Perkins Loan Closeout

Transcription

1 Perkins Loan Closeout October 16 th, 2017 Perkins Loan Closeout: Why Now? 2 1

2 Perkins Loan Program History National Defense Student Loan (NDSL) Program established in 1958 NDSL changed to Perkins Loan Program in 1986 Purpose: To provide loans to students from low-income families Established through Department of Education and School contributions to a revolving loan pool No Federal contributions have been made since Over $1 billion advanced to students in FY Why is the Perkins Loan Closeout Relevant Now? Lack of funding from Federal government Dwindling loan pools Burdensome administrative requirements Administration of Perkins Loans has changed after September 30, 2017 ( award year) Department of Education issued Dear Colleague Letter GEN

3 Perkins Loan Liquidation 5 Assignment and Liquidation Primary guidance found in the Federal Perkins Loan Program Assignment and Liquidation Guide What is Perkins Liquidation? The prescribed process for ending participation in the Federal Perkins Loan Program Involves review of the outstanding Perkins Loans to determined if the loans have been maintained and administered properly so that they can be assigned to the Department of Education. 6 3

4 Why might a school liquidate? Voluntary withdrawal from the Perkins Loan Program Schools are urged to liquidate its Perkins Loan Portfolio and program fund if it is no longer advancing Perkins Loan funds to students Eligibility to participate in FPL terminated by Department of Education (ED) Lack of approval by ED for continued participation in the Federal Perkins Loan Program during school s recertification process School is closing 7 Financial Implications of Liquidation Private Schools Limited FCC already reported as Liability Public Schools Can be significant Option to report as liability or as revenue/net position 8 4

5 Financial Implications of Liquidation Before After Liquidation Liquidation Impact Assets 323,300, ,300,000 Perkins Cash balance 1,000, ,000 (900,000) Perkins Loan Receivable 5,700,000 (5,700,000) Total Assets 330,000, ,400,000 (6,600,000) Liabilities 200,000, ,000,000 Unrestricted Net position 50,000,000 50,000,000 Restricted Net Position 80,000,000 73,400,000 (6,600,000) Total Net Position 130,000, ,400,000 (6,600,000) Total Liabilities and Net Position 330,000, ,400,000 (6,600,000) 9 Steps to Liquidate 1. Intent to Liquidate 2. Notify Borrowers 3. Assign Loans 4. Purchase Loans 5. Update Perkins Loans records in NSLDS 6. Perkins Loan Closeout Audit 7. Remit the Federal Share 8. Complete Final FISAP Data 10 5

6 Step #1: Intent to Liquidate A school must notify the Department of Education of the School s intent to liquidate its Perkins Loan Program. Completed through the ecampus Based System. Schools should ensure that they have gathered the majority of the necessary documentation before declaring the intent. 11 Step #2: Notify Borrowers Schools must notify students that their loans are intended to be assigned to the Department of Education at least 30 days before the assignment has been completed. Sample notification letter can be found in the Federal Perkins Loan Program Assignment and Liquidation Guide. 12 6

7 Step #3: Assign Loans Department of Education recommends the assignment of all outstanding Perkins loans within 45 days following the intent to liquidate. Schools have choice of manual or electronic completion of assignment forms and submission of materials. Assignment Guidance found in the Perkins Loan Assignment System (PLAS) User Guide 13 Step #3: Assign Loans (cont.) What is required for each Assignment? Assignment Manifest (automatically generates if done online) Perkins Assignment Form Institutional Certification typically one per school Assignment Form Borrower and Loan Information one per student Original Promissory Note or Perkins Master Promissory Note (MPN) Repayment History (account activity) Judgment Information (if applicable) Bankruptcy Information (if applicable) 14 7

8 Step #4: Purchase Loans Schools are required to purchase loans that cannot be assigned via reimbursing the program Fund (an internal transfer) Department of Education will not accept loans if the appropriate documentation has not been retained or provided in the assignment documents. Repayment at this stage not a repayment of funds to the Department of Education, but only to the program fund. Remittance of federal share is completed via step #7. 15 Step #5: Update NSLDS Status must be updated in NSLDS as assigned or school purchased. Completion of the liquidation process requires that there be zero school held open loans in NSLDS 16 8

