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Debt Management Consolidate Credit Fl

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					  3 R’s: Regulations,
  Reauthorization and
     Rulemaking

Wanda Hall, Edfinancial Services
     Laura Kowalski, TG
   Vicki Shipley, NCHELP

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Agenda

• 2007 Negotiated Rulemaking (Neg Reg)
  – November 1, 2007 Final Regs – effective
    July 1, 2008 (Master Calendar)
  – Don’t forget to read the preamble
• Reauthorization
• 2008 Neg Reg



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2007 Neg Reg Topics
• Simplification of the Deferment Process
• Accurate and Complete Copy of a Death
  Certificate
• Total and Permanent Disability (TPD)
  Discharge
• NSLDS Reporting Requirements
• Certification of Electronic Signatures on
  MPN’s

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More 2007 Neg Reg Topics
• Record Retention Requirements on MPN’s
  assigned to the Department
•   Loan Counseling for Grad PLUS Borrowers
•   Maximum Loan Period
•   Prohibited Inducements
•   Eligible Lender Trustees
•   Frequency of Capitalization on
    Consolidation Loans

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Still More
• Loan Discharge for False Certification
  as a Result of Identity Theft
• Preferred Lender Lists
• CCRAA Self-implementing Items
  – Temporary Interest Rate Reduction for
    Undergrad Subsidized Stafford
  – Economic Hardship Deferment
  – Military Deferment

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School Preferred Lender List
• Allows school to have such a list, which:
  – Cannot deny borrower’s choice of lender
  – Must contain at least three ―unaffiliated‖
    lenders
  – Cannot cause any unnecessary certification
    delays for borrowers not using lender on PLL
  – Must be updated annually
• School with a list must provide certain
  disclosures to borrowers

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School Preferred Lender List
A lender is ―affiliated‖ with another lender if:
• The lenders are wholly or partly owned
  subsidiaries of the same parent company;
• The lenders are owned or controlled by the
  same entity or individuals; or
• The directors, trustees, or general partners
  of one of the lenders constitute a majority
  of the persons holding similar positions
  with the other lender

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School Preferred Lender List
Developing PLL:
• Disclose method/criteria for lender
  selection
• Provide comparative borrower benefits
  offered by listed lenders (ED model format
  to be provided)
• PLL must prominently state that use of the
  school’s preferred lender not required


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Inducements

• Retains ―quid pro quo‖ requirement
• Provides non-exhaustive list of
  prohibited activities
• Provides exhaustive list of permissible
  activities




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Inducements

• Regulation introduce 3 new tools for
  anti-inducement enforcement
  – Rebuttable presumption
  – Expansion of FTC Holder Rule
  – Claim/guarantor review of inducement
    practices



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Prohibited Inducements

• The activities on the prohibited list are
  only prohibited if they are tied to loans,
  loan volume, or placement on a school's
  preferred lender list since you can't have
  an improper inducement without intent.




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Prohibited Inducements

• Similarly, it is still okay for a bank
  participating in the FFELP to extend
  benefits to a school in connection with
  a product line/service unrelated to
  student-aid, as long as it is not tied to
  loans, loan volume, or placement on a
  school's preferred lender list.



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Examples Prohibited Activities

• Payment of points, premiums, payments
  or other inducements
• Payments or other benefits provided to
  student at a school who acts as the
  lender’s representative
• Payments or other benefits to a loan
  solicitor or sales rep of a lender who
  visits a school to solicit individual
  borrowers

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Examples Prohibited Activities

• Payment to another party or any other
  party of referral or processing fees,
  except to comply with Federal or
  State law
• Payment of conference or training
  registration, transportation, and lodging
  costs, for an employee of a school or
  school-affiliated organization


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Examples Prohibited Activities

• Payment of entertainment expenses,
  including expenses for private hospitality
  suites, tickets to shows or sporting
  events, meals, alcoholic beverages, and
  any lodging, rental, transportation, and
  other gratuities related to lender-
  sponsored activities for employees of a
  school or a school-affiliated organization


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Examples Prohibited Activities

• Staffing services to a school, except for
  services provided to participating
  foreign schools at the direction of the
  Secretary, as a third-party servicer or
  otherwise on more than a short-term,
  emergency basis, and which is non-
  recurring, to assist a school with
  financial aid-related functions


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Lender Permissible Activities


• The activities on the permitted list are
  permitted even if they are tied to
  loans or loan volume, or undertaken
  to obtain a PLL listing.




