Matrix* of Final Loan Program Rules Effective July 1, 2009

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1 Matrix* of Final Loan Program Rules Effective July 1, 2009 The College Cost Reduction and Access Act of 2007 (CCRAA) was approved by Congress on September 7, 2007 and signed by the President on September 27, 2007 (the date of enactment). The CCRAA is Public Law and reauthorized portions of the Higher Education Act (HEA) of To enact some of the CCRAA changes made to student loans, the U.S. Department of Education (ED) engaged in negotiated rulemaking with the loan community. The negotiators reached consensus and the resulting regulations were published in the October 23, 2008 Federal Register. This matrix provides a summary of the changes contained in the Federal Register, which become effective on July 1, Prepared by Higher Education Corporation July 31, 2009 *The matrix provides a summary of the topics addressed in the October 23, 2008 Final Rule and is subject to change based upon further information or clarification. Readers should refer to the Final Rule or the CCRAA legislation to resolve any questions about the changes. For more details on the other statutory provisions of CCRAA, please refer to College Cost Reduction and Access Act Matrix dated October 2, Topics Addressed in Matrix: July 31,

2 Income-based repayment. Section 203(a) of CCRAA [HEA 493C] added a new income based repayment (IBR) plan to the FFELP and Direct Loan Programs. Under this repayment plan, borrowers who demonstrate a partial financial hardship are eligible to make reduced monthly payments on their loans for a period of up to 25 years. Partial financial hardship is demonstrated when a borrower s annual amount due on the total of his/her FFELP and Direct loans as calculated under a standard 10-year repayment plan exceeds 15% of the amount by which the borrower s AGI (and that of the borrower s spouse if applicable) exceeds 150% of the poverty line based on the borrower s family size. After 25 years, any remaining principal and accrued interest on the loan may be forgiven by the Department. The new program is effective as of July 1, 2009 to new and current borrowers who meet the eligibility criteria. Income Based Repayment Resource Documents and Tools To assist our partners in understanding IBR and to help counsel your borrowers, has developed an interactive IBR worksheet/calculator, as well as IBR Look Up Tables to give estimates of eligibility and payment amount. Both can be found on under the Resources tab of the applicable school or lender portal. The community s IBR workgroup developed an Income Based Repayment Plan Implementation Guide designed to provide the FFELP community with a resource for implementing the new repayment plan. The latest version of this document can be found on the NCHELP Web site at the following link: Public Service Loan Forgiveness program. Sections 203 and 401 of CCRAA [HEA 455(m)] added a new forgiveness program for Direct Loan borrowers. Borrowers who are employed full time in certain public service organizations for 10 years and make 120 qualifying monthly payments on or after October 1, 2007 while so employed in such a job can have any remaining principal and accrued interest forgiven by the Department of Education. FFELP borrowers who want to participate in this forgiveness program, can do so by obtaining a Direct Consolidation Loan on or after July 1, July 31,

3 Economic Hardship deferment. Section 304 of CCRAA (HEA 435(o)) revised the definition of economic hardship and also eliminated certain criteria that qualify a borrower for the deferment. CCRAA changes eliminated the criterion that qualified a borrower for economic hardship if the borrower is working full time, but his/her federal educational debt burden equaled or exceeded 20% of the borrower s adjusted gross income, and the difference between the borrower s AGI minus (-) his/her debt burden was less than 220% of the greater of: The annual earnings of an individual earning the minimum wage under section 6 of the Fair Labor Standards Act of 1938; or The income official poverty line (as defined by OMB, and revised annually in accordance with section 673(2) of the Community Services Block Grant Act) applicable to a family of two. To be considered as having economic hardship, the borrower must Have been granted an economic hardship deferment under either the Direct Loan or Perkins loan program for the same time period; Be receiving public assistance under a Federal or State program, such as Aid to Families with Dependent Children, Supplemental Security Income, Food Stamps, or State general public assistance; Is working full-time and earning an amount that does not exceed the greater of o The minimum wage rate described in section 6 of the Fair Labor Standards Act of 1938 (same); or o 150% of the poverty line applicable to the borrower s family size (previous language was 100% of the poverty line for a family of two ) Is serving as a volunteer in the Peace Corps. Military deferments. Section 202 of CCRAA (HEA 428(b)(1)(M)(iii)) revised the military service deferment, as well as added post-deferment periods for borrowers serving in the military. The 3-year time limit for military deferment was removed. In addition, the loan origination trigger that limited this deferment to loans made on or after July 1, 2001 has been removed. All borrowers are eligible if they meet the criteria for the deferment, which -- as defined in (t) -- are: Serving on active duty during a war or other military operation or national emergency; or Performing qualifying National Guard duty during a war or other military operation or national emergency. Changes also established the following post-deferment periods: 180 Day Post-Deferment Period: For 180 days following an eligible borrower s demobilization date, (s)he is eligible for continued postponement of payments and for subsidy benefits. July 31,

