Federal Updates

Reauthorization DCL: First Flyover

Last week's Shoptalk Online reported ED's release of Dear Colleague Letter (DCL) GEN-08-12/FP-08-10, which provides a summary of most of the Higher Education Opportunity Act of 2008 (HEOA) provisions that amended and reauthorized the Higher Education Act of 1965 (HEA). The HEOA's changes were extensive, and this 219-page DCL, which may be accessed as a PDF document on the Information for Financial Aid Professionals (IFAP) Web site at http://ifap.ed.gov/dpcletters/GEN0812FP0810.html, reflects its broad impact. While the DCL is largely a summary of the provisions in the HEOA, it does offer some details of interest to the financial aid community, which we will highlight in this and upcoming editions of Shoptalk Online.

Although many readers may have already become familiar with the various provisions included in the HEOA, we encourage affected parties to review the DCL's summaries alongside the HEOA text to ensure a complete understanding of the requirements and their respective effective dates. To facilitate this review, TG provides convenient, searchable HEA compilations that integrate the HEOA changes on its Web site at http://www.tgslc.org/policy/hea.cfm.

Keep in mind that for many of the provisions, ED will conduct negotiated rulemaking sessions to provide clarification and interpretation of the law. And in some cases, ED must implement operational changes before parties may comply. In the order of effective date, this article presents selected provisions that affect Title IV student loan programs that have been or will become effective by July 1, 2009.

Effective August 14, 2008

• Unsubsidized Stafford loans for a dependent student who lacks parental support (See DCL GEN-08-12, pages 79-80, and HEA Sec. 479(a).)
  
  The HEOA authorizes a financial aid administrator (FAA) to offer an unsubsidized Stafford loan under the FFELP or the Federal Direct Loan Program (FDLP) to a dependent student, if the FAA verifies that the parent(s) has ceased financial support and refuses to file the Free Application for Federal Student Aid (FAFSA). An FAA may exercise this authority beginning with a loan for any loan period that begins on or after August 14, 2008, or that includes that date.
  
  Under this provision, not to be confused with a dependency override, the dependent student must establish his eligibility for Title IV assistance by completing and submitting a FAFSA. The FAA must also verify that the parent(s) has ended financial support and refuses to complete the FAFSA. Self-certification from the dependent student is not sufficient, but in most instances, a signed and dated statement from one of the student's parents is sufficient if it specifically states that the parent(s):
  
  
  • has stopped providing financial support to the student, including the date when the financial support stopped;
  • will not provide financial support in the future; and
  • refuses to complete the parental section of a FAFSA.
  
  The parent is not required to provide a reason for ending financial support and refusing to complete the FAFSA. Note that financial support includes not only the parent's payment of educational costs, but also providing other cash and non-cash support to the student such as room and/or board.
  
  If an FAA approves the student's request, the dependent student will be eligible to receive an unsubsidized loan, but no other Title IV assistance. In addition, the student's parent(s) will not be eligible to apply for a PLUS loan on the student's behalf.
  
  The maximum annual unsubsidized loan amount that a dependent student may receive under the new authority is the "base" annual loan limit for the student's grade level plus the additional unsubsidized amount of $2,000 that was added to the annual loan limits for dependent students by the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA) — not the higher additional unsubsidized amounts ($6,000 or $7,000 depending on grade level) that are available to independent undergraduate students and dependent students whose parents are willing but unable to borrow under the PLUS Loan Program.
  
  If the FAA decides not to award the student an unsubsidized loan, the student must obtain the required parental information and signatures, and submit a corrected FAFSA, before any Title IV aid can be awarded. The FAA's decision cannot be appealed to ED.
  
  DCL GEN-08-12, pages 80-81, provides more details on processing a FAFSA that contains only dependent student data for the remainder of the 2008-09 award year and the upcoming 2009-10 processing year. It also offers specific instructions for schools participating in the FDLP.
  
  
• The Servicemembers Civil Relief Act (SCRA) as it applies to FFELP and FDLP borrowers, and FFELP Special Allowance Payment (SAP) calculations on affected loans (See DCL GEN-08-12, page 120, and HEA Sec. 428(d) and 438(g).)
  
  The SCRA, which limits the interest rate on a borrower's loan to 6.0 percent during the borrower's active duty military service, applies to FFELP and FDLP loans for borrowers in military service as of August 14, 2008. Note, however, that the SCRA interest rate limit does not apply to a PLUS loan endorser unless that individual is also performing eligible military service. In order to receive this benefit, the borrower must contact the loan holder in writing to request the interest rate adjustment and provide a copy of military orders. For this purpose, the term "in writing" may include a borrower's e-mail request and the term "copy of the borrower's military orders" may include a scanned copy of the orders attached to that e-mail request. Borrowers serving before the effective date may not receive a refund of the interest paid in excess of the SCRA 6.0 percent limit before August 14, 2008.
  
