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Federal Updates

Shoptalk Online 493, March 3, 2009

Federal Updates

New ECASLA E-ANNs provide information on the conduit program and required documents for the Loan Purchase Commitment Programs

ED has issued two new Electronic Announcements (E-ANN) providing additional guidance on the implementation of the programs authorized under the Ensuring Continued Access to Student Loans Act (ECASLA).

ECASLA E-ANN #49
E-ANN #49 includes contact information and presentation documents for the Asset-Backed Commercial Paper (ABCP) Conduit Program, the program that provides for the purchase and longer-term financing for FFELP loans. Remember that as of January 20, 2009, Straight-A Funding, LLC, entered into an agreement with ED to serve as a conduit in the ABCP Conduit Program under an eligible lender trustee agreement with the Bank of New York Mellon (see Shoptalk Online edition 490). Eligible sellers who have questions regarding the agreement may contact Straight-A Funding by e-mail at StraightA@bnymellon.com. Please include specific questions in any e-mail communication so that the inquiries may be forwarded to the appropriate party.

E-ANN #49 also includes two legal documents used in the implementation of the Conduit Program: the PUT agreement and an opinion letter from ED's Office of General Counsel.

ECASLA E-ANN #50
In E-ANN, #50 ED provides a chart describing the required loan documents that must be submitted to the ED servicer prior to completion of the sale of eligible FFELP loans under the Loan Purchase Commitment Programs. The requirement to submit these documents is provided in the 2007-2008, 2008-2009, and 2009-2010 Master Loan Sale Agreements (MLSAs) under Section 5(B)(iii)(3); a listing and definition of the required loan documents is provided in Section 3(Q) of each MLSA. As indicated in the chart, the submission requirements for some of the documents are met by completion of the required fields in the electronic Loan Conversion Transfer File that is submitted prior to the loan sale, and the remaining submission requirements must be submitted in the format described in the chart.

For more information
The E-ANNs are available online at http://federalstudentaid.ed.gov/ffelp.

Federal Register notices on Competitive Loan Auction Pilot Program released

On Monday, March 2, 2009, and Tuesday, March 3, 2009, ED published two Federal Register notices regarding the Competitive Loan Auction Pilot Program (auction). Readers will recall from Shoptalk Online issue 486 that through the College Cost Reduction and Access Act of 2007, Congress amended the Higher Education Act of 1965 (HEA Sec 499), by directing ED to establish an auction mechanism for the right to originate FFELP parent PLUS loans to new parent borrowers on a state-by-state basis. The Higher Education Opportunity Act of 2008 made minor revisions to the auction, which are summarized in ED's recent Dear Colleague Letter GEN-08-12 (pages 75-76 and 188).

In the March 2, 2009, Federal Register notice, ED requested emergency clearance of all documents associated with the auction. These documents are necessary to determine the capacity and capability of the winning bidders to make and service the PLUS loans made to parents as a result of the auction as well as to conduct the auction itself.

In the March 3, 2009, Federal Register notice, ED details the auction as the right to originate PLUS loans to new parent borrowers under the Federal PLUS Program for loan periods beginning on or after July 1, 2009, and ending June 30, 2011, as determined through a competitive, sealed bid, one-round auction to be conducted for each state, as well as the District of Columbia, Guam, the U.S. Virgin Islands, the Commonwealth of the Northern Mariana Islands, and Puerto Rico.

Which borrowers are affected?
"New parent borrowers" are borrowers who are borrowing on behalf of a dependent student who will be enrolled in an eligible postsecondary educational institution in a particular state and who are new borrowers on or after July 1, 2009.

Parents currently borrowing on behalf of a dependent student enrolled prior to July 1, 2009, will not be affected by the auction and may continue with their current lender or secure a loan from another eligible FFELP lender. Grad PLUS loans are not included in the auction, nor are loans to borrowers attending schools outside of the above-mentioned areas.

How will the auction work?
Eligible FFELP lenders that wish to submit a bid must do so by sending the required prequalification information via e-mail to plus-auction@ed.gov by April 1, 2009.

The auction will be conducted on April 15, 2009. Bids for origination rights must be submitted on this date and during a time period designated by the Secretary. The time period the auction will be open will be included in an Auction Information Sheet that will be sent to those eligible lenders meeting the prequalification requirements to participate in the auction. The Auction Information Sheet will:

Describe the procedures for submitting bids,
Provide the web address of the on-line auction, and
Assign eligible bidders a password to submit a bid during the period the auction is open.