9 Step #6: Closeout Audit All schools must have a closeout audit completed by an independent third-party accountant. Closeout audit can be completed through the Single Audit for schools that report under the Single Audit Act. Schools that do not fall under the Single Audit Act must have a separate audit completed. 17 Step #7: Remit the Federal Share Schools must remit the Federal share of the remaining Perkins cash assets to the Department of Education. Determined via the Distributional Shares Formula Federal Share will be automatically calculated within ecampus Based System. Closeout audit requires that portions of the calculation are audited. 18 9

10 Distributional Shares Formula 19 Step #8: Complete Final FISAP Data Completed through the ecampus Based System online and Final FISAP data is entered in Phase 4 of the Perkins Intent and Closeout Form

11 Perkins Loan Closeout Audit 21 Engagement of Independent Auditors Schools that fall under the Single Audit Act Schools financial statement auditors should be notified that the Perkins closeout will need to be completed as a part of the Single Audit

12 Engagement of Independent Auditors Schools that don t fall under the Single Audit Act Must submit a letter of engagement for an independent audit within 45 days after the school ends participation in the FPL program to the Department of Education. Must submit a copy of the completed audit no later than 90 days after the school ends participation in the FPL program. A school s participation in the FPL program is considered to have ended once all outstanding loans in the portfolio have been fully retired, assigned or accepted by the Department, or purchased. 23 Audit Period Audit report is intended to cover the period from the date the last FISAP was filed to the date when the school ends its participation in the program

13 Audit Procedure Requirements If the institution has completed the liquidation of its Perkins Loan Portfolio, verify that the institution has purchased or assigned to the Department any Perkins Loans with outstanding balances. Will likely require the School to provide the auditors with listing of all loans assigned and purchased Auditor will test a sample to ensure that proper procedures were followed for assignment or that proper amount of funds were transferred to the Perkins fund to purchase the loans. 25 Audit Procedure Requirements (cont.) If the process of liquidating outstanding loans has not been completed, verify that the institution has informed the Department of Education of how the institution will provide for the collection of the outstanding loans under the program. Would apply for assignments in dispute Auditor would likely review documentation regarding resubmission of assignment documentation or acknowledgement that school will purchase the loans 26 13

14 Audit Procedure Requirements (cont.) Verify that the institution, as a part of its procedures for maintaining program and fiscal records for all transactions that occurred after the most recent FISAP was filed, reconciled the following information: All loans for the total number of borrowers that make up the portfolio have been accounted for. This includes retired loans, including loans purchased, and loans assigned to ED (including validating the computed accumulated interest charged on the loans). Service cancellation data in Section A and all data in Section C of Part III of the school s latest submitted FISAP. Federal Capital Contribution (FCC) Institutional Capital Contribution (ICC) Overall cash on hand or excess amounts 27 Audit Report Submission School must send pdf copy of Closeout Audit Report or portion of that contains required Perkins closeout information to perkinsliquid@ed.gov. Subject of should include the name of school, OPEID number and the Words CLOSEOUT AUDIT REPORT

15 Final Liquidation Completion Letter Once all steps have been completed including submission of the Final FISAP Data and the audit report has been received by ED, an official letter of approval for liquidation completion and closeout will be issued to the school. Letter will be posted to schools self-service page in ecb. 29 What If A School Does Not Liquidate 30 15

16 Considerations Program Continuance Institutional Capital Contribution (ICC) Third-party loan servicer costs Internal costs related to operation of the Perkins Loan Fund Historical and expected rates of default Changes to the Excess Liquid Cash Calculation 31 Excess Liquid Cash Calculation Changes were communicated to the Excess Liquid Cash Calculation on September 6 th, 2017 via an Electronic Announcement on the ifap.ed/gov website. Change to the Estimated Available Funds definition Equals the sum of the Fund s cash on hand (FISAP, Part III, Sec B, Line 7) plus 50% of the principal an interest repaid by borrowers (FISAP, Part III, Sec B, Line 9) 32 16