4 Thirteen Month Post-Deferment Extension: For borrowers who are members of the National Guard or Armed Forces reserves (current or retired members) and were enrolled in school when called to active duty (or were enrolled within 6 months of being called to active duty), the deferment period is extended for an additional 13 months after completing military service. The deferment expires when the borrower returns to enrolled status. For purposes of this section, active duty is defined as full-time duty in the active military service of the U.S., including State duty for members of the National Guard. This does not include active duty for training or attendance at a service school. Eligible not-for-profit holder definition. Section 304 of CCRAA (HEA 438(d)) added a new term eligible not-forprofit holder to describe a State or non-profit entity that may receive a higher special allowance payment (SAP) rate on loans it holds. Congress made subsequent changes to that definition through the Third Higher Education Extension Act of 2007 (Public Law ). This law removed the requirement that only an entity that is an eligible lender in its own right under section 435(d) of the HEA could qualify as an eligible not-for-profit holder. July 31,

5 Table of Contents Income-Based Repayment Disclosure Requirements and Borrower Selection Rules... 8 Disclosure at time of offering a loan... 8 Disclosure before repayment... 8 Negative amortization... 9 Default to standard repayment plan... 9 Choice of IBR at any time... 9 Income-Based Repayment Exclusion of Certain Payment Rules... 9 Exclusion from standard payment application... 9 Exclusion from minimum annual payment rule Income-Based Repayment Administrative Forbearance Administrative forbearance for processing loan forgiveness and notice requirement Administrative forbearance for repayment plan change Income-Based Repayment Definitions AGI definition Eligible Loan definition Family Size definition Partial Financial Hardship definition Poverty Line Income definition Income-Based Repayment Election of IBR and Calculation Requirements Election of IBR and calculation of minimum IBR monthly payment if the borrower has partial financial hardship Requesting IBR for borrowers with multiple holders Multiple loans with a single holder and IBR Income-Based Repayment Payment of Interest and Special Allowance Subsidy of unpaid accrued interest on subsidized Stafford loans or the subsidized portion of a Federal Consolidation Loan Interest Capitalization under IBR Postponement of principal payments Special Allowance under IBR Payment of Interest Benefits Payment of special allowance on FFEL loans Methods for computing interest benefits and special allowance July 31,

6 Income-Based Repayment Repayment Terms and Payment Application IBR repayment term Payment application Prepayment Changes in the payment amount if the borrower no longer has a partial financial hardship or chooses to stop making IBR payments Changes in the payment amount if the borrower no longer wishes to pay under IBR Income-Based Repayment Eligibility and Documentation Requirements Eligibility documentation and verification Income-Based Repayment Loan Forgiveness Loan forgiveness Loan forgiveness processing and payment Income-Based Repayment Rehabilitated Loans Repurchase of rehabilitated loan Public Service Loan Forgiveness Borrower Eligibility Discharge of a Loan Obligation Purpose of Program Definitions Definitions Borrower Eligibility Borrower Eligibility Forgiveness Amount Application Consolidation Economic Hardship Deferment Definition of Poverty Line Debt-to-income criteria removed Definition of Family Size Military Deferments Military Service Deferment 180-day Extension Military Service Deferment Documentation Waiver Post-Active Duty Student Deferment Post-Active Duty Student Deferment Eligibility Requirements July 31,