The winning bidders will be the two eligible lenders whose bids offer to accept the lowest and second lowest special allowance payment (SAP) from ED on the PLUS loans made under the auction. Eligible lender bids will remain confidential even after the announcement of the winning bidders.

The winning bidders for each state will be the only FFELP lenders permitted to originate loans under the PLUS Loan Program for first-time borrower parents of dependent students attending institutions within that state until those students are no longer enrolled at an institution in that state or they graduate from those institutions. No later than April 24, 2009, ED will notify the two winning bidders for each state and announce the winning bidders for each state at www.ed.gov/ope/plus-auction.

PLUS Loan Lender-of-Last-Resort
In the event that there are not two winning bids in a given state, ED will determine a PLUS Lender-of-Last-Resort (PLUS LLR).

Eligible lenders that wish to be considered as the PLUS LLR for a given state(s) must

Prequalify by submitting the prequalification material,
Submit a letter no fewer than 14 days prior to the start of the auction indicating a desire to be considered as a PLUS LLR and list the state(s) to be serviced, and
Commit to making PLUS loans to all eligible new parent borrowers in the state(s) indicated until the dependent student graduates or is no longer attending an institution in that state.

Eligible FFELP lenders interested in serving as a PLUS LLR must submit their applications via e-mail to plus-auction@ed.gov by April 1, 2009. A prequalified lender that requests to be a PLUS LLR may still participate as a regular eligible lender in the auction.

ED will not identify the PLUS LLR for a state until after the auction is completed and only if needed.

ED is authorized to set a SAP payable to a PLUS LLR for a state. That SAP will be kept confidential, both before and after the announcement of the winning bidders. To determine the SAP payment to a PLUS LLR, ED will take into account the lowest bid that was submitted in the auction for the state and the lowest bid that was submitted in a similar state in terms of PLUS dollar volume and number of loans.

All eligible PLUS loans originated under the auction will be insured by a guaranty agency against losses.

For more information
The March 3, 2009, Federal Register notice contains more details regarding:

Auction requirements including:
- Required Agreement with ED
- Prequalification Requirements
Auction Procedures
Winning Bidder Requirements
PLUS Lender-of-Last-Resort
Additional Auction Program Information, including guarantees, loan fees, and consolidation

The March 3, 2009, Federal Register notice is available at http://edocket.access.gpo.gov/2009/pdf/E9-4447.pdf.

The March 2, 2009, Federal Register notice is available at http://edocket.access.gpo.gov/2009/pdf/E9-4333.pdf. The associated documents will be available at http://edicsweb.ed.gov. Select the "Browse Active Collections" link and then click on collection number 3966. On the EDICS Collection Package Details page, click "Download Attachments" to view.

First loan-related Neg Reg sessions come to a close

Over the last couple of weeks, members from various sectors of the financial aid and higher education communities have gathered in Washington, D.C., to participate in the first sessions of the 2009 negotiated rulemaking (Neg Reg) process. Unlike last year's Neg Reg, which focused on the TEACH Grant Program and student loan issues, this year's teams will address a wide variety of issues affecting our industry, including student loan accreditation, discretionary grants, and general and non-loan programmatic issues. As the Neg Reg process continues, Shoptalk Online will focus on the activities of two teams in particular, the teams discussing Lender/General Loan Issues (Team I) and School-Based Loan Issues (Team II).

At the first meetings for Team I and Team II, negotiators focused on approving protocol for the Neg Reg process, reviewing Neg Reg procedures, and initial discussion of the proposed agenda items below. Many of the topics under discussion are related to changes enacted by the Higher Education Opportunity Act of 2008 (HEOA).

