Federal Updates

ED releases final rules for loan-related provisions

Last July 1, ED issued proposed rules for the federal student loan programs, as a result of the negotiated rulemaking (Neg Reg) process that occurred in early 2008 (see Shoptalk Online edition 460). ED provided a 45-day period during which the financial aid and higher education communities submitted comments on the proposed rules. After reviewing comments submitted by over 1700 parties, ED published final rules in the October 23 Federal Register.

The regulations concern various provisions enacted by the College Cost Reduction and Access Act of 2007 (CCRAA), and incorporate certain changes made to the Higher Education Act by the Higher Education Opportunity Act (HEOA), the reauthorization bill enacted on August 14, 2008. As a reminder, the rules address the following topics:

• Eligibility for economic hardship deferment
  • Defines the term "family size"
  • Clarifies the source and applicability of poverty guidelines
  • Eliminates the economic hardship deferment based on the 20/220 provision
• Military service deferment and post-active duty student deferment
  • Sets guidelines regarding a borrower's eligibility for a post-active duty student deferment after re-enrolling
  • Clarifies qualifying active duty statuses
  • Establishes a borrower's concurrent — rather than consecutive — eligibility for the 180-day military service deferment and the 13-month post-active duty student deferment
• Income-based repayment (IBR) plan
  • Defines the term "partial financial hardship"
  • Creates a statutory formula for calculating a monthly payment under IBR
  • Establishes procedures for annually determining a borrower's partial financial hardship
  • States the conditions a borrower must satisfy in order to qualify for loan forgiveness under IBR
• Public Service Loan Forgiveness
  • Establishes a FFELP borrower's ability to obtain a Direct Consolidation loan for the purpose of using the Public Service Loan Forgiveness program
  • States the conditions a borrower must satisfy in order to qualify for public service loan forgiveness
• Definition of eligible not-for-profit holder status
  • Identifies the circumstances in which a state or non-profit entity is deemed to be owned or controlled by a for-profit entity
  • Requires a not-for-profit holder to provide certain documentation annually to ED to establish and re-confirm its eligibility for not-for-profit status

No significant changes
ED states that there are no significant differences between the proposed and final regulations resulting from public comments, but there are a few revisions of note, including:

• Changes to the definition and certification of family size for the purpose of determining eligibility for the economic hardship deferment and/or IBR;
• Changes made by the HEOA pertaining to defaulted loans and IBR eligibility and the definitions of "public service organization" and "government employee" in the Public Service Loan Forgiveness program; and
• Clarification that the mandatory forbearance available to military borrowers with a FFELP loan in repayment begins on the day after the borrower ceases enrollment on at least a half-time basis.

Effective date
Generally, Title IV final regulations that are published by November 1 must be implemented by the following July 1. However, ED has designated the regulations regarding the changes in the military service and post-active duty student deferments, including the related forbearance provisions, for early implementation at the discretion of each school, lender, guarantor, or servicer, as appropriate.

For more information
The above summary of the final rules topics is not all-inclusive. We encourage readers to review the complete text of the final rules, available online at http://edocket.access.gpo.gov/2008/pdf/E8-24922.pdf.

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