7 Post-Active Duty Student Deferment Definition of Active Duty Post-Active Duty Student Deferment Definition of Active Duty Post-Active Duty Student Deferment Definition of Active Duty Post-Active Duty Student Deferment Definition of Active Duty Post-Active Duty Student Deferment Eligibility Ceases when Borrower Re-enrolls Use of Military Service and Post-Active Duty Student Deferment Post-Active Duty Student Deferment Mandatory Forbearance Eligible Not-for-Profit Holder (ENFPH) Definitions Definitions Trustee Definitions State or Non-profit Entity Definitions Special Purpose Entity Definitions Related Special Purpose Entity Definitions State or Non-Profit Entity Definitions ELT Exception Definitions State or Non-Profit Entity Definitions For-Profit Entity Definitions Beneficial Owner, Beneficial Ownership, Owner of a Beneficial Interest Definitions Sole Owner Definitions State or Non-Profit Entity Definitions ELT Definitions Reasonable and Customary Fees Definitions Trustee Definitions State or Non-Profit Entity Eligibility Determination Eligibility Determination Annual Certification of ENFPH Status Change of Status July 31,

8 Key: Date/Trigger = contains the effective date and trigger (which is the event that triggers the change to occur). DCL/Other = refers to the Dear Colleague Letter in which the topic is discussed, or other sub-regulatory guidance provided by the Department of Education (ED). = Contains guidance from or obtained by the FFELP community. = Information on changes made by to implement the regulations. This information is subject to future change as may be necessary. Unless otherwise noted, please contact Client Services at with questions about the changes. Income-Based Repayment Disclosure Requirements and Borrower Selection Rules Disclosure at time of offering a loan 1 Lenders must disclose to borrowers the availability of the IBR option at the time a loan is offered, which may be included in an updated Master Promissory Note (MPN), or addenda. IBR is not available to parent PLUS and Consolidation loans that includes at least one parent loan. The disclosure must notify borrowers that they may be eligible for IBR (including through consolidation) and procedures on how to elect IBR and on where and how the borrower may obtain additional information. [ (h)] Disclosure before repayment 2 Lenders must disclose that IBR is available in its own materials for the selection of a repayment plan, no more than six months prior to the borrower s first due date. The disclosure is loan type specific. [ (h) and (a)(6)(iii)] MPN/Addend a or other disclosure on or after 7/1/09 Disclosures on or after 7/1/09 has implemented the new MPN s and Addenda which explain IBR. Borrowers interested in IBR should contact Borrower Services at materials have been updated to include IBR as a repayment option for eligible borrowers. Borrowers interested in IBR should contact Borrower Services at July 31,

9 Income-Based Repayment Disclosure Requirements and Borrower Selection Rules Negative amortization 3 The payment amount under IBR can result in negative amortization. [ (a)(6)(iv)] Default to standard repayment plan 4 If a borrower does not select IBR within 45 days after being notified of his repayment plan options, the standard repayment plan will be the default plan used by the lender. ly, if the borrower does not provide the required documentation within the timeframe specified by the lender after choosing IBR, then the borrower is placed on a standard repayment plan. [ (a)(6)(v)(A) & (C] Choice of IBR at any time 5 IBR is added to the list of repayment plans that a borrower may choose from or change to. The lender must permit the borrower to change to IBR at any time and not just annually as with other plans. [ (a)(6)(xi)] Income-Based Repayment Exclusion of Certain Payment Rules Exclusion from standard payment application 6 The standard payment application regulations in this section do not apply to IBR. Instead, IBR payments are applied according to (c). [ (b)(1)] 7/1/09 systems allow for negative amortization for borrowers in IBR. 7/1/09 systems are set to default to the standard plan, if no other repayment plan is selected. 7/1/09 is ready to allow for changes to IBR for eligible borrowers. 7/1/09 systems are ready to apply IBR payments as required. July 31,

