Federal Updates

In Washington this week: Pigs fly

For the last five years we've been watching and waiting for Congress to reauthorize the Higher Education Act (HEA). On Thursday, July 31, Congress approved H.R. 4137, the Higher Education Opportunity Act, by an overwhelming majority, reauthorizing and extending the HEA for another five years. The bill has been forwarded to the president for his signature; unless otherwise noted, all changes are effective upon the date of enactment.

The changes included in H.R. 4137 are far-reaching. While much of the legislation addresses issues in the federal student aid programs, it also encompasses topics ranging from illegal file sharing to state higher education funding to textbook costs. This week we will provide a high-level overview of the various provisions in the reauthorization bill. As TG and the industry engage in close analysis of the bill, Shoptalk Online will present more detailed discussions of the various topics in the coming weeks.

The provisions in H.R. 4137 may be loosely categorized according to the groups they will most heavily impact, as follows.

Borrowers

• Increases the maximum Pell grant award to $8,000 by academic year 2014-15 (subject to annual appropriations).
• Effective July 1, 2009, permits year-round Pell grants.
• Limits a student who receives his or her first Pell grant on or after July 1, 2008, to a maximum of 18 semesters of eligibility.
• Allows an interest rate reduction on a FFELP loan first disbursed on or after July 1, 2008, for borrowers who qualify under the Servicemembers Civil Relief Act; prevents interest from accruing on Direct Loans first disbursed on or after October 1, 2008, for up to 60 months, for certain eligible military borrowers. This benefit will also be available to eligible FFELP borrowers who obtain a Direct Consolidation loan used to repay a FFELP loan first disbursed on or after October 1, 2008.
• Restricts loan rehabilitation to a one-time benefit per loan (currently this is an unlimited benefit).
• Revises the timeframe and eligibility requirements for discharge of a loan due to total and permanent disability, effective July 1, 2010.
• Subject to appropriations, and on a "first-come, first-served basis," provides loan forgiveness of $2,000 per year to FFELP and Direct Loan borrowers serving in areas of national need, up to a maximum of $10,000. Borrowers must be employed full time and must not be in default. PLUS loans and certain Consolidation loans will not qualify for this program. This program will become effective in FY 2009.

Schools

• "Revises the 90/10 rule, which currently states that a proprietary institution must have not less than 10 percent of its revenue from sources other than Title IV funds.
• "Revises the required content of Stafford and Perkins loan counseling.
• "Increases the annual and aggregate loan limits in the Perkins Loan Program.
• "Establishes preferred lender list requirements that closely mirror those found in the November 1, 2007, final rules.
• "Requires schools to "establish, follow, and enforce" a code of conduct regarding student loans.
• "Removes veterans' education benefits from the definition of estimated financial assistance, effective July 1, 2010.

Lenders

• Establishes prohibited inducement rules that closely mirror those found in the November 1, 2007, final rules.
• Reinstates a lender's or servicer's ability (removed in the November 1, 2007, final rules) to provide loan entrance and exit counseling on behalf of a school, as long as the school's staff are in control of the counseling (whether in person or via electronic capabilities), and the counseling does not promote the products or services of any specific lender.
• Introduces a multitude of new FFELP borrower disclosure requirements to be provided at various points throughout the life of the loan.

Guarantors

• Reinstates a guarantor's ability (removed in the November 1, 2007, final rules) to provide loan entrance and exit counseling on behalf of a school, as long as the school's staff are in control of the counseling (whether in person or via electronic capabilities), and the counseling does not promote the products or services of any specific lender.
• Establishes prohibited inducement rules that closely mirror those found in the November 1, 2007, final rules.
• Requires guarantors to provide training to students and families in budgeting and financial management, including debt management and other aspects of financial literacy.

New Title X addresses private loans
H.R. 4137 adds a new section to the HEA, Title X, which addresses private education loans and the Truth in Lending Act. Title X defines a private education loan as a loan made by a private education lender for postsecondary expenses, regardless of whether the loan is released directly to the borrower or through the school. Private education loans do not include Title IV loans, open-end consumer credit plans, and loans secured by real property. It also establishes prohibited inducement rules, conflict of interest rules, a prohibition on early repayment penalties, borrower disclosure requirements, the requirement that a borrower complete a "self-certification," and a mandatory three-day cancellation period.

In the meantime
Since the previous extension of the HEA expired on July 31, Congress passed and the president signed a two-week extension of the HEA (S. 3352) through August 15, to allow time for H.R. 4137 to be passed and signed into law.

For more information
To access the text of H.R. 4137, go to Thomas, the U.S. Congress Web site, at http://thomas.loc.gov. In the space for "Search Bill Text," enter "H.R. 4137," click on "Bill Number," and click "Search." Choose the final document in the list, the “Higher Education Opportunity Act (Enrolled as Agreed to or Passed by Both House and Senate).”

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

  Back to Top

ED provides instructions for submitting loan purchase program documents

On August 1, ED released two Electronic Announcements (E-ANN) providing additional instructions for submitting documents for the loan participation purchase program authorized by the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA).

E-ANN #10 outlines the procedures a lender or loan holder must follow in submitting the initial documents to execute a Master Participation Agreement under the loan participation purchase program.

E-ANN #12 includes several additional documents, including:

• The Funding Request Submission Instructions, including information on the Class A and Class B Participation Certificates, the Participation Purchase Request, and the Security Release Certificate;
• The Loan Schedule and Custodial Certification Data File Fields: Definitions and Submission Procedures; and
• The Loan Schedule and Custodial Certification file layout.

Upcoming webinar
ED will provide additional operational details of the loan participation purchase program in an upcoming webinar on Friday, August 8, from 1 p.m. to 3 p.m. CDT.

For more information
Both announcements are posted in the "News and announcements" section at http://federalstudentaid.ed.gov/ffelp/.

  Back to Top

2009-10 Draft FAFSA out for review and comments

On August 1, ED released a draft version of the 2009-10 Free Application for Federal Student Aid (FAFSA) for community review and comments. ED has also posted a summary of the proposed changes and instructions for submitting comments.

For more information
The announcement, draft FAFSA, and summary of changes are available on the Information for Financial Aid Professionals (IFAP) Web site at http://ifap.ed.gov/fafsa/0801SummaryChanges0910FAFSA.html.

  Back to Top

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 July 2008 Closed School Monthly Report supplied by the Department of Education.

  Back to Top