session 20 ffel and direct loan policy update pamela moran office of postsecondary education

Session 20

FFEL and Direct Loan

Policy Update

Pamela Moran

Office of Postsecondary Education

2

Agenda

• Higher Education Reconciliation Act of

2005

• Other Legislation

• Policy Guidance

• HEA Reauthorization

3

Recent Legislation

• Higher Education Reconciliation Act of 2005 —

P.L. 109-171, February 8, 2006 (HERA)

• Emergency Supplemental Appropriations Act for

Defense, the Global War on Terror, and Hurricane

Recovery, 2006 — P.L. 109-234, June 15, 2006

• Higher Education Act Extension P.L. 109-292 –

through June 30, 2007

4

Not-So-Recent Legislation

• Student Loan Interest Rates —

P.L. 107-139, February 8, 2002

• Taxpayer-Teacher Protection Act of 2004 —

P.L. 108-409, October 30, 2004

• Higher Education Relief opportunities for students

(HEROES) P.L. 109-78 – extended through

September 30, 2007

5

Regulatory Outlook

• Academic Competitiveness and SMART Grants

– Interim Final with Public Comment - July 3,

2006

– Effective Date – August 2, 2006

– Deadline for Public Comment – August 17,

2006

6

Regulatory Outlook

• Academic Competitiveness and SMART Grants

– Revised Rule for Year Two - November 1,

2006

– Negotiated Rulemaking for Year Three –

Nov. 1, 2007

7

Regulatory Outlook

• Student Loans, Eligibility, General Provisions

– Interim Final with Public Comment —

August 9, 2006

– Effective Date – September 8, 2006

– Deadline for Public Comment –

September 8, 2006

8

Regulatory Outlook

• Student Loans, Eligibility, General Provisions

– Revised Regulations — November 1, 2006

– Negotiated Rulemaking if Issues Identified –

November 1, 2007

9

Regulatory Outlook

• Notice of Negotiated Rulemaking –

August 18, 2006

• Comments Due: November 9, 2006

• Four Regional Hearings

10

Regulatory Outlook

• Up to four negotiating committees

• Deadline for negotiator

nominations: November 9, 2006

• Negotiating Sessions – December 2006 – March

2007

11

Higher Education Reconciliation Act of 2005 FFEL, Direct Loans, & Perkins Loans

• Active Duty Military Deferment

– Beginning July 1, 2006, up to three years

military deferment on loans first disbursed on

or after July 1, 2001

– Active duty service during war or other military

operation or during national emergency

(including qualifying National Guard)

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– Military operation defined as “contingency

operation”

Current Examples: Operation Enduring Freedom

(Afghanistan) and Operation Iraqi Freedom (Iraq)

– Consolidation Loan made on/after July 1, 2001

eligible if all underlying Title IV loans eligible

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– Eligibility documentation includes military

orders or commanding officer’s written

statement

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– Statute includes definitions of terms

– No refund of payments made

15

Higher Education Reconciliation Act of 2005 FFEL and Direct Loans

• Increased annual undergraduate loan limits

– First year students from $2,625 to $3,500

– Second year students from $3,500 to $4,500

• Increased graduate annual unsubsidized loan limit

from $10,000 to $12,000.

(Effective: Loans First Disbursed on/after 7/1/07)

16


• Increased annual unsubsidized preparatory limits

– Pre-Grad/Prof and Teacher Cert. $7,000

(formerly $5000)

– No change to aggregate loan limits

(Effective: Loans First Disbursed on/after 7/1/07)

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• Interest Rates

– FFEL PLUS Loans first disbursed on/after July 1, 2006

• fixed interest rate of 8.5 percent

– Direct PLUS Loans • fixed rate of 7.9 percent

– Stafford Loans first disbursed on/after 7/1/06 • fixed at 6.8 percent

– Consolidation Loans – No change

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• Origination Fees - FFEL

– 1st disbursement on or after:

– July 1, 2006 – 2%

– July 1, 2007 – 1.5%

– July 1, 2008 – 1%

– July 1, 2009 - .5%

– July 1, 2010 – no fee * (*1% FDF remains)

19


• Federal Default Fee (Formerly Insurance Premium

or Guarantee Fee)

– Requires Collection of 1% for loans guaranteed

on/after July 1, 2006

– Requires deposit of fee into GA Federal Fund

– GA may collect from borrower or pay from

non-Federal sources

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• Origination Fees – Direct Loan

– 1st disbursement on or after:

– July 1, 2006 – 3%

– July 1, 2007 – 2.5%

– July 1, 2008 – 2 %

– July 1, 2009 - 1.5%

– July 1, 2010 – 1%

21


• PLUS Eligibility for Graduate/Professional Students

– Same eligibility criteria as Parent PLUS including

credit checks and endorsers

– No in-school status or grace period but eligible for in-

school deferment

(Effective: Loans certified/originated on/after 7/1/06)

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• PLUS Eligibility for Graduate Professional

Students

– FAFSA Required

– Stafford eligibility determination required

– Stafford application not required

(Effective: Loans certified on/after 7/1/06)

23


• PLUS Eligibility for Graduate Professional

Students

– No direct disbursement to student

– Initial and Exit counseling strongly

recommended

(Effective: Loans certified on/after 7/1/06)

