Transcript Name of presentation - P20W Education Standards Council (PESC)

Legislative and Regulatory Impact
on Technology Standards
Overview
– Legislative Overview
– Market Issues
– Negotiated Rulemaking
• 2007 process, resulting in July 1, 2008
effective regulations
• 2008 process, resulting in July 1, 2009
effective regulations
– Discussion/Questions
Legislative Overview
Higher Education Reconciliation Act (HERA)
• Cut $18 billion from FFELP
• Increased annual loan limits for first and second year
undergrads
• Reduced origination fees
• Made provisions of the Taxpayer Teacher Protection
Act permanent
• Reduced Lender insurance from 98% to 97%
• Made 458 funds discretionary
Legislative Overview
• College Cost Reduction and Access Act
(CCRAA)
• Cut almost $20 billion from FFELP
• Reduced SAP on all new loans disbursed on or
after 10/1/07
• Increased Lender paid origination fee
• Decreased interest rates on new undergrad
subsidized Stafford loans for five years
• Eliminated Exceptional Performer
• Instituted an auction plan for Parent PLUS loans
• College Access Challenge Grants
Legislative Overview
• Higher Education Act (HEA)
– House passed H.R. 4137 on February 7th 354-58
– Senate passed S. 1642 on July 24th 95-0
– Current (11th) HEA Extender (S. 2733) expires
on April 30th
– Reauthorization to be completed…..finally????
• Pre-Conference meetings underway
• Will need at least one more extension
• Floor action slated for early spring
Higher Education Act
• Issues include
– Financial literacy
– Student loan information – disclosure to 3rd parties
– Additional auction study
– Code of conduct
– Private loan issues
– Multiple disclosures
– Entrance and exit counseling
– Service on Boards of Directors and on Advisory
Councils
– Guarantor/DL audit requirements
HEA
• Private Loans
– House rolls private loans into HEA
– Senate does not include
– More than likely final conference report will deal
with private loans
• Disclosures
• School Certification
• Info to borrow Federal loans first
Market Issues
– Secretary Spellings….”closely monitoring the situation”
• Moving forward with Lender of Last Resort
– Federal Advance or not to guaranty agencies
– Full authority, no need for Congressional approval to
advance funds from Treasury
– Preparing Direct Lending for increased volume
– Senator Kennedy (D-MA) – Introduced S. 2815,
Strengthening Student Aid for All Act.
• “Americans are facing economic challenges at every turn.
They see jobs disappearing, homes being foreclosed, debts
soaring, and benefits worth less and less. Now families are
finding that the loans they rely on to afford the high cost of
college may also be at risk. We can’t allow problems in the
credit market to prevent students from going to college.”
Market Issues
– “This bill ensures that the federal government can step in when banks
and student loan companies fail to provide student loans due to the
current “credit crunch” in the capital markets.”
– S. 2815 will:
• Increase Pell for the lowest income students by up to $750.00
• Increase annual unsubsidized loan limits for dependent
undergraduate by $1000
• Increase annual unsubsidized loan limits for independent
undergraduates by $2000
(and for students whose parents unable to get a PLUS loan due to poor credit)
• Allow parent borrowers to defer repayment while student is enrolled
• Provides for institution based Lender of Last Resort, vs. current law
of borrower based Lender of Last Resort
• Makes the Secretary the “secondary market of last resort”
temporarily
Market Issues
• George Miller (D-CA) Introduced similar legislation,
The Ensuring Continued Access to Student Loans
Act of 2008, H.R. 5715
– “Already, the crisis in the financial markets has badly hurt
American homeowners and working people – we can’t let it also
stop students from pursuing their educational goals,” said Miller,
chairman of the House Education and Labor Committee.
“Students and families can’t afford any ambiguity or snafus to
undermine their ability to attend college. I am confident that if we
act quickly and decisively, then students will have the financial
support necessary to begin or continue their higher education.”
