Shoptalk 540, February 16, 2010
Industry Update
Approved Model Self-Certification Form released
As anticipated in Shoptalk (edition 539), on February 14, 2010, ED released Dear Colleague Letter (DCL) GEN-10-01, which announces the approval of the Model Private Education Loan Applicant Self-Certification form and provides guidance on implementation of the new form, as mandated by Section 487(a)(28) of the Higher Education Act of 1965, as amended, (HEA) and to satisfy the requirements of Section 128(e)(3) of the Truth in Lending Act (TILA).
Effective February 14, 2010, a school is required, upon request by an admitted or enrolled student (or upon the request of a parent loan applicant), to provide this form — in written or electronic format — and the information required to complete the form — specifically, the student's cost of attendance, estimated financial assistance, and the difference between the two amounts. In turn, a lender must obtain a self-certification signed by the applicant before disbursing a private education loan.
A PDF of the model form is available as an attachment to the DCL and on TG Online.
More information
To access DCL GEN-10-01, visit http://ifap.ed.gov/dpcletters/GEN1001.html. For questions about this self-certification, contact TG customer assistance at (800) 845-6267, or send an email message to cust.assist@tgslc.org.
How to manage challenges to draft cohort default rates
On February 8, 2010, ED released fiscal year (FY) 2008 draft cohort default rates (CDRs) to all eligible schools (see Shoptalk edition 538 and ED's electronic announcement). A draft CDR is ED's initial, unofficial calculation that is released only to the school — not the general public. Along with the draft CDR notification, ED provides the school's Loan Record Detail Report (LRDR) so the school can review the data included in its CDR. The LRDR contains pertinent data related to the borrowers that are included in the school's CDR, such as the borrower's name, SSN, repayment start date, and date of default, if applicable.
The FY 2008 draft CDRs are based on a two-year monitoring period for defaults, as in the past. In other words, a borrower must default on a loan by the end of the fiscal year following the fiscal year in which the borrower entered repayment, to be counted as a default in the CDR calculation. The first CDRs to be based on a three-year monitoring period (with default occurring by the end of the second fiscal year following the fiscal year in which the borrower entered repayment) will be the FY 2009 rates issued in 2012. For fiscal years 2009, 2010, and 2011, both two-year and three-year CDRs will be issued to schools. For FY 2012 and beyond, only three-year CDRs will be calculated.
Beginning on February 17, 2010, domestic schools will have 45 days to submit a draft CDR challenge. All such challenges must be submitted by April 2, 2010. There are two types of challenges that a school may submit in response to receipt of its draft CDR data: an incorrect data challenge (alleging inaccuracies in the data itself), or a participation rate index challenge (demonstrating that only a small percentage of the school's students borrowed loans included in the draft data). Both types of challenges are discussed below.
Incorrect data challenges
Unless inaccurate draft CDR data is corrected, it will be used to calculate a school's official CDR. Schools with low official CDRs benefit from exemptions from certain disbursement requirements, while schools with high official CDRs may be subject to provisional certification or loss of eligibility to participate in the Federal Family Education Loan Program (FFELP), William D. Ford Federal Direct Loan Program (FDLP), and possibly Pell grant program (see Shoptalk edition 534). So it is important for schools to verify the accuracy of the draft CDR data that will be used to calculate their official CDRs.
A school requests a correction of any inaccurate draft CDR data by submitting an incorrect data challenge as described below. If a school does not choose to submit an incorrect data challenge, there will not be another opportunity to request corrections to that data when the official CDRs are released in September (unless the data has changed in the interim period).
In filing an incorrect data challenge, the school may contest a borrower's repayment start date and/or date of default. The repayment start date is determined by adding six months plus one day to the date the borrower graduated, withdrew, or dropped below half-time enrollment. For CDR purposes, the date of default on a FFELP loan is the date a default claim is paid to the lender by the guarantor, or, for FFELP loans held by ED, the 361st day of delinquency. For FDLP loans, since there is no default claim payment, the default date is the 361st day of delinquency.
