Federal Updates

Reauthorization: FFELP provisions

In last week's Shoptalk Online, we provided a brief overview of the most significant provisions included in the Higher Education Opportunity Act, the long-awaited reauthorization bill that amends and extends the Higher Education Act (HEA). We encourage readers to review carefully this bill, H.R. 4137, as it is extensive and covers many topics outside of Title IV that may impact various entities. Congress passed the bill by a veto-proof majority, and while the president has not yet signed H.R. 4137, he is expected to do so in the near future.

Although many provisions in this bill are effective upon enactment, ED has historically worked with the financial aid community to develop guidelines and deadlines for implementing changes brought about by the reauthorization process. Also keep in mind that for many of the provisions in H.R. 4137, ED will conduct negotiated rulemaking sessions to provide clarification and interpretation of the law.

In today's article, we will focus in more detail on some of the FFELP-related provisions included in the bill. In future articles we will cover additional FFELP-related issues, as well as some of the non-FFELP topics.

Some of the changes are more extensive and detailed than we can address in this article; in those cases, we have noted the change and provided a cite of the relevant section of H.R. 4137 for easy reference. Here is a selection of significant changes. The legislation:

• Permits a borrower who is a teacher employed by an educational service agency to qualify for loan forgiveness under the Teacher Loan Forgiveness program.
• Restricts a borrower's eligibility for loan rehabilitation, which was previously an unlimited benefit, to only once per loan.
• Permits a Grad PLUS borrower to defer repayment until six months after dropping below half-time enrollment.
• Requires a school to establish readmission procedures for students returning from active duty in the Armed Forces (including the National Guard or Reserve) after serving for a period of more than 30 days. The school must readmit the student, with the same academic status, if:
  • It had advance notice of the student's absence, unless military necessity precludes giving such notice.
  • The student's cumulative absence does not total more than five years, with some exceptions to this timeframe.
  • The student notifies the school that he or she intends to re-enroll.
  If necessary, the student can fulfill these requirements retroactively. A dishonorable or bad conduct discharge disqualifies the borrower from these readmission considerations.
• Modifies exit counseling content for Stafford and Perkins loan borrowers; the full list of requirements is available in Section 488 of the bill.
• Requires schools to provide comprehensive information about the terms, conditions, and borrower responsibilities associated with FFELP (or Direct) Stafford and Grad PLUS loans, prior to disbursing such a loan to a first-time borrower. This information may be provided at the same time as loan entrance counseling, or through a written document or online system that requires the borrower to acknowledge receipt. See Section 488 of the bill for detailed requirements.
• Permits lenders, at the school's request, to use NSLDS data to verify a borrower's half-time enrollment in determining eligibility for an in-school deferment.
• Upon transfer of a loan to another lender, both the current and new loan holder must notify the borrower of the effective date of transfer, and the dates the current and new holder will cease and begin accepting payments, respectively.
• Requires a lender to inform the borrower about possible loss of FFELP loan, Direct loan, and Perkins loan benefits upon consolidation when it provides a Consolidation loan application. The lender must also:
  • Provide information about available repayment plans;
  • Inform the borrower that consolidation benefit programs may vary among different lenders;
  • Advise the borrower of the consequences of default; and
  • Notify the borrower that she is not obligated to borrow a Consolidation loan.
• Permits a national or state chartered bank, or a credit union, with assets less than $1 billion, to have as its primary consumer credit function the making and holding of FFELP loans.
• Requires a guarantor, upon receipt of a default claim, to inform the defaulted borrower, at least twice, of the options for removing the loan from default, as well as the fees and conditions associated with each option.
• Directs guarantors, in conjunction with schools, to develop and make available educational programs and materials to provide training for students and families in budgeting and financial management.
• Limits the number of semesters of Pell grant funding that certain students may receive. A student who first receives a Pell grant on or after July 1, 2008, is limited to 18 semesters (or the equivalent) of Pell grant funding for full-time enrollment. If a student is enrolled less than full time, his duration of eligibility is adjusted accordingly.
• Allows an eligible borrower to request, under the Servicemembers Civil Relief Act, an interest rate reduction on a FFELP loan first disbursed on or after July 1, 2008, and prior to beginning military service or activation. For such a loan, the special allowance payment will be based upon the actual interest rate assessed to the borrower, not the statutory interest rate.

For more information
To access the text of H.R. 4137, go to THOMAS, the U.S. Congress website, at http://thomas.loc.gov. In the space for "Search Bill Text," enter "H.R. 4137," click on "Bill Number," and then "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 message to cust.assist@tgslc.org.

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ED releases new loan purchase program information

Last week, ED provided additional guidance on loan purchase program procedures in a series of Electronic Announcements (E-ANN).

E-ANN 13, posted on August 6, is a follow-up to E-ANN 12 and provides further details on the document submission process for the loan participation purchase program. E-ANN 13 includes the "Table Load Procedures for the Loan Schedule and Custodial Certification," which explains the edits ED will run against each Loan Schedule and Custodial Certification data file transmission before funding the participation request.

E-ANN 14, posted on August 7, provides instructions to banks that wish to request approval to function as a custodian under the Loan Participation Purchase Program.

Also on August 7, ED posted E-ANN 15 regarding the preparation and submission of the Monthly Rolling Forecast, and procedures for submitting the Monthly Rolling Forecast to ED.

For more information
The E-ANNs and related attachments are all posted in the "News and Announcements" section at http://federalstudentaid.ed.gov/ffelp/.

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

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