Federal Updates

ED provides guidance on income documentation for IBR

ED recently announced interim guidance on the documentation of a borrower's income for the purpose of determining eligibility for the Income-Based Repayment Plan (IBR). This guidance describes a lender's option to accept "other documentation" of a borrower's income. The NCHELP IBR workgroup will discuss the implementation of the interim guidance in the near future, and more information will be provided in next week's edition of Shoptalk Online.

The announcement is available on the Information for Financial Aid Professionals Web site at http://ifap.ed.gov/eannouncements/061209IncomeDocIncomeBasedRepymtPlan.html.

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ED confirms Web site information and provides updated contact information

In an Electronic Announcement released last week, ED noted that it has heard recently from borrowers who are concerned about the legitimacy of e-mails from the Department of Education Student Loan Servicing Center. Borrowers whose loans have been put (sold) to ED under the ECASLA loan purchase programs will receive correspondence from both the prior FFELP loan holder and ED. The electronic communication from ED directs borrowers to its Borrower Services Web site at www.ed-servicing.com. Because the URL does not have a ".gov" domain as borrowers may expect, ED wishes to reassure schools and borrowers that the https://www.ed-servicing.com URL provided to borrowers is correct and legitimate.

The announcement also provides updated school and borrower customer service contact information for purchased FFELP loans serviced by the Department of Education Student Loan Servicing Center.

More information
The entire Electronic Announcement is available on the Information for Financial Aid Professionals Web site at http://ifap.ed.gov/eannouncements/061209CustomerServiceFFEL.html.

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Income-Based Repayment: Good news for borrowers

On July 1, the financial aid community will begin offering student loan borrowers a new tool for managing their loan repayment. By creating more affordable monthly payment amounts, the Income-Based Repayment Plan (IBR) will provide a ray of hope to borrowers who are struggling to repay their student loans under traditional repayment plans. While much recent discussion about IBR has been focused on understanding and implementing the plan from a school, lender, servicer, or guarantor standpoint, it's important not to lose sight of the most important factor in the IBR equation: the borrower.

Good for society…
Borrowers who are interested in entering public service employment, particularly those with relatively high federal loan debt, are keenly aware of the importance of achieving a reliable, adequate income in order to meet their student loan debt obligations. Unfortunately, employment in traditionally lower-paying, yet essential, professions — public education, social services, or public health, for example — may seem to be an untenable choice for borrowers who feel pressured to choose among pursuing their dream career, postponing major life events, or accepting a higher-paying job. Borrowers in this situation should be made aware that IBR provides reassurance that their loan payments will be manageable throughout repayment.

And good for the individual
We know the importance of assisting a borrower who is at risk for delinquency or default in resolving his or her situation. The stakes are high: 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. And of course, a defaulted student loan costs the taxpayers who ultimately fund the federal student aid programs.

In that light, IBR is also an important tool for borrowers who are faced with adverse economic circumstances, such as unemployment, underemployment, or other types of financial difficulties. While other repayment plans may require a one-size-fits-all payment amount, IBR offers a more flexible payment that is readjusted annually to take into account the borrower's most current financial status.

Of course, deferment and forbearance remain beneficial options for assisting certain borrowers; for example, those who do not qualify for IBR, or those who are experiencing only a temporary financial hardship. But while borrowers in IBR will generally be required to make monthly payments, eligible borrowers may request a deferment — including an Economic Hardship, Unemployment, or In-School deferment — as well as a forbearance while in IBR.

It's time to get the word out
Lenders and servicers are informing borrowers of IBR and other repayment options through borrower correspondence. While schools are required to provide information about IBR — along with other repayment options — during loan exit counseling, schools should consider going beyond what is simply required, and developing a more proactive and comprehensive borrower education effort. For schools, this may mean introducing IBR during entrance counseling, and disseminating information about IBR to certain departments within the campus. Lenders and servicers may opt to engage in additional communication with borrowers as well to highlight the availability and benefits of IBR. Educating students and borrowers about IBR will be an effort toward which we must all contribute.

For help
TG has already updated its Web site to include information about IBR as well as an IBR calculator, and is developing additional resources to assist in promoting awareness of IBR. Expect upcoming editions of Shoptalk Online to provide more details about how TG is working to help you promote borrower awareness and understanding of the significance and advantages of IBR.

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Reminder: Upcoming federal minimum wage increase

On May 25, 2007, President George W. Bush signed into law the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, which, among other changes, mandated incremental increases in the federal minimum wage. As of July 24, 2009, the last of three annual increases authorized by this legislation will go into effect, increasing the minimum wage from $6.55 per hour to $7.25 per hour.

School impact: Federal Work-Study students
As this change may affect some Federal Work-Study (FWS) students, it is important for FWS administrators to contact human resource and payroll staff, as well as FWS supervisors, to verify that all parties involved in FWS pay rate determination and payroll processing are aware of this change.

As a reminder, FWS employers may not pay their FWS employees a wage that is less than the federal minimum wage, and, in the event an FWS employee is subject to differing state and federal minimum wages, the employee must be paid the higher of the two pay rates.

If necessary, schools participating in the Perkins Loan Program should update their systems to use the increased minimum wage amount in calculating the maximum monthly gross income for the purpose of determining borrower eligibility for an Economic Hardship Deferment.

Lender impact: Economic Hardship Deferment criteria
FFELP lenders and servicers should review their systems to ensure readiness to process Economic Hardship Deferment (HRD) and Parental Leave/Working Mother Deferment (PLWM) Request forms using the increased minimum wage amount. The increased wage amount should be used for deferment requests processed on or after July 24, 2009. Updated deferment forms will be available on TG Online in the near future.

For more information
See Dear Colleague Letter (DCL) CB-07-11, available online at http://ifap.ed.gov/dpcletters/CB0711.html, for guidance on the FWS implications of the wage increase.

The Federal Student Aid Handbook (FSA Handbook) provides general information about the FWS Program and the Perkins Loan Program in volume 6 of the 2008-09 version. To download the FSA Handbook, visit TG Online at www.tgslc.org/policy/fsa_handbook.cfm.

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Closed school corner

The following table provides a list of newly reported school closures and corrections from the Postsecondary Educational Participants System (PEPS) and from the June 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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