  For any FFELP loan that is first disbursed on or after July 1, 2008, and is subject to the SCRA 6.0 percent interest rate limit, the applicable interest rate used in calculating the lender's SAP is the SCRA determined rate. ED will issue separate operational guidance on HEOA-related SAP changes.
  
  
• Loan rehabilitation: eligibility, consumer credit reporting, and financial and economic literacy information (See DCL GEN-08-12, pages 121-122, and HEA Sec. 428F(a)(1)(A) and (a)(5), and 428F(c).)
  
  Eligibility — For any defaulted loan that is rehabilitated on or after August 14, 2008, a borrower may rehabilitate that loan only once. This limitation applies when a borrower redefaults after the rehabilitated loan is returned to normal repayment status. However, if a borrower redefaults on a rehabilitated loan, he may still rehabilitate other defaulted loans.
  
  Consumer credit reporting after FFELP loan rehabilitation — Once the guarantor sells a rehabilitated loan to an eligible FFELP holder, the guarantor must request any consumer reporting agency to which the default was reported to remove the record from the borrower's credit history. This applies to all loan rehabilitation sales to eligible lenders that take place on or after August 14, 2008, and to all prior holders of the rehabilitated defaulted loan.
  
  Financial and economic literacy information for rehabilitated borrowers — A guarantor must provide financial and economic education materials to each borrower who successfully rehabilitates a defaulted loan on or after August 14, 2008. Guarantors should also make the same materials generally available to all other borrowers who have previously rehabilitated their loans. ED will provide comparable materials to FDLP borrowers.

Effective October 1, 2008

• No interest accrual on loans to eligible military borrowers (See DCL GEN-08-12, page 138, and HEA Sec. 455, 428C(a)(3)(B)(i)(V), and 428C(b)(5).)
  
  For an eligible military borrower, interest will not accrue on an FDLP loan, or any portion of an FDLP Consolidation loan, first disbursed on or after October 1, 2008, for a period of not more than 60 months. For this purpose, an eligible military borrower is one who is:
  
  
  • (1) serving on active duty during a war or other military operation or national emergency; or (2) performing qualifying National Guard duty during a war or other military operation or national emergency; and
  • serving in an area of hostilities in which service qualifies for special pay under Section 310 of Title 37, U.S.C.
    
    
  This benefit applies to any eligible military borrower whose service includes or begins on or after August 14, 2008. A FFELP borrower may take advantage of the no interest accrual benefit by consolidating into the FDLP either FFELP loans that were first disbursed on or after October 1, 2008, or a Federal Consolidation Loan that repaid FFELP or FDLP loans first disbursed on or after October 1, 2008.
  
  For an FDLP borrower who also qualifies for the military service deferment, the borrower's deferment period and 60-month period of no interest accrual run concurrently.

Effective July 1, 2009

• Competitive loan auction pilot program for FFELP parent PLUS loans (See DCL GEN-08-12. pages 75-76 and 188, and HEA Sec. 499.)
  
  Through the College Cost Reduction and Access Act of 2007, Congress directed ED to undertake a pilot program to establish a mechanism for an auction of the rights to originate FFELP PLUS loans to new parent borrowers. Although ED plans to provide additional information in an upcoming Federal Register notice, this DCL offers some new details to the financial aid community.
  
  Under the pilot program, ED may enforce an eligible lender's winning bid if it fails to enter into the agreement with ED, as required, or if it fails to comply with the terms of the agreement. ED may sanction the lender by assessing a penalty for any eligible PLUS loans that the lender fails to originate in accordance with the agreement, in the amount of the additional costs incurred by ED in obtaining another eligible lender to originate the PLUS loans, including the amount of any increase in special allowance payments made by ED. To collect such penalties, ED will reduce the amount of any payments otherwise due to the lender by the amount of the penalty or by requesting that any other federal agency reduce the amount of any payments due to the lender from that agency. ED may prohibit the bidding of such lender in other auctions under HEA Sec. 499, and limit, suspend, or terminate the lender's participation in the FFELP. ED may also take any other enforcement action authorized under HEA Part B.
  
  ED and the Secretary of the Treasury, in consultation with other agencies, are required to conduct an evaluation of the pilot program and determine the extent of federal savings compared to federal costs that would have incurred in operating the program in the absence of the auction. ED and the Treasury must also submit preliminary, interim, and final reports to Congress by September 1, 2010, September 1, 2012, and September 1, 2013, respectively.

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

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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 January 2008 Closed School Monthly Report supplied by ED. Schools listed are those with which TG has done business or to which TG has otherwise provided services.

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