24


• Extends Teacher Loan Forgiveness from Teacher-Taxpayer

Act

– Makes permanent increased loan forgiveness of $17,500

for “highly qualified” math, science, and special education

teachers at qualified low-income schools

– Provides eligibility to private school teachers by defining

“highly qualified” for them

(Effective on date of enactment, retroactive to October 1, 2005)

25


• Disbursement Rule Changes

– Loan disbursement on/after 2/8/06 for school

with CDR less than 10%

• No multiple disbursement for single term or four-

month loans

• No 30-day delayed delivery

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– Loan disbursement for withdrawals on/after

July 1, 2006

• School must confirm “need for/ acceptance of / need

to repay” before crediting or directly disbursing

• Document confirmation

• No response to notice = no crediting or disbursing

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– Foreign Schools (FFEL only)

• Foreign school must request direct disbursement to

student; otherwise goes to school

• Lender or GA must verify student’s enrollment

• No direct disbursement of Parent or

Graduate/Professional PLUS Loans

For Loans First Disbursed on/after 7/1/06

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– Study–Abroad Programs through Home Institution (FFEL only)

• Student may request Direct Disbursement by lender

• Not subject to school request or approval

• Lender or GA must verify student’s enrollment

• No direct disbursement of Parent PLUS or Graduate/Professional PLUS Loans

For Loans First Disbursed on/after 7/1/06

29


• Standardized Repayment Plans on FFEL Model

– Direct Loan standard, graduated, and extended

repayment plans comparable to FFEL Program

• Exception: ICR Repayment

(Effective 7/1/06)

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• Consolidation Loans

– Generally no reconsolidation of Consolidation Loan

– FFEL- only borrower to Direct Loan only if FFEL

application denied - SUPERSEDED

– No In-School Consolidations in Direct Loan or “Early

Conversion to Repayment” Consolidations in FFEL

– No Joint Spousal Consolidations

(Effective 7/1/06)

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• False Certification Discharge

– Based on borrower being victim of CRIME of identity theft

– Application in FFEL to lender or guaranty agency and in DL to Direct Loan Servicer or Debt Collection Services

– Copy of local, State, or Federal court verdict or judgment required

(Effective 7/1/06)

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• Rehabilitation of Defaulted Loans

– Number of on-time payments reduced from 12

to 9

– “On-time” now within 20 days of due date

– Completed within 10 consecutive months

(Effective: New rehab agreements on/after 7/1/06)

33


• Rehabilitation of Defaulted Loans

– Missed or ineligible payment allowed

– GA OPTION – New standard “OK” on prior

agreements if at least one scheduled payment of

9 after 7/1/06

(Effective: New rehab agreements on/after 7/1/06)

34

Higher Education Reconciliation Act of 2005

Published Guidance: See.WWW.IFAP.ed.gov special link to HERA information

“Dear Colleague” Letters and Announcements• GEN-06-03 (March 10) – HERA Summary for Loans

• FP-06-05 (April 25) – FFEL Grad/PLUS Guidance

• ANN – (June 23) – DL GRAD/PLUS Guidance

• ANN – (May 30) – HERA Training Opportunities

• GEN-06-10 (June 20) – HERA Implementing Provisions

• GEN-06-11 (June 21) – Foreign Schools and FFEL

• NSLDS – HERA updates (April 24, July 7, July 10)

35


Forms:• FP-06-05 (April 24) – FFEL Promissory Note Addenda and

Plain Language Disclosures

• FP-06-08 (May 23) FFEL Stafford and PLUS MPNs

• FP-06-12 (July 3) – FFEL Consolidation Application

Addendum

• GEN-06-13 (July 3) – Teacher Loan Forgiveness

36


Forms:• Pending:

– Revised Stafford and PLUS MPN

– Revised Consolidation Loan App/P-Note

– Military Deferment

– Identity Theft Discharge

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Emergency Supplemental Appropriations Act (2006)

• DCL – GEN-06-12, June 23, 2006

• Repealed “Single Holder Rule” in FFEL

Consolidation Program

– Effective for applications received on or after

June 15, 2006

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• Repealed HERA July 1, 2006 changes limiting

FFEL Stafford or PLUS borrower access to Direct

Loan Consolidation

– denial of application no longer required

– income-sensitive repayment that meets the

borrower’s needs reinstated as condition

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• Impact

– All eligible loans of equal status

– FFEL loan not required in FFEL Consolidation

– Single eligible loan can be consolidated

40

HEA Extension – P.L. 109-292

• Limitation on School and School-Affiliated

Organizations use of Eligible Lender Trustees

(ELT) in FFEL Program

• Loan Discharge for 9/11 spouses and parents

– Spouse of eligible public servant

– Parent of eligible victim

– Includes portion of Consolidation Loan

41

HEA Reauthorization

H.R 609 - College Access and Opportunity

Act of 2006 - passed by House

March 30, 2006

Senate - ?

42

Technical Slide

We appreciate your feedback and comments.

We can be reached at:

• Phone: (202) 502-7732

• Fax: (202) 502-7874

• Email: [email protected]

session 20 ffel and direct loan policy update pamela moran office of postsecondary education

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