Federal Updates

What if the PLUS auction fails?

Following the recent publication of information about the Competitive Loan Auction Pilot Program (auction) in notices issued in the March 2 and March 3 issues of the Federal Register (see Shoptalk Online edition 493), TG received several questions from the financial aid community about the auction process. ED has subsequently provided informal guidance on a number of these issues, which we will disseminate in future editions of Shoptalk Online. One question in particular, though, has prompted a flurry of discussion and debate within the industry: In the event there are no winning bidders for an auction within a state, would ED consider the auction to have failed; and if so, what effect would the failure have on the PLUS program?

Back to the basics
First, let's review the auction process and define what we mean by a successful or failed auction. As established by the College Cost Reduction and Access Act of 2007, a PLUS auction will be held in each state. Lenders will submit bids for special allowance payment (SAP) rates they are willing to accept, and the two lowest bidders will win the auction. The winning lenders will be paid at the second-lowest SAP rate bid.

The winning bidders will originate PLUS loans to new parent borrowers for any dependent students attending school within that state, and will continue to make loans available to those parent borrowers, until the student graduates or ceases enrollment in that state. This scenario would constitute a successful auction. However, if there are not two winning bidders in a state, the auction will have failed. This could occur if only one lender submits a bid, or if no lenders decide to submit bids in that state.

Failed auction does not threaten loan availability
According to the March 3 Federal Register notice referenced above, in the case of a failed auction, borrowers in that state will be served by a PLUS Loan Lender of Last Resort (PLUS-LLR). PLUS-LLR is not to be confused with the LLR program administered by guarantors that is designed to ensure that eligible student loan borrowers who are unable to locate a lender have access to FFELP funds (see Shoptalk Online edition 463 for information about that LLR program). However, similar to the guarantor-administered LLR program, the PLUS-LLR would provide a backstop source of funding within the PLUS auction process in the event of a failed auction.

What if no lender applies to serve as PLUS-LLR in a state?
Based on informal industry guidance from ED, if the auction in a state fails, and no lender has applied to serve as PLUS-LLR, the PLUS program will continue to operate in that state in the normal manner. Parent PLUS funding will continue to be available to borrowers as it is today, without any changes or disruptions in the program as a result of the failed auction.

For more information
For questions about the auction program, send an to TG customer assistance at cust.assist@tgslc.org.

Visit ED’s PLUS auction Web page at www.ed.gov/ope/plus-auction for a summary of the auction program and the related Federal Register notices.

Shoptalk Online will continue to communicate updated information about the auction program as it becomes available.

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New ECASLA Announcements

ED recently released Electronic Announcements (E-ANN) #52 and #53, providing additional guidance on the implementation of the Loan Purchase Programs authorized by the Ensuring Continued Access to Student Loans Act (ECASLA).

• In E-ANN #52, ED reminds Sellers participating in the 2007-08 Short-Term Purchase Program that, in accordance with Section 5 (B)(ix) of the Master Loan Sales Agreement (MLSA), they must deliver an Agreed Upon Procedures (AUP) letter that has been prepared by an independent public accountant in a form acceptable to ED. ED's Office of the Inspector General has issued an "Agreed Upon Procedures Attestation Engagement Guide" that lenders participating in the 2007-08 Short-Term Purchase Program must use for the AUP letter. The guide may be accessed at www.ed.gov/about/offices/list/oig/nonfed/ecalsa-aup-030409.pdf.
  
  The E-ANN also outlines the format to be used for the Corrective Action Plan (CAP) that a Seller must provide to ED, in accordance with Section 5 (B)(vii) of the MLSA, for all findings included in the AUP letter.
  
  
• E-ANN #53 provides a revised version of the "Loan Schedule and Custodial Certification Data File Fields — Definitions and Submission Procedures" document that was previously provided with E-ANN #16. ED also notes in E-ANN #53 that, effective March 29, 2009, the payment mechanism for funding requests under the Loan Purchase Participation Program will change from ACH to Fedwire, and that any changes to bank account information should be sent to fsa_lr@ed.gov on or before Friday, March 27, 2009.

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

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Federal Reserve Board issues proposed regs for private loans

Last week, the Federal Reserve Board (Board) issued a press release announcing proposed amendments to Regulation Z, which implements the Truth in Lending Act, or TILA. These amendments are necessary in order to implement provisions of the Higher Education Opportunity Act (HEOA), found in Title X of the Higher Education Act of 1965, as amended.

Under the proposed regulations, creditors that offer private education loans would provide disclosures about loan terms and features on or with the loan application and would have to disclose information about federal student loan programs that may offer less costly alternatives. Creditors would also have to provide additional disclosures when the loan is approved and when the loan is consummated. The Board's proposal also implements the HEOA's restrictions on using the name, emblem, or mascot of an educational institution in a way that implies that the institution endorses the creditor's loans.

The Board released proposed private education loan model disclosure forms and samples that creditors could use to comply with the new disclosure requirements, including:

• Application and solicitation model form
• Approval model form
• Final model form
• Application and solicitation sample
• Approval sample
• Final sample

The new disclosure requirements would apply to loans made expressly for postsecondary educational expenses, but would not apply in the case of educational expenses that are funded by credit card advances, or real estate-secured loans. In addition, the proposed requirements do not apply to Title IV loans, which are subject to separate disclosure rules issued by ED.

For more information
The Board's announcement and proposed model disclosure forms and samples are available at www.federalreserve.gov/newsevents/press/bcreg/20090311a.htm. The public comment period on the proposed regulations will end 60 days after they are published in the Federal Register, which is expected shortly.

Visit TG Online at www.tgslc.org/policy/hea.cfm to download an integrated, searchable PDF version of the portions of the TILA that were affected by the HEOA.

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