17 Excess Liquid Cash Calculation Changes to the Estimated Need for Funds definition Equals the sum of the amount advanced to students during the award year (FISAP, Part III, Sec B, Line 7) and the Administrative Cost Allowance taken from the Revolving Fund (FISAP, Part III, Sec B, Line 8) Excess Liquid Capital is the difference between the total Estimated Available Funds less the total Estimated Need for Funds Proportional Share method used to determine the amount to be returned to ED. Method that will be utilized for the wind-down of the Program 33 Excess Liquid Cash Example In the example below no Excess Liquid Cash was calculated. EXCESS LIQUID CAPITAL (ELC) WORKSHEET ESTIMATED AVAILABLE FUNDS: Latest Year Cash on Hand (From most recent FISAP, Part III, Sec A/Line 1.1) $ 25,000 Latest Year Principal and Interest Repaid by Borrowers (From most recent FISAP, Part III, Sec B/Line 9) $ 500,000 75% of Latest Year Principal and Interest Repaid by Borrowers (Line 5 x.75) $ 375,000 Total Estimated Available Funds (Line 4 + Line 6) $ 400,000 ESTIMATED NEED FOR FUNDS: Loans Advanced to Students During Award Year (From most recent FISAP, Part III, Sec B/Line 7) $ 200,000 Administrative Cost Allowance (From most recent FISAP, Part III, Sec B/Line 8) $ 20,000 Loans Advanced to Students During Award Year (From most recent FISAP, Part III, Sec B/Line 7) $ 200,000 Administrative Cost Allowance (From most recent FISAP, Part III, Sec B/Line 8) $ 20,000 Calculated Estimate of Need for Funds (Line 9 + Line 10 + Line 11 + Line 12) $ 440,000 Institutional Estimate of Need for Funds if less than Calculated (May not exceed Line 13) EXCESS LIQUID CAPITAL: Total Estimated Available Funds $ 400,000 Less Calculated Estimate of Need for Funds (Line 13) or $ 440,000 Less Institutional Estimate of Need for Funds (Line 14) Total Excess Liquid Capital (Line 16 Lesser of Line 17 or Line 18) $ (40,000) 34 17

18 Excess Liquid Cash Example Using the same FISAP data, Excess Liquid Cash is now due under the new calculation. EXCESS LIQUID CAPITAL (ELC) WORKSHEET ESTIMATED AVAILABLE FUNDS: Latest Year Cash on Hand (From most recent FISAP, Part III, Sec A/Line 1.1) $ 25,000 Latest Year Principal and Interest Repaid by Borrowers (From most recent FISAP, Part III, Sec B/Line 9) $ 500,000 50% of Latest Year Principal and Interest Repaid by Borrowers (Line 5 x.5) $ 250,000 Total Estimated Available Funds (Line 4 + Line 6) $ 275,000 ESTIMATED NEED FOR FUNDS: Loans Advanced to Students During Award Year (From most recent FISAP, Part III, Sec B/Line 7) $ 200,000 Administrative Cost Allowance (From most recent FISAP, Part III, Sec B/Line 8) $ 20,000 N/A for new calculation $ 0 N/A for new calculation $ 0 Calculated Estimate of Need for Funds (Line 9 + Line 10 + Line 11 + Line 12) $ 220,000 Institutional Estimate of Need for Funds if less than Calculated (May not exceed Line 13) EXCESS LIQUID CAPITAL: Total Estimated Available Funds $ 275,000 Less Calculated Estimate of Need for Funds (Line 13) or $ 220,000 Less Institutional Estimate of Need for Funds (Line 14) Total Excess Liquid Capital (Line 16 Lesser of Line 17 or Line 18) $ 55, Q&A 36 18