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Examples Permissible Activities
• Support of and participation in a school’s
  or a guaranty agency’s student aid and
  financial literacy-related outreach
  activities, excluding in-person school
  required entrance or exit counseling, as
  long as the name of the entity that
  developed and paid for any materials is
  provided to the participants and the
  lender does not promote its student loan
  or other products

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Examples Permissible Activities
• Meal, refreshments, and receptions that
  are reasonable in cost and scheduled in
  conjunction with training, meeting, or
  conference events if they are open to all
  training, meeting, or conference attendees
• Items of nominal values to schools, school-
  affiliated organizations, and borrowers that
  are offered as a form of generalized
  marketing or advertising, or to create
  good will

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Examples Permissible Activities
• Other benefits to a borrower under a
  repayment incentive program that
  requires, at a minimum, one or more
  scheduled payments to receive or retain
  the benefit or under a loan forgiveness
  program for public service or other
  targeted purposes approved by the
  Secretary, provided those benefits are
  not marketed to secure loan applications
  or loan guarantees
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Guarantor Permissible Activities

• Default aversion activities approved
  by ED
• Meals and refreshments in connection
  to guarantor-provided training of
  program participants and elementary,
  secondary, and postsecondary school
  personnel




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Guarantor Permissible Activities

• Travel and lodging costs to facilitate the
  attendance of school staff:
  – In training or service facility tours
  – To participate in the activities of an
    agency’s governing board, a standing
    official advisory committee, or in support
    of other official activities of the agency



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E-signed Promissory Notes

• Upon assignment to ED, guarantor
  must provide the name and location of
  the entity in possession of original
  e-signed MPN
• Lender must retain e-note for 3 years
  after all loans are satisfied
• If loan is assigned to ED, lender must
  cooperate with requests for affidavits,
  testimony, etc.

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E-signed Promissory Notes
• Contents of Affidavit:
   – Steps followed by borrower in signing
     note (flow chart)
   – Screen Shots as appeared to borrower
   – Field edits & other security measures to
     ensure data integrity
   – Preservation of note to ensure no
     alterations
   – Authentication and Electronic Signature
     Process
• Timeframe for response: 10 business days

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E-signed Promissory Notes

• Applies to all e-loans in existence—not
  just those signed after July 1, 2008
• Screen Shots—Retain documentation
  and templates that applied for discrete
  periods of time; document any changes




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E-signed Promissory Notes

• Requirements are for lender that created
  the original e-Note, not necessarily the
  current holder of the Note
• Related issue—Going forward, when
  submitting claims, lenders must provide
  disbursement records. Make sure
  process is in place prior to July 1, 2008.




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Identity Theft Discharge
• For discharge, must be a judicial
  determination that conclusively
  determines that the individual is the victim
  of the crime of identity theft committed by
  a specific individual named in the
  determination
• Court must conclude that the specific
  elements of the crime have been proven
  (including perpetrator’s identity and state
  of mind)

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Identity Theft Discharge and
FACT Act
• Regulations do not preempt the FACT
  Act provisions regarding ID theft.
• Lender must suspend credit bureau
  reporting and grant forbearance (up
  to120 days) during investigation.
  – Not retroactive, but ED will take into
    consideration any prior due diligence
    lapses due to conflicts in HEA vs.
    FACT Act

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Identity Theft Discharge and
FACT Act
• If loan does not qualify for discharge, but
  is unenforceable, lender must notify
  credit bureau, stop collecting interest
  benefits, SAP, and return any monies
  received
• If, within 3 years of the ID theft report the
  lender receives the court order, lender
  may submit a claim and receive the
  interest subsidy and SAP that would
  have accrued

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Death Discharge
• Final rules allow guarantor to use
  accurate and complete copy of death
  certificate
• Recommended trigger: "Effective for
  death discharge requests filed by the
  lender based on determinations or re-
  determinations of eligible photocopies on
  or after July 1, 2008, unless implemented
  earlier by the lender on or after
  November 1, 2007"
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Total and Permanent Disability
Discharge
• Requires a three-year prospective
  conditional discharge period that begins on
  date physician certifies discharge
  application
• If a loan was certified prior to the date the
  physician certified the application and a loan
  disbursement is made after that date, the
  disbursement must be returned within 120
  days from the date of the disbursement for
  the borrower to remain TPD eligible

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Total and Permanent Disability
Discharge
• States that borrower has 90 days from
  date physician certifies application to
  submit it to loan holder
• Provides for refund of payments made
  after date physician certifies borrower’s
  application




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Simplification of Deferment
Process

• Final rules allow, but not require, a
  holder to grant a deferment based on
  the determination of another loan holder.
  – Borrower still must request the
    deferment
• Outstanding issue: dates ―within‖ or
  a ―subset‖