A school's incorrect data challenge must be submitted to the appropriate data manager. The guarantor/servicer code on the LRDR identifies the data manager for a particular loan record. Data manager contact information is available on ED's website. If a school identifies inaccuracies on multiple loans involving multiple data managers, the school submits a separate incorrect data challenge to each of those data managers. Each challenge includes only the loans associated with the data manager to which the challenge is submitted.
If there has been a recent change in the data manager of a loan and the school submits a challenge to the former data manager because the LRDR does not reflect the change, the former data manager will notify the school and ED of the change. The school then submits a challenge to the new data manager of the loan by the later of the original 45-day challenge deadline or 15 days after receipt of the notification from the former data manager. (See ED's Cohort Default Rate Guide, page 4.1-6, for more information.)
Schools should keep in mind that although they may identify discrepancies between school records and borrower repayment start dates listed in the LRDR, the LRDR dates may be correct. For instance, after withdrawing, a student borrower may re-enroll at another school within the six-month grace period, delaying the borrower's repayment start date. Because a school's LRDR includes only information on loans for students who attend that school, the school may find it helpful to access ED's National Student Loan Data System (NSLDS) to help in evaluating such data discrepancies.
For incorrect data to be changed, the data manager must agree with the school's challenge on a particular borrower's loan data. In order to positively affect a school's CDR, a revised repayment start date must place a defaulted borrower outside the monitoring period used in the school's CDR calculation, or place a non-defaulted borrower within the monitoring period.
Participation rate index challenges
The other type of challenge that a school may file is a participation rate index challenge. This kind of challenge is intended for schools with low FFELP and/or FDLP loan participation relative to their student population. The school's participation rate index is the percentage of such students who borrowed FFELP or FDLP loans during that period, multiplied by the school's draft CDR. If the school's participation rate index is less than specified thresholds for CDR-based sanctions, the school's challenge is successful. Further details regarding how to construct this type of challenge are provided in Chapter 4.2 of ED's Cohort Default Rate Guide.
While any school may submit a participation rate index challenge, only a school subject to a CDR-based sanction will benefit if the challenge is successful. This is because a successful participation rate index challenge will not result in a change to the school's official CDR, but will instead exempt the school from the CDR-based sanction.
Generally, a school may challenge only its most recent draft CDR. However, if a school is facing a potential loss of eligibility due to its three most recent CDRs being 25 percent or greater, the school may challenge its two most recent official rates, its current draft rate, or a combination of these within the 45-day challenge period. These challenges are submitted directly to ED. Contact information is available for ED through the IFAP website.
Other helpful resources
TG's free, archived Webinar, "How to Challenge Your Cohort Default Rate," discusses draft and official CDRs and provides more details about the two types of challenges described above.
Additionally, ED's Cohort Default Rate Guide is a valuable Web-based, comprehensive resource for schools participating in FFELP and FDLP. ED has also developed a useful Cohort Default Rate Guide Quick Reference tool that provides an easy-to-understand, high-level overview of CDR processes. Both the Guide and Quick Reference are available online.
Finally, ED's electronic announcement regarding the release of Electronic Cohort Default Rate Appeals (eCDR Appeals) 3.0 provides more details on submitting incorrect data challenges electronically. ED encourages schools to use the eCDR process for submitting such challenges. Use of the eCDR process will be required for challenges and appeals beginning next year.
Questions?
For questions about the FY 2008 draft CDR challenge procedures, contact TG compliance analyst Ken Johnson at (800) 252-9743, ext. 4701, or send an email message to ken.johnson@tgslc.org.
Deadline approaches for accepting previous versions of the TPD Discharge Application
ED recently announced that beginning April 1, 2010, lenders, guaranty agencies, and Perkins schools may no longer accept previous versions of the total and permanent disability (TPD) discharge application from borrowers who are submitting their initial application for TPD discharge. Loan holders may still submit assignments that include a previous version of the form received prior to April 1. The current version of the total and permanent disability discharge form has an expiration date of December 31, 2011.
More information Refer to ED's February 4, 2010 announcement, which is available on the Information for Financial Aid Professionals. If you have any questions, contact the Disability Discharge Servicing Center at (888) 869-4169, or send an email message to disability-discharge@acs-inc.com.
