NCHELP Webinar – New Regulations

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					NCHELP Webinar –
 New Regulations
Wanda Hall, Edfinancial Services
            Laura Kowalski, TG
    Nancy Masten, Great Lakes
             Lynn Murphy, EAC
        Vicki Shipley, NCHELP

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

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

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

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

School FFEL Loan
   A school may NOT:
       Refuse or delay certification based on a
        borrower’s choice of lender or guarantor
       Assign lender to first-time borrower
       Refuse to certify or certify a reduced amount;
        except on a case-by-case basis, documented, and
        reason must be provided in writing to the
       Includes “school as lender”

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

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

School Preferred Lender List
Developing PLL:
   Disclose method/criteria for lender selection
   Provide comparative borrower benefits
    offered by listed lenders
   PLL must prominently state that use of any
    of the school’s preferred lenders not required

   Retains “quid pro quo” requirement
   Provides non-exhaustive list of
    prohibited activities
   Provides exhaustive list of permissible

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

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.

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.

Prohibited Activity Examples
   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

Prohibited Activity Examples
   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

Prohibited Activity Examples
   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

Prohibited Activity Examples
   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

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.

Permissible Activity Examples
   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

Permissible Activity Examples
   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

Permissible Activity Examples
   Other benefits to a borrower:
       Repayment incentive program that requires, at
        a minimum, one or more scheduled payments
        to receive or retain the benefit; or
       Loan forgiveness program for public service or
        other targeted purposes approved by the
        Secretary (may not market to secure loan
        applications or loan guarantees)

Guarantor Permissible Activities
   Default aversion activities approved by ED
   Meals and refreshments in connection
    with guarantor-provided training of
    program participants and elementary,
    secondary, and postsecondary school

Guarantor Permissible Activities
   Travel and lodging costs to facilitate the
    attendance of school staff:
       For 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

E-signed Promissory Notes
   Upon assignment to ED, guarantor must
    provide the name and location of the
    entity in possession of original e-signed
   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.

E-signed Promissory Notes
   Contents of Affidavit:
       Steps followed by borrower in signing note (flow
       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

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 specific periods
    of time; document any changes

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 lenders must
    provide disbursement records. Make sure
    process is in place prior to July 1, 2008.

E-signed Promissory Notes
NCHELP Operations Committee Considerations:
   DACS developed a supplemental process (to be
    exchanged prior to point of assignment)
       Proposal sent for community comment on 4/23/2008
       Only a small number of claim paid accounts are
        assigned to ED

E-signed Promissory Notes
   Supports current Industry Standards
       E-sign Indicator – a “Y” indicates this note was signed
        electronically. If the note was not signed
        electronically, this field is left blank
       E-sign custodial ID – A 9-character field that includes
        the type of organization that captured the electronic
        signature and the organization’s OPE ID or NCHELP –
        assigned ID
           Allowable codes are L for Lender, O for Guarantor or Lender
            Servicer, and G for Guarantor

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

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 to 120
    days) during investigation
       Not retroactive, but ED will take into
        consideration any prior due diligence lapses due
        to conflicts in HEA vs. FACT Act

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 lender receives court
    verdict of criminal ID theft, lender may
    submit a claim and receive the interest
    subsidy and SAP that would have accrued

Identity Theft Discharge
NCHELP Operations Committee
   A new claim type of “ID” will be implemented
   A Claim Form Addendum-Ineligible
    Borrower/Identity Theft is currently in
    development and will be required with the ID
    claim type
   A new NSLDS Claim Reason Code of “ID” will
    also be implemented

Death Discharge
   Allows 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"

Total and Permanent
Disability Discharge
   Requires a three-year prospective
    conditional discharge period that begins on
    date physician certifies discharge application
   Allows borrower to remain TPD eligible:
       If a loan was certified prior to the date the
        physician certified the application and a loan
        disbursement is made after that date, and
       The disbursement is returned within 120 days
        from the date of the disbursement

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

Simplification of
Deferment Process
   Final rules allow, but do not require, a
    holder to grant a deferment based on the
    determination of another loan holder
       Borrower still must request the deferment
   Deferment dates “within” or a “subset”
       Per ED, lender not allowed to use simplified

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   7/1/2010, 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

