG Online in the near future.

For more information
Last summer, ED released Dear Colleague Letter (DCL) CB-07-11, available online at http://ifap.ed.gov/dpcletters/CB0711.html, with guidance on the FWS implications of the wage increase.

The Federal Student Aid Handbook (FSA Handbook) provides general information about the FWS Program and the Perkins Loan Program in volume 6 of the 2008-09 version. To download the FSA Handbook, visit TG Online at www.tgslc.org/policy/fsa_handbook.cfm.

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A sneak peek at the TEACH Grant final rules

Today, ED released a draft version of the TEACH Grant final rules, with an implementation date of July 1, 2008. ED expects that the official version of the document will be published in the Federal Register within the next week.

Proposed rules for the TEACH Grant were published on March 21, 2008 (see Shoptalk Online edition 447).

More information
ED's announcement is available on the Information for Financial Aid Professionals (IFAP) Web site at http://ifap.ed.gov/eannouncements/061708TEACHGrantDraftFinalRule.html.

The draft version of the rules can be accessed at: www.ed.gov/policy/highered/reg/hearulemaking/2008/index2008.html. Click either the MS Word or PDF version in the "What's New" box at the top of the page.

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Closed school corner

The following table provides a list of newly reported school closures and error corrections from the Postsecondary Educational Participants System (PEPS) and from the June 2008 Closed School Monthly Report supplied by the Department of Education.

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