Market Issues
• H.R. 5715 introduced 4/8/2008
– Full Committee Mark up – 4/9/08
• Reported to the floor by voice vote
• Voted off the floor 383-27 on 4/17/08
– Increase annual loan limits for all students by $2000.00
– Provide Parent PLUS borrowers with a deferment for up to six
months after the student leaves school
– Allows PLUS Credit extenuating circumstances to include being
less than 180 days delinquent on home mortgage payments or
medical bill payments and less than 90 days delinquent on other
debt
Market Issues
– Clarify Secretary’s authority to advance federal funds to
guaranty agencies for purposes of Lender of Last Resort
– Gives Secretary authority to deem a school a lender of last
resort school vs. borrower based program
– Requires Secretary to insure guarantors do not engage in
– Give the Secretary of Education temporary authority to
purchase loans from FFELP lenders and service through
the Direct Loan Program.
– The Secretary would be authorized to purchase only those
loans that would not result in a cost to the federal
government
Market Issues
• H.R. 5723, The Emergency Student Loan Market Liquidity Act
– Introduced by Paul Kanjorski (D-PA) on 4/8/08 (Senator
Kerry (D-MA) introduced companion bill S. 2847)
– Amends the Federal Home Loan Bank Act to allow federal
home loan banks to: (1) invest surplus funds in student loan
securities; (2) accept student loans and student loan-related
securities as collateral; and (3) provide secured long-term
advances to member banks so that they can finance the
origination of student loans or purchase or finance student
loan-related securities.
– Limits the application of the Act to Federal Family Education
Loans (FFELs) made under the Higher Education Act of 1965.
– Makes the banks' authority effective for investments and
advances made between February 1, 2008, and two years after
this Act's enactment.
Negotiated Rulemaking - 2007
• Sessions
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December 12-14, 2006
February 5-7, 2007
March 12-14, 2007
April 18-20, 2007
• NPRM Published - June 12, 2007
• Final Regulations Published – November 1,
2007
• Regulations effective July 1, 2008
2007 Neg Reg Topics
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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
More 2007 Neg Reg Topics
• Record Retention Requirements on MPN’s
assigned to the Department
• Maximum Loan Period
• Prohibited Inducements
• Frequency of Capitalization on Consolidation
Loans
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 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 (ED model format to be provided)
• PLL must prominently state that use of the school’s
preferred lender not required
Inducements
• Retains “quid pro quo” requirement
• Provides non-exhaustive list of prohibited
activities
• Provides exhaustive list of permissible
activities
Inducements
• Regulation introduce 3 new tools for antiinducement 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.
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
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
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
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 nonrecurring, to assist a school with financial aidrelated 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.
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 inperson 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
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
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
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
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
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.
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
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
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.
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)
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
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
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"
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
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
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”
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
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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
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 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
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
Negotiated Rulemaking 2008
2008 Topics included:
• Direct Loan Public Service Loan Forgiveness
• Income Based Repayment (IBR)
• Conforming Economic Hardship Deferment with IBR
• Definition of Not-For-Profit Loan Holder
• Harmonizing HEROES Waivers with other Benefits
Provided to Returning and Active Duty Military
• Federal Preemption of States Laws Related to improper
inducements
• Final Loans Team Meeting: April 14-15, 2008
• Regulations will be effective July 1, 2009 and must be published in
final form by November 1, 2008
Income-Based Repayment
• New repayment option available 7/1/2009 for
borrowers experiencing “partial financial hardship”
• Eligibility and minimum monthly payment is reevaluated 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 - to interest first
• 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
SAP
•
36 month counter for unpaid accrued interest on
subsidized Stafford
– If borrower consolidates unused portion would
carry over with underlying loan to consolidation
loan
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 ending
– 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 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
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
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
FFELP NEG REG TEAM
• TEAM FFELP did amazing job
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Wanda Hall and Rob Sommers
Gene Hutchins and Dick George
Scott Giles and Phil Van Horn
Tom Levandowski and Walter Balmas
Martin Darnian and Carl Perry
• Thanks to the TEAM FFELP Peanut Gallery as well.
QUESTIONS