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

CCRAA Deferment Changes
Military service deferment (MIL)
   Removes 3-year limit on military deferment
    and extends deferment for 180 days following
       Available to FFELP, Direct, and Perkins borrowers,
        regardless of date loan was disbursed
   Effective October 1, 2007

CCRAA Deferment Changes
Military post active duty student 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 or was
    enrolled within six months of being activated
   Effective October 1, 2007

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

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

Income-Based Repayment
   New repayment option available 7/1/2009
    for borrowers experiencing “partial financial
   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)

Income-Based Repayment
   The repayment period can extend beyond
    10 years regardless of the amount of the
    eligible debt but not beyond 25 years
   Payment application order different
       interest>collection costs>late charges>principal
   Includes a loan forgiveness provision after
    experiencing a partial financial hardship and
    25 years of eligible payments

Income-Based Repayment
   Any loan amount that is cancelled may be
    taxable in the calendar year it is cancelled
   Additional disclosure requirements
   IBR may not always be the best/lowest
    repayment option for a borrower – should
    consider impact of eligibility for an
    Economic Hardship deferment

Income-Based Repayment
POSSIBLE new data elements will likely
 need to track or maintain for future use:
   Minimum and maximum payment amounts
   Unpaid accrued interest for purposes of
    billing special allowance
   36 month counter for unpaid accrued
    interest on subsidized Stafford
       If borrower consolidates unused portion would
        carry over with underlying loan to consolidation

Income-Based Repayment
POSSIBLE new data elements will likely need
  to track or maintain for future use (cont.):
 Start point of 25 year period and projected
     Potential for any payment made on/after July 1,
      2009 to count toward 300 required payments
         Calculated partial financial hardship payment of zero $
          counts as eligible payment
     Borrower permitted to pay ahead but
      forgiveness may not occur until reach 25th year

Income-Based Repayment
POSSIBLE new data elements will likely need
  to track or maintain for future use (cont.):
 25 years of payments (300 payments)
     Payment history or counter of eligible payments
      would need to carry over to the guarantor in
      cases where loan assigned to guarantor. If
      subsequently repurchased or rehabilitated,
      information would need to flow back to lender.

Economic Hardship Deferment
Debt-to-income criteria
   Currently a borrower is eligible for HRD if:
       Employed full time,
       Total loan debt is equal to or greater than 20% of
        monthly income, and
       Monthly income minus loan payments leaves
        borrower with no more than 220% of the larger of:
           Federal Minimum Wage rate, or
           The poverty level income for a family of two for borrower’s
   Effective July 1, 2009, debt-to-income ratio
    calculation is eliminated

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 employed full time by public service
        organization or Americorps position during the entire
        repayment period
           Can be employed by private organization if it does public
            service work
       Effective 7/1/08, FFEL borrowers may consolidate
        (including a consol) into the DL consolidation program to
        get this benefit but ALL payments must have been in DL

Military Deferments
   Harmonizing of HEROES waivers into regulations
   Lenders able to grant military service deferment
    for up to one year without supporting
       Request for deferment can come from borrower or
        borrower’s representative

Military Deferments
Post Active Duty Student Deferment
 If borrower eligible for both 180 day deferment
  extension (military service deferment) and 13-
  month post-active duty student deferment,
  period apply concurrently
 If borrower returns to school after deployment,
  eligibility for this deferment ends regardless of if
  the loan was in repayment, grace or in-school
  status at the time of activation

Military Deferments
   Adds new mandatory forbearance
   Up to one year
   Members of National Guard who qualify for post-
    active duty student deferment but who are not
    eligible for military service deferment because
    duty is active State duty

Electronic Resources
The Project on Student Debt
   A new Web page for borrowers on IBR and
    Public Service Loan Forgiveness can be
    accessed at:

Electronic Resources
NCHELP e-Library
   Loan issues and general provisions Final
    Rules, and side-by-side analysis documents
    can be accessed at:
   A selected summary of the Senate and
    House reauthorization bills can be accessed

Electronic Resources
Department of Education (ED)
   2007-08 Negotiated Rulemaking for Higher
    Education can be accessed at:

HR 5715
NCHELP will host a webinar to review and
 discuss the provisions of HR 5715, the
 Ensuring Continued Access to Student
 Loans Act. The webinar is currently
 scheduled for the week of June 9th.

Watch for details in the Daily Briefing.

Thank You!


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