10 Income-Based Repayment Exclusion of Certain Payment Rules Exclusion from minimum annual payment rule 7 IBR is added as an exception from minimum annual payment requirement. [ (c)] 7/1/09 systems are ready to acknowledge IBR as an exception to the minimum annual payment requirement. Income-Based Repayment Administrative Forbearance Administrative forbearance for processing loan forgiveness and notice requirement 8 In order to allow the lender to collect and process documentation supporting a borrower s eligibility for the forgiveness component of IBR, a new administrative forbearance type is added. The forbearance period cannot exceed 60 days. The lender must notify the borrower that the requirement to make payments has been suspended pending approval of the guarantor for forgiveness. [ (f)(13)] 7/1/09 Although (f)(8) does not include IBR as a reason to forbear a loan while the guarantor determines the borrower s eligibility, the belief is that this period is covered by status of forgiveness claim filed. procedures and systems will be revised as necessary to grant this type of forbearance for processing loan forgiveness associated with IBR. Administrative forbearance for repayment plan change 9 A new type of administrative forbearance type is added to cover the period of delinquency when a borrower changes from one type of repayment plan to another. [ (f)(14)] 7/1/09 processes and systems have been revised to grant this type of forbearance. Income-Based Repayment Definitions July 31,

11 Income-Based Repayment Definitions AGI definition 10 Adjusted Gross Income means the borrower s AGI as reported to the IRS. For a married borrower filing jointly, AGI includes both the borrower s and spouse s income. For a married borrower filing single, AGI includes only the borrower s income. [ (a)(1)] Eligible Loan definition 11 Eligible loan for IBR purposes means any outstanding loan made to a borrower under FFEL or Direct Loan. except, a defaulted loan, FFEL or Direct parent PLUS Loans and FFEL or Direct Consolidation Loans with any underlying parent PLUS Loan(s). [ (a)(2)] 7/1/09 Not applicable. 7/1/09 procedures and systems exclude parent PLUS loans and Consolidation Loans with underlying parent PLUS Loans from IBR eligibility. July 31,

12 Income-Based Repayment Definitions Family Size definition 12 Family size includes the following: Borrower; borrower s spouse; borrower s children (if receive more than half their support from the borrower), and including unborn children who will be born during the year the borrower certifies family size. The family size may include other individuals if, at the time the borrower certifies family size, the other individuals: live with the borrower, and receive more than half their support from the borrower for the year the borrower certifies the family size (support includes - money, gifts, loans, housing, food, clothes, car, medical and dental care, and payment of college costs. [ (a)(3)] Partial Financial Hardship definition 13 Partial financial hardship means a circumstance in which the annual amount due on all of a borrower s eligible loans, as calculated under a standard 10- year repayment plan, exceeds 15% of the difference between the borrower s AGI and 150% of the poverty line income for the borrower s family size and State of residence. [ (a)(4)] 7/1/09 Family size is selfcertified. 7/1/09 Expressed algebraically, a Partial Financial Hardship (PFH) exists when the Standard Annual Repayment Amount Due (SARAD) is greater than a PFH threshold calculated as 15% x (AGI - (150% x Poverty Line Income (PLI))): SARAD >.15(AGI - 1.5(PLI)) Not applicable. procedures and systems have been revised to determine whether a borrower meets the PFH requirement. July 31,

13 Income-Based Repayment Definitions Poverty Line Income definition 14 Poverty guidelines refers to the income categorized by state and family size in poverty guidelines published annually by the U.S. Department of Health and Human Services. If the borrower is not a resident of a state identified in the guidelines, then the lender should use the category for the 48 contiguous States. [ (a)(5)] 7/1/09 The HHS guidelines are published each year in a Federal Register. For 2009, the guidelines were issued on January 23, Income-Based Repayment Election of IBR and Calculation Requirements (SARAD - PFH Threshold must be greater than zero.) The annual calculated IBR Payment (see below) is the same basic formulation for the PFH Threshold determination divided by 12, except that $0 is used if the result is below $5, and $10 is used if the result is from $5 to $10: IBR Payment = (.15(AGI - 1.5(PLI)))/12 Set to $0 if Result < $5 Set to $10 if $5 Result $10 Not applicable. July 31,