Team I agenda

Determining borrower eligibility for an in-school deferment
Borrower notification when the transfer, sale, or assignment of a loan results in a change in the party to whom payments must be sent
Lender and guarantor prohibited inducements
Lender forbearance and borrower contact requirements
Applicability of the Servicemembers Civil Relief Act (SCRA) to FFELP and Direct Loan borrowers, and related FFELP special allowance payment calculations
Guarantor notifications to borrowers in default and financial and economic literacy for rehabilitated borrowers
PLUS loan deferments and interest capitalization
Consolidation loan borrower eligibility and applicant disclosures
Consumer credit reporting after loan rehabilitation and eligibility for loan rehabilitation
FFELP and Direct Loan Teacher Loan Forgiveness
Required education loan borrower disclosures by FFELP lenders
Consumer education information provided by guarantors
New audit requirement for FFELP school lenders and Eligible Lender Trustees (ELTs)
Originating FFELP loans for an institution or school-affiliated organization
Loan discharges based on Total and Permanent Disability

Team II agenda

Required disclosures for covered entities
Program Participation Agreement (PPA): Code of conduct
Disclosures of reimbursements for service on advisory boards
PPA: Private education loan certification
Information and dissemination activities
Exit counseling
PPA: Preferred lender lists
Cohort default rate calculation, institutional eligibility, and default prevention plans
Entrance counseling
Direct Loan borrower disclosures
Within the Perkins loan program:
- Mandatory assignment of defaulted loans
- Expansion of teacher, Head Start, and law enforcement cancellation categories
- Addition of new public service cancellation categories
- Military service cancellation

At the second round of negotiations, scheduled to occur March 30-April 1, 2009 (Team I), and April 1-April 3, 2009 (Team II), negotiators will review and discuss proposed draft regulatory language.

More information
A total of three Neg Reg meetings are scheduled for each team. TG will continue to keep its customers informed about the Neg Reg process via Shoptalk Online.

Please also visit ED's HEOA Web page at www.ed.gov/policy/highered/leg/hea08/index.html for more information about the legislation. The page includes a variety of HEOA-related information, including tentative Neg Reg schedules.

ED approves new TPD form

Last Friday, ED released Dear Colleague Letter (DCL) GEN-09-02, announcing an updated version of the Discharge Application: Total and Permanent Disability (TPD).

This application is used by FFELP, Direct Loan, and Perkins Loan Program borrowers to apply for a TPD discharge of their loans; and also by TEACH grant recipients to apply for TPD discharges of their TEACH grant service obligations.

The PDF document attached to GEN-09-02 includes a minor correction to the PDF version that ED released on February 9 with GEN-09-01; while the Microsoft Word® version of the application included with GEN-09-01 was correct, please use the PDF version included with GEN-09-02 instead of the PDF version attached to the earlier letter.

Changes to the form
The revised TPD form incorporates changes made by the loan programs final rules published in the November 1, 2007, Federal Register, as well as the TEACH Grant final rules published in the June 23, 2008, Federal Register.

The revised form also reflects one of the changes made by the Higher Education Opportunity Act (HEOA) that established a new category of TPD eligibility for certain veterans. Specifically, if the Secretary of Veterans Affairs determines a veteran to be unemployable due to a service-connected condition or disability, and the veteran provides documentation of that determination to the loan holder, he or she will be considered totally and permanently disabled for loan discharge purposes, and will not be required to provide any additional documentation to establish his or her eligibility for discharge (see GEN-08-12/FP-08-10 for additional information). This new standard will also apply to eligible veterans who request a discharge of a TEACH Grant service obligation based on total and permanent disability.

Please note that ED plans to issue a separate DCL providing detailed operational guidance to FFELP lenders and guarantors, and schools participating in the Perkins Loan Program, on documentation requirements and special procedures for processing TPD requests from veterans who are covered by the HEOA provision.

The form also features a revised and expanded Physician's Certification section to assist in collecting more detailed information about an applicant's situation.

Implementation
In light of the new discharge standard for certain veterans, ED urges program participants to begin distributing the revised form to borrowers as soon as possible. Beginning July 1, 2009, only the revised form may be provided to borrowers. However, the previous version of the form (with an OMB expiration date of May 31, 2008) may continue to be accepted after this date.

More information
To access the PDF version of the application attached to GEN-09-02, go to www.ifap.ed.gov/dpcletters/GENFPCB0902.html. To access the Microsoft Word version of the application, go to www.ifap.ed.gov/dpcletters/GEN0901FP0901CB0901.html.

The DCL includes the related forms and attachments in PDF format. In addition, TG has posted the typeset version of the revised forms in PDF format on TG Online at www.tgslc.org/forms/frms_con.cfm.