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CCRAA Stafford Interest
Rate Changes
Reduces fixed interest rate for undergraduate
 subsidized Stafford loans (FFELP and
 Direct) from 6.8% to 3.4% over 4 years
•   6.0% on or after 7/1/2008, and before 7/1/2009
•   5.6% on or after 7/1/2009, and before 7/1/2010
•   4.5% on or after 7/12010, and before 7/1/2011
•   3.4% on or after 7/1/2011, and before 7/1/2012
•   6.8% on or after 7/1/2012

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CCRAA Deferment Changes

Economic hardship deferment (HRD)
• Changes definition of economic hardship
  for purposes of deferment from ―100% of
  the poverty line for a family of two‖ to
  ―150% of the poverty line applicable to
  the borrower’s family size‖
• Effective October 1, 2007



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CCRAA Deferment Changes

Military deferment (MIL)
• Removes 3-year limit on military deferment
  and extends deferment through 180 days
  following demobilization
  – Available to FFELP, Direct, and Perkins
    borrowers, regardless of date loan was
    disbursed
• Effective October 1, 2007


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CCRAA Deferment Changes

Military deferment
• New 13-month deferment for borrower
  returning from active duty, and who was
  enrolled in an eligible institution prior to
  being called or ordered to active duty
• Effective October 1, 2007




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Reauthorization

• Senate reauthorization: S. 1642
  (passed 95-0 on July 24, 2007) The
  Higher Education Amendments of 2007
• House reauthorization: H.R. 4137
  (passed 354-58 on February 7, 2008)
  The College Opportunity and
  Affordability Act
• HEA extended until April 30, 2008


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Reauthorization

FFELP community comments on HEA
• Many new and redundant disclosures
• Entrance and exit counseling
• Gift ban exceptions
• Serving on a Board of Directors and/or
  Advisory Council




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Reauthorization

FFELP community comments (cont.)
• Privacy concerns
• Financial literacy, outreach and
  delinquency, and default prevention
• Implementation issues




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2008 Neg Reg Topics

• Income-based Repayment Plan (IBR)
• Conforming Economic Hardship
  Deferment with IBR
• Public Service Loan Forgiveness
• Definition of Not-for-Profit Holder




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More 2008 Neg Reg Topics

• Harmonizing HEROES Waivers with
  Other Benefits Provided to Returning &
  Active Duty Military
• Federal Preemption of States Laws
  Related to improper inducements




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Income-Based Repayment
• New repayment option available 7/1/2009
  for borrowers experiencing ―partial
  financial hardship‖
• Eligibility and minimum monthly payment
  is re-evaluated annually
• Government pays the interest on
  qualifying subsidized Stafford loans for
  not more than 3 years (not counting
  periods of Economic Hardship deferment)

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Income-Based Repayment

• The repayment period can extend
  beyond 10 years regardless of the
  amount of the eligible debt but not
  beyond 25 years
• Includes a loan forgiveness provision
  after experiencing a partial financial
  hardship and 25 years of eligible
  payments


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Income-Based Repayment

• Any loan amount that is cancelled may
  be taxable in the calendar year it is
  cancelled
• IBR may not always be the best/lowest
  repayment option for a borrower –
  should consider impact of eligibility for
  an Economic Hardship deferment



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Economic Hardship Deferment
POSSIBLE Change to the HRD
• Elimination of the debt-to-income ratio
  calculation for purposes of determining
  eligibility as of 7/1/09
• Currently borrowers are eligible for this
  deferment if their total debt is more than 20%
  of their income and if their income minus their
  loan payments leaves them with no more than
  220% of the income considered poverty level
  in the U.S.
• ―Big Cost‖ Item—ED estimated the 10-year
  cost of maintaining this provision at $1.1 billion

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Public Service Loan Forgiveness
• New loan cancellation provision for
  Direct Loan borrowers not in default who:
  – Have made 120 monthly payments on an
    eligible loan starting after 10/1/2007
  – Must have been ―directly and full-time‖
    employed in public service during the
    entire repayment period
  – FFEL borrowers may consolidate into DL
    to get this benefit but ALL payments
    must have been in DL

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Electronic Resources

The Project on Student Debt
• A new Web page for borrowers on IBR and
  Public Service Loan Forgiveness can be
  accessed at:
  ibrinfo.org




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Electronic Resources
NCHELP e-Library
• Loan issues and general provisions Final
  Rules, and side-by-side analysis
  documents can be accessed at:
  nchelp.org/elibrary/index.cfm?parent=1904
• A selected summary of the Senate and
  House reauthorization bills can be
  accessed at:
  nchelp.org/elibrary/index.cfm?parent=1944


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Electronic Resources

Department of Education (ED)
• 2007-08 Negotiated Rulemaking for Higher
  Education can be accessed at:
  ed.gov/policy/highered/reg/hearulemaking/
  2008/index2008.html




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  Thank You.

  Questions?



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