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Federal Updates

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Shoptalk Online 461, July 1, 2008

Federal Updates

ED issues reminder of disaster guidance

In light of recent federally-declared disasters, ED released Dear Colleague Letter (DCL) GEN-08-10/FP-08-08 on June 24, 2008, to remind schools, lenders, and guarantors of guidance for helping Title IV participants affected by a disaster.

ED has previously issued two DCLs that address this issue. GEN-04-04 provides general guidance on the topic, and GEN-05-17 includes information on the waiver of a student's Title IV grant repayment responsibility if the student withdrew from a school because of a major disaster. The guidance in both letters remains in effect, and participants should refer to it when addressing any Title IV issues related to any federally-declared disaster.

For more information
GEN-08-10 is available on the Information for Financial Aid Professionals (IFAP) Web site at http://ifap.ed.gov/dpcletters/GEN0810FP0808.html.

If a school has questions that are not addressed by GEN-04-04 or GEN-05-17, it should contact its School Participation Team. Lenders and guarantors should contact Federal Student Aid's Financial Partners regional staff serving the location of the lender or agency.

CCRAA impacts R2T4 on the Web

On June 19, ED released an Electronic Announcement informing schools that its R2T4 on the Web site would be updated on September 28, 2008, to implement provisions related to the College Cost Reduction and Access Act of 2007 (CCRAA) that are effective today, July 1, 2008.

To assist schools in completing the calculation in the interim, ED announced on June 23 the availability of new Return of Title IV funds (R2T4) worksheets for clock-hour and credit-hour programs, available in PDF on the Information for Financial Aid Professionals (IFAP) Web site at http://ifap.ed.gov/aidworksheets/currentoptions.htm. The revised worksheets, which incorporate changes brought about by the CCRAA, are to be used for all withdrawals that take place on or after July 1, 2008.

To ensure correct usage of R2T4 on the Web during this interim period, the R2T4 on the Web site has been updated to prevent entry of student records with a withdrawal date on or after July 1, 2008; this edit will be removed with the September 28, 2008, update to the site. A school can continue to use the R2T4 on the Web site after July 1, 2008, to perform calculations for students with a withdrawal date prior to July 1, 2008.

Note: ED strongly recommends that schools use the appropriate paper worksheets (and not R2T4 on the Web) to perform calculations for students who have a withdrawal date prior to July 1, 2008, but a date of determination on or after July 1, 2008. The Web site will not correctly calculate certain statistics for records falling under this scenario.

For more information
The June 19 Electronic Announcement is available at http://ifap.ed.gov/eannouncements/061908AddtlTEACHGrantOpImp.html.

The June 23 Electronic Announcement is available at http://ifap.ed.gov/eannouncements/052308R2T4WebRelDelay.html.

If you have any questions regarding R2T4 on the Web, contact CPS/SAIG Technical Support at (800) 330-5947 (TDD/TTY (800) 511-5806) or by e-mail at CPSSAIG@ed.gov.

Déjà vu? Another HEA extension

It seems every few weeks, Shoptalk Online has reported another extension of the Higher Education Act (HEA). The most recent extension, S. 3180, was approved by Congress on June 25, and has been sent to the president for his signature. Like the previous bill, this is a "clean" extension, changing only the expiration of the HEA from June 30, 2008, to July 31, 2008.

For more information
Shoptalk Online will keep readers apprised of the progress of the reauthorization process. To access the text of S. 3180, go to Thomas, the U.S. Congress Web site, at http://thomas.loc.gov. In the space for "Search Bill Text," enter "S. 3180," click on "Bill Number," and click "Search."

ED releases terms and conditions of loan purchase programs under ECASLA

On July 1, ED published a notice of terms and conditions of the purpose of loans under the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA). Along with terms and conditions, the notice outlines the methodology and factors considered in evaluating the loan purchase price. The terms and conditions are effective on the date of the notice's publication in the Register.

Background
ECASLA established a loan purchase commitment program and a loan participation purchase program, with the goal of ensuring student loan availability for the 2008-2009 academic year. These programs will offer temporary liquidity to FFELP lenders at prices that will encourage continued participation in the FFELP (see Shoptalk Online editions 453 and 456).

For the purpose of these programs, eligible loans under both programs include, "FFELP subsidized or unsubsidized Stafford Loans and FFELP PLUS loans that were made to students (and parent PLUS loans made to parents of dependent students) for loan periods that include, or begin on or after, July 1, 2008,...and on which the first disbursement is made on or after May 1, 2008, but no later than July 1, 2009, and is fully disbursed no later than September 30, 2009."

