Federal Updates

More Neg Reg on the horizon

With the spring 2009 round of negotiated rulemaking (Neg Reg) just recently concluded — and the financial aid community awaiting proposed regulations resulting from those negotiations — ED has announced plans to establish additional Neg Reg committees that will begin meeting in fall 2009.

Potential topics for negotiation

According to ED’s notice in the May 26 Federal Register, at least two committees will be established: one to develop proposed regulations governing foreign schools, including the implementation of the changes made by the Higher Education Opportunity Act (HEOA) that affect foreign schools; and at least one other to develop proposed regulations to maintain or improve program integrity in the Title IV programs, relating to topics such as:

• Satisfactory academic progress
• Incentive compensation paid by institutions to persons or entities engaged in student recruiting or admission activities
• Gainful employment in a recognized occupation
• State authorization as a component of institutional eligibility
• Definition of a credit hour, for purposes of determining program eligibility status, particularly in the context of awarding Pell grants
• Verification of information included on student aid applications
• Definition of a high school diploma as a condition of receiving federal student aid

Opportunities for community input

ED will hold three public hearings for interested parties to make suggestions or recommendations on the proposed agenda items. The public hearings will be held on:

• June 15–16, 2009, at the Community College of Denver
• June 18–19, 2009, at the University of Arkansas at Little Rock
• June 22–23, 2009, at the Community College of Philadelphia

ED will also conduct forums after each of the three hearings to discuss how changes in its financial aid communications and processes (including the FAFSA) could improve college planning, preparation, and access. The forums will also focus on how best to leverage federal postsecondary programs to foster student educational persistence and degree attainment.

More information
Shoptalk Online will provide regular updates to keep you informed about the progress of Neg Reg. ED’s fall 2009 Neg Reg Web page, which includes the Federal Register notice, is available at www.ed.gov/policy/highered/reg/hearulemaking/2009/negreg-summerfall.html.

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ECASLA close-out reminder and upcoming webinar

ED has issued Electronic Announcement #63, dated May 26, regarding the 2008-2009 Loan Purchase Participation Program authorized by the Ensuring Continued Access to Student Loans Act (ECASLA).

The announcement reminds FFELP participants of the following mandatory program termination and related cut-off dates applicable to the 2008-2009 Loan Participation Program, as defined in the Master Participation Agreements (MPAs), Master Loan Sale Agreements (MLSAs), and related Federal Register notice:

• Deadlines to execute an MPA and sell participation interests
• Deadline for existing sponsors to execute an MLSA
• Program termination date
• Deadlines to notify ED of closeout plans
• Cut-off for final loan sales
• Timeline for closeout audit

The announcement stresses the importance to the sponsor of selling or redeeming all loans prior to termination (i.e., July 1, 2009, without an executed MLSA in place or September 30, 2009, with an MLSA) and encourages sponsors to notify ED as soon as possible of their plans to do so. ED also encourages all sponsors who do not currently have an MLSA in place to execute one prior to July 1, 2009.

Webinar announcement

In Electronic Announcement #64, ED announced that it will conduct a webinar on the closeout procedures. The webinar is scheduled for Wednesday, June 3, 2009, from 2:00 p.m. to 3:30 p.m., CDT.

More information

To view the complete announcements, including instructions for accessing the webinar, please visit ED’s ECASLA Web page at http://federalstudentaid.ed.gov/ffelp.

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Other ECASLA news

Loan purchase programs

ED has revised its post-Put reconciliations process to allow reallocations of loan funds between subsidized and unsubsidized Stafford loans that result in a zero net balance change. This change will improve the loan origination process and permit updates to allocations to reflect changes to borrower eligibility for subsidized and unsubsidized Stafford loan amounts. The updated ED Servicer Transmittal Advice Package has been posted on the NCHELP Web site at www.nchelp.org/pages/page.cfm?id=136.

Asset Backed Commercial Paper Conduit

ED has posted a Q&A document providing additional guidance on the Asset Backed Commercial Paper Conduit. The document supplements information ED has previously provided, and addresses such topics as transferability of guarantee, offset, random selection, and payment of accrued government interest on subsidized Stafford loans sold to ED. The document is available at www.federalstudentaid.ed.gov/ffelp/abcpqa.html.

To learn more

For questions, please contact Bonnie Brinkley, TG’s assistant vice president of guarantee, support and reporting, at (800) 252-9743, ext. 4543, or send an e-mail message to bonnie.brinkley@tgslc.org.

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Variable interest rates drop again

ED announced last week that for two years in a row, interest rates on Stafford and PLUS loans with variable interest rates will drop. Stafford and PLUS loans first disbursed on or after July 1, 1998, and before July 1, 2006, have variable rates that reset annually on July 1, based on the last 91-day T-bill auction in May. The new rates, which will be effective from July 1, 2009, to June 30, 2010, reflect a decrease of 1.73 percent.

Note that this rate change is independent of the upcoming reduction in the fixed interest rate — from 6.0 percent to 5.6 percent — on subsidized Stafford loans for undergraduate students, effective for loans first disbursed on or after July 1, 2009, and before July 1, 2010.

How low will they go?

On July 1, 2009, interest rates on federal Stafford and PLUS loans that are subject to the variable-rate provision will be as follows:

• 1.88 percent for Stafford loans during in-school, grace, and deferment periods,
• 2.48 percent for Stafford loans during repayment and forbearance, and
• 3.28 percent for parent and Grad PLUS loans in all statuses.

