Federal Updates

Neg Reg wrap-up: Consensus reached on loan issues

After meeting for their third and final sessions, negotiators for Team I (general and lender loan issues) and Team II (school-based loan issues) reached consensus on the agenda items for the current round of Negotiated Rulemaking (Neg Reg). These new regulations will implement changes made by the Higher Education Opportunity Act of 2008 (HEOA).

Team I
The negotiators for general and lender loan issues made the following changes of particular interest:

• Several revisions will be made to the Total and Permanent Disability loan discharge process. In the event a borrower's loan obligation is reinstated after ED has approved a discharge (for example, due to the borrower's income exceeding the maximum permitted), ED will notify the borrower of the reinstatement and provide the reason(s) for the reinstatement as well as information about how to contact ED if the reason(s) are incorrect or erroneous or if the borrower has further questions. ED will also provide a 60-day period before the first payment is due on the reinstated loan.
  
  Additionally, ED will provide more leniency for a borrower who inadvertently receives a loan disbursement after the physician certifies his or her discharge application but before ED approves the discharge. In this case, ED will suspend the discharge process to allow the borrower time to repay the loan disbursement.
  
  
• The requirements for consumer credit reporting after loan rehabilitation will be re-worded to ensure that prior loan holders remove any report of the rehabilitated loan's default (but not delinquency) from its credit agency reports. This will address ambiguity in the current credit agency reporting requirements that sometimes results in inconsistent treatment among borrowers.
  
  The new regulations will also reflect the HEOA change that a borrower may rehabilitate a defaulted loan only once.
  
  
• More flexibility will be created within the determination of a borrower's partial financial hardship (PFH) for the purpose of the Income-Based Repayment (IBR) plan. Although IBR will become available July 1, 2009, changes to IBR made during this Neg Reg will go into effect July 1, 2010.
  
  Specifically, the new regulations will amend the definition of PFH to provide that the annual amount due on all of a borrower's eligible loans, as calculated under a 10-year standard repayment plan, is determined based on the greater of the amount due when the borrower initially entered repayment on the loans, or the amount due when the borrower selects the IBR plan. This may be advantageous to the borrower who, for example, selects IBR after being in a deferment or forbearance status, and may therefore have a higher loan balance than calculated when he or she initially entered repayment.
  
  Another change provides that a "borrower's eligible loans" for a married couple filing jointly who both have eligible loans is the combined total of both borrowers' eligible loans. The change also clarifies how the monthly payment amount is calculated for married borrowers filing jointly who both have eligible loans.

Team II
Negotiators for the school-based loan issues focused on the remaining agenda items for which tentative agreement had not yet been reached, particularly the definition and treatment of institutional loans in the context of a preferred lender arrangement. ED can regulate preferred lender arrangements; however, it is unable to regulate private education loans. Such loans are instead regulated by the Federal Reserve Board, which has published proposed rules on this subject (see Shoptalk Online edition 497).

The agreement reached by federal and nonfederal negotiators would exempt an institutional loan from the definition of a preferred lender arrangement if the loan is:

• Made by the institution with the institution's own funds,
• Presented as an institutional payment plan,
• Funded by donor-directed contributions, or
• Made under title VII or title VIII of the Public Service Act.

Another agenda item closely related to this topic addresses required disclosures for covered entities. Although the above types of loans would be exempt from the definition of a preferred lender arrangement, they may still be considered private education loans by the Federal Reserve Board rules, and therefore subject to disclosure requirements. TG recommends that institutions consider submitting comments to the Board's proposed rules, and closely review the final rules when they are published.

Team II also addressed the transition to three-year cohort default rates and the resulting impact on institutional eligibility, and various changes made to the cancellation provisions within the Perkins loan program.

What's next
ED will publish proposed regulations in the Federal Register, with a request for community comments. After reviewing those comments, ED will publish final regulations no later than November 1, 2009. Shoptalk Online will keep you informed as these events occur.

More information
For previous coverage of this year's Neg Reg process, see Shoptalk Online editions 493 and 498.

Please also visit ED's "Higher Education Opportunity Act — 2008" Web page at www.ed.gov/policy/highered/leg/hea08/index.html#neg-reg for a full history of this Neg Reg, including meeting agendas, memoranda to the committee members, and proposed regulatory language.

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ED releases E-ANN on executed conduit liquidity agreement

ED recently issued Electronic Announcement (E-ANN) #59, providing the Executed Liquidity Loan Agreement between the Asset Backed Commercial Paper (ABCP) Conduit Administrator Straight A Funding and the Federal Financing Bank (FFB). ED also included two amendments to the Liquidity Loan Agreement, which are reflected in the Executed version.

More information
This E-ANN, as well as other ECASLA-related information, is available on ED's ECASLA Web page 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 May 2009 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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