14 Income-Based Repayment Election of IBR and Calculation Requirements Election of IBR and calculation of minimum IBR monthly payment if the borrower has partial financial hardship 15 A borrower may elect IBR only if the borrower has a partial financial hardship. Except as noted below, the borrower s aggregate monthly loan payments are limited to no more than 15% of the amount by which the borrower s AGI exceeds 150% of the poverty line income applicable to the borrower s family size, divided by 12. The loan holder adjusts the calculated monthly payment if: The total amount of the borrower s eligible loans includes loans not held by the loan holder. In this case, the loan holder adjusts the monthly payment amount by multiplying the calculated payment by the percentage of the total outstanding principal amount of eligible loans that are held by the loan holder. If the calculated amount is less than $5.00, the borrower s monthly payment is adjusted to $0.00. If the calculated amount is less than $5.00, the borrower s monthly payment is adjusted to $0.00. If the calculated amount is equal to or greater than $5.00 but less than $10.00, the borrower s monthly payment is $ [ (b)(1)] Requesting IBR for borrowers with multiple holders 16 A borrower with eligible loans held by multiple holders must request IBR from each holder if the borrower wants to repay all loans under the IBR plan. Each loan holder must apply the payment calculation rules in (b)(1)(ii) and (iii) to loans they hold. [ (b)(2)] 7/1/09 The Department confirmed that lenders can use NSLDS to verify a borrower s total indebtedness. Per Final Rule preamble (p ), when there are multiple lenders, the application of IBR rules pertaining to monthly payments of $0 and $10 apply at the lender level, not the borrower level. 7/1/09 A borrower is permitted to have loans in IBR with one loan holder and in a different repayment schedule with another holder. systems are able to calculate IBR payment amounts. systems are ready to accept borrower requests for IBR. Borrowers who wish to request IBR should contact Borrower Services at July 31,

15 Income-Based Repayment Election of IBR and Calculation Requirements Multiple loans with a single holder and IBR 17 If a borrower elects and qualifies for IBR, the loan holder must, unless the borrower requests otherwise, require that all eligible loans owed by the borrower to that holder be paid under the IBR plan. [ (b)(3)] Income-Based Repayment Payment of Interest and Special Allowance 7/1/09 systems are ready to process such borrower requests. Subsidy of unpaid accrued interest on subsidized Stafford loans or the subsidized portion of a Federal Consolidation Loan 18 If the borrower s monthly payment amount is not sufficient to pay the accrued interest on the borrower s subsidized Stafford loans or the subsidized portion of a Federal Consolidation Loan, the Department pays to the holder the remaining accrued interest for a period not to exceed three 7/1/09 This subsidy relates to the borrower s scheduled monthly payment as opposed to the actual amount paid by the borrower. consecutive years from the established repayment To track the three-year start date on each loan under the IBR plan. period on Consolidation If a borrower consolidates, any remaining portion of the three-year period carries over with the underlying loans. The three-year period does not include any period during which the borrower receives an economic hardship deferment. [ (b)(4)] loans, the period during which the Department paid interest on the underlying loan must be tracked on the LVC. Any period of economic hardship deferment must be tracked against the three-year consecutive period for subsidy. systems will track the three-year interest subsidy for eligible borrowers. July 31,

16 Income-Based Repayment Payment of Interest and Special Allowance Interest Capitalization under IBR 19 Accrued interest is capitalized at the time a borrower chooses to leave IBR or no longer has a partial financial hardship. This does not apply to accrued interest on subsidized Stafford loans or the subsidized portion of a Federal Consolidation Loan paid by ED. [ (b)(5)] Postponement of principal payments 20 If the borrower s monthly payment amount is not sufficient to pay any principal due, the payment of that principal is postponed until the borrower chooses to leave IBR or no longer has a partial financial hardship. [ (b)(6)] Special Allowance under IBR 21 A lender is eligible for special allowance during the time a borrower has partial financial hardship under an IBR repayment plan. Special allowance is calculated on the principal balance of the loan and any accrued interest unpaid by the borrower. [ (b)(7)] Payment of Interest Benefits 22 For the first three years a borrower is in an IBR plan, if the borrower s payment does not satisfy the accrued interest on the subsidized loans, ED will pay the remaining interest. This three-year period excludes periods in which the borrower qualifies for economic hardship deferment. If the borrower s payment satisfies all subsidized interest then no 7/1/09 systems will track accrued interest, as applicable. 7/1/09 systems will track the postponement of principal, as applicable. 7/1/09 Unpaid accrued interest on subsidized loans paid by the Department during the three consecutive years from the date the borrower first entered IBR (excluding periods of economic hardship) is not eligible for special allowance. 7/1/09 The three-year clock starts ticking at commencement of IBR and continues even if borrower goes into deferment (other than economic hardship), systems have been revised to calculate special allowance for IBR loan, as applicable. systems will track the three-year period on eligible subsidized loans. July 31,