In order to be included in either program, loans must comply with certain borrower benefit restrictions (see Shoptalk Online edition 459 for more information).

Participation requirements
A lender that wishes to participate in either of these programs must file a Notice of Intent to Participate (included as an appendix to the advance copy of the terms and conditions notice) which permits, but does not obligate, them to participate. In order to allow loans originated as early as May 1, 2008, to be eligible for purchase, ED must receive the lender's completed Notice of Intent to Participate within 15 days of the official publication of the notice in the Federal Register. If ED does not receive the lender's completed Notice of Intent to Participate by that date, only loans originated on or after the date on which ED receives the document will be eligible for sale to ED. Loans that are originated by a lender and then sold to another lender will be subject to special rules as outlined in the notice.

To participate in the loan purchase commitment program, a lender must also enter into a Master Loan Sale Agreement with ED. The loan participation purchase program requires that a participating lender enter into a Master Participation Agreement with ED and a third-party custodian acceptable to ED.

Terms and conditions of the loan purchase commitment program
Purchases may occur between July 1, 2008, and September 30, 2009. For each loan it purchases, ED will pay a purchase price equal to the sum of:

The outstanding principal balance of the loan at the time of sale,
Accrued and unpaid interest on the loan as of the time of sale,
A reimbursement of the one percent loan fee previously paid to ED by the lender, and
A flat $75 fee for each loan, to cover administrative, servicing, and financing costs, including those for origination and deconversion (removal of loans from a lender's system).

The notice describes additional terms and conditions of the loan purchase commitment program, including some items of particular interest:

By executing a Master Loan Sale Agreement, a lender represents to ED that it will continue to participate in the FFELP and that when private sources of funding become reasonably available from private sources, it will originate new FFELP loans or acquire FFELP loans made by other lenders after the date of ED's purchases from the lender. The lender must deliver the MPN for each loan to ED (or its agent), as well as any and all other documents and computerized records relating to the loan.
Upon purchase of a loan, ED obtains all rights to service the loan and may require its deconversion in order to service the loan, either through ED or through a third-party servicer of its designation. The guaranty is cancelled at that time.
The lender must execute the Master Loan Sale Agreement no later than March 31, 2009; after ED countersigns the Master Loan Sale Agreement, and at least forty-five days before the date of any intended sale of loans, the lender must notify ED of its intent to sell loans.
A lender must notify ED that it will exercise its option to sell the fully-disbursed loan(s) no later than August 14, 2009, and must complete all loan sales on or before September 30, 2009.

Terms and conditions of the loan participation purchase program
Under this program, a sponsor (a lender that sells participation interests) transfers the title of a loan to a short-term trust with a custodian in exchange for ED's purchase of participation interests in that loan. Upon expiration, a trust may pay off ED's participation interest, either through a refinancing arrangement with an institution other than ED, or by selling the loans to ED (as described in "Terms and conditions of the loan purchase commitment program" above). All loans made using these participation interests are originated and serviced as FFELP loans.

A lender participating in this program would have to either pay off ED's participation interest, or sell it to ED, by September 30, 2009. If a lender sells its participation interests, it will be charged the commercial paper rate plus 50 basis points (essentially, this is the interest rate ED is charging on its participation interest in the loan). If a lender sells the loans which are subject to the participation interest(s) to ED, the guaranty arrangement will be cancelled.

As with the loan purchase commitment program, ED provides some additional information of special note:

If a lender executes a Master Participation Agreement for this program, it represents to ED that it will continue to participate in the FFELP and that when private sources of funding become reasonably available from private sources, it will originate new FFELP loans or acquire FFELP loans made by other lenders after the date of ED's purchases from the lender.
ED will not enter into a Master Participation Agreement with a lender after July 1, 2009, and the sponsor must exercise the option to sell participation interests on or before August 1, 2009.
The custodian is responsible for all fees or charges owed to ED or the guarantor on a purchased loan after it has been transferred to the custodian, including amounts owed to ED as a recapture of excess interest ("negative special allowance").
Each sponsor will be required to represent and warrant to ED that it intends to sell participation interests with an aggregate unpaid principal balance of not less than $50 million.
Each loan included in a participation interest shall be serviced by or at the direction of the custodian.

For more information
The notice is available online at http://edocket.access.gpo.gov/2008/pdf/E8-14820.pdf. TG encourages readers to examine the notice carefully; this article provides only a high-level summary of the 30-page document.