More rates to come

ED will post a more comprehensive listing of the interest rates for all FFELP and Direct Loans, including those that were first disbursed prior to July 1, 1998, in the coming days.

Some older PLUS and Supplemental Loan for Students (SLS) loans have variable interest rates based on the weekly average of the one-year constant maturity Treasury yield for the last calendar week ending on or before June 26. As a result, new rates on such loans won't be available until late June.

Another interest rate not expected until late June is the one applicable to the Health Education Assistance Loan (HEAL) portion of federal Consolidation loans, which is based on the average of the bond equivalent rates of the 91-day T-bills auctioned for the quarter ending June 30.

More information

ED's press release on the new interest rates is available online at http://ifap.ed.gov/eannouncements/052709DirectLoanInterestRates.html.
For questions about the interest rate changes, contact TG customer assistance at (800) 845-6267, or send an e-mail to cust.assist@tgslc.org.

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Income-Based Repayment: Not just another repayment plan

By now, many within the financial aid community have heard of Income-Based Repayment (IBR), the new student loan repayment plan that will become available to FFELP and Direct Loan borrowers beginning July 1, 2009. Financial aid administrators may be aware that IBR will benefit certain borrowers by minimizing monthly payments and by providing loan forgiveness in some cases; but the full potential of IBR to assist in default prevention has yet to become fully apparent. Educating borrowers about this repayment plan and its benefits, through the loan counseling process and other information dissemination efforts, will prove to be the key to realizing that potential.

How IBR works

IBR is available for borrowers with Stafford, Grad PLUS, and Consolidation loans, as long as the Consolidation loan does not include a parent PLUS loan. Parent PLUS loans and any type of non-federal student loans do not qualify for IBR.

IBR will provide repayment relief to borrowers experiencing a "partial financial hardship" (PFH), which is determined using a calculation that takes into account the borrower's family size, federal student loan debt, and adjusted gross income (AGI). Specifically, PFH occurs when the annual payment amount for all of the borrower's eligible loans (as calculated under a standard 10-year repayment plan) exceeds 15 percent of the difference between the borrower's AGI and 150 percent of the poverty guideline for the borrower's family size.

The repayment term under IBR can exceed 10 years regardless of the amount of the borrower's loan debt. After 25 years (or 300 payments) in IBR, any remaining balance and accrued interest will be forgiven. As shown in the third example below, depending on the borrower’s circumstances, the monthly payment amount could be $0 — and even those $0 "payments" count toward the required 300 payments.

• Example 1: A single borrower with no dependents, with $40,000 in eligible student loan debt at a 6.8 percent interest rate, and with an AGI of $30,000, would have a monthly loan payment of approximately $170 under IBR. Under the standard repayment plan, that borrower’s monthly payment would be about $460.
• Example 2: A married borrower (and no spousal income or spousal student loan debt) with two children, with $80,000 in eligible student loan debt at a 6.8 percent interest rate, and with an AGI of $60,000, would have a monthly loan payment of approximately $340 under IBR. Under the standard repayment plan, that borrower’s monthly payment would be about $920.
• Example 3: A borrower who is married with no other dependents, with $65,000 in eligible student loan debt at a 6.8 percent interest rate, and with an AGI of $20,000, would have a monthly loan payment of $0 under IBR. Under the standard repayment plan, that borrower’s monthly payment would be about $748.

Why IBR is so important

While it will not be a universal remedy for repayment difficulties, it is clear that IBR can provide enormous relief to borrowers in financial distress and could make the difference in a borrower successfully fulfilling his or her repayment obligations. Now more than ever, given rising student loan debt levels, the current economic climate, and the upcoming transition from two- to three-year cohort default rates, schools are concerned about identifying borrowers at risk for loan default and proactively assisting those borrowers in addressing their difficulties.

If a borrower defaults, his or her credit record is damaged and other consequences may result, such as wage garnishment, collection costs, and ineligibility for additional federal student aid. Although it may be most beneficial for borrowers with high student loan debts and relatively low incomes, IBR will also be an important tool in avoiding default for borrowers in adverse economic circumstances.

More information

After IBR becomes available, borrowers may contact TG or their lenders for more information and application forms. Prior to the July 1, 2009, implementation date, borrowers experiencing financial difficulties may wish to discuss other options, such as the Economic Hardship deferment or forbearance, with their lenders.

TG offers comprehensive information about IBR through its corporate Web site, TG Online. TG’s Web pages answer common questions about IBR, offers particular resources to help borrowers, and includes a link to an eligibility calculator. The calculator helps a borrower determine whether he or she may qualify for IBR and, in such a case, calculates an estimated monthly payment.  

The Project on Student Debt also provides a Web site which offers a wealth of information about IBR in plain, understandable terms — www.IBRinfo.org. The site also offers an informative, downloadable IBR brochure and a calculator to assist borrowers in determining their eligibility for IBR.

In addition, the National Council of Higher Education Loan Programs (NCHELP) has developed a series of general as well as focused, training sessions on IBR for school and lender audiences. Recordings of these sessions are available free of charge at www.nchelp.org/elibrary/index.cfm?parent=1985.

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Closed school corner

The following table provides a list of newly reported 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.

Error corrections