17 Income-Based Repayment Payment of Interest and Special Allowance benefit will be paid by the Department [ (b)(1)(iv) and (b)(2)(x)] Payment of special allowance on FFEL loans 23 Special allowance is paid on the unpaid accrued interest of a loan during the period in which a borrower has a partial financial hardship. For purposes of calculating special allowance the applicable interest rate shall be deemed to be zero. [ (a)] forbearance, leaves IBR or consolidates the loans. The clock also continues to tick even if borrower s payment amount is satisfying interest. This three year period must be monitored on a loan-by-loan basis. This subsidy relates to the borrower s scheduled monthly payment as opposed to the actual amount paid by the borrower. 7/1/09 Example: The special allowance rate is calculated as follows: 1. Determine the: average of the bond equivalent rate of the 91-day Treasury bills auctioned for the quarter, or average of the bond equivalent rates of the quotes of the 3-month commercial paper (financial) rates in effect for each of systems will calculate special allowance as required for loans on IBR plan. July 31,

18 Income-Based Repayment Payment of Interest and Special Allowance the days in the quarter as reported by the Federal Reserve in Publication H-15 (or its successor), as applicable 2. For purposes of subtracting the applicable interest rate, the rate is deemed to be zero. 3. Add the appropriate special allowance percentage factor. 4. Divide by four. Methods for computing interest benefits and special allowance 24 The average daily balance of unpaid accrued interest for purposes of special allowance on loans during the period in which a borrower has a partial financial hardship is calculated by adding the unpaid accrued interest on a loan for each eligible day of the quarter, divided by the number of days in the quarter, and rounded to the nearest whole dollar. [ (d)(2) & (3)] 7/1/09 systems will calculate special allowance as required for loans on IBR plan. Income-Based Repayment Repayment Terms and Payment Application July 31,

19 Income-Based Repayment Repayment Terms and Payment Application IBR repayment term 25 The repayment period for a borrower in an IBR repayment plan may exceed 10 years. [ (b)(8)] Payment application 26 The loan holder shall apply any payment made under IBR plan in the following order: 1) accrued interest, 2) collection costs, 3) late charges, then 4) loan principal. [ (c)(1)] Prepayment 27 As with other repayment plans, a borrower paying under an IBR plan may prepay the whole amount or any part of a loan at anytime without penalty. If the prepayment amount equals or exceeds the monthly payment amount under the repayment schedule established for the loan, the loan holder shall apply the prepayment consistent with the requirements of (b)(2)(ii). If the prepayment amount exceeds the monthly payment amount of $0.00 under the repayment schedule established for the loan, the loan holder shall apply the prepayment consistent with the requirements of (c)(1). [ (c)(2) (4)] 7/1/09 systems will allow IBR plans to exceed 10 years. 7/1/09 systems will accommodate the different payment application for IBR. 7/1/09 systems will accommodate the different payment application for IBR. Changes in the payment amount if the borrower no longer has a partial financial hardship or chooses to stop making IBR payments 28 If the borrower no longer has a partial financial hardship, the borrower may continue to make payments under IBR. The loan holder must recalculate the borrower s monthly payment. 7/1/09 systems and procedures will calculate the permanent standard amount. July 31,

20 Income-Based Repayment Repayment Terms and Payment Application If the borrower chooses to stop making the calculated IBR payment amount, the loan holder must recalculate the borrower s monthly payment. The maximum monthly payment that the borrower may be required to repay is the amount the borrower would have paid under the standard repayment plan. It is based on a 10-year repayment period on the borrower s eligible loans that were outstanding at the time the borrower began repayment on the loans with that loan holder under IBR. The borrower s repayment period based on the recalculated payment amount may exceed 10 years. [ (d)(1)] Changes in the payment amount if the borrower no longer wishes to pay under IBR 29 If the borrower no longer wishes to pay under an IBR plan, the borrower must pay under the standard repayment plan and the loan holder recalculates the monthly payment amount of the borrower s loans outstanding at the time the borrower stopped paying under the IBR plan. For a Consolidation Loan, the applicable repayment period remaining specified in (h)(2) for the total amount of that loan and the balance and the other student loans outstanding at the time the borrower discontinued paying under the IBR plan. [ (d)(2)] 7/1/09 systems and procedures will calculate the expedited standard payment amount as necessary. Income-Based Repayment Eligibility and Documentation Requirements Eligibility documentation and verification 30 The loan holder must determine whether a borrower 7/1/09 Per Department Per preamble in Final systems and July 31,

21 Income-Based Repayment Eligibility and Documentation Requirements has a partial financial hardship to qualify for the IBR plan for the year the borrower elects the plan and, if applicable, for any subsequent year that the borrower seeks to remain on the plan with a partial financial hardship. To make this determination, the loan holder must require the borrower to: Provide written consent to have his AGI and other tax return information released by the Internal Revenue Service to the loan holder. The borrower provides consent by signing a consent form and returning it to the loan holder. If the borrower s AGI is not available, or the loan holder believes that the borrower s reported AGI does not reasonably reflect the borrower s current income, the loan holder may use other documentation provided by the borrower to verify income. Annually certify the borrower s family size. If the borrower fails to certify family size, the loan holder must assume a family size of one for that year [ (e)] guidance in an Electronic Announcement dated June 12, 2009 (and supplemental guidance from Jeff Baker of FSA), a signed copy (both sides) of a borrower s tax return is acceptable documentation to determine IBR eligibility until such time as the IRS can develop a Webbased consent request process. Rule (p ), HEA provisions do not authorize the use of non-federal education debt in determining whether a borrower has a partial economic hardship or in calculating IBR amounts. The law also does not provide for reduced interest rates for borrowers in IBR, or for loan forgiveness before the borrower has made 25 years of payments. Using AGI from the most recent tax return is preferred way of determining partial financial hardship, but a loan holder can use alternative documentation of borrower s income if more accurate than the tax return. The community developed an Alternative Documentation form to facilitate obtaining alternative information. Most loan holders are utilizing either Form 4506-T from the IRS to procedures will make IBR eligibility determinations. will accept either the tax transcript from the IRS [obtained via IRS Consent Form (4506-T)] or a signed copy of the borrower s tax return. July 31,

22 Income-Based Repayment Eligibility and Documentation Requirements obtain the borrower s consent for tax information or signed copies of the borrower s tax return. Income-Based Repayment Loan Forgiveness Loan forgiveness 3 To qualify for loan forgiveness the borrower 1 must participate in the IBR plan and satisfy one or more of the following conditions for 25 years: Make monthly income-based payments calculated on the basis of the borrower having a partial financial hardship, (includes a calculated amount of $0) Make permanent-standard payments Make payments under any repayment plan (i.e., standard, income sensitive, graduated, or extended repayment) not less than standard-standard payment amount, or Receive an economic hardship deferment. [ (f)] 7/1/2034 (July 1, years) The 25-year forgiveness time frame re-starts when a loan is paid by consolidation. The beginning date for purposes of counting the 25-year time frame is the date the borrower made a qualifying payment or received the HRD deferment on that loan, but no earlier than July 1, If a borrower satisfies the loan forgiveness requirements on a loan the Department repays the outstanding balance and accrued interest. A borrower repaying a defaulted loan is not considered to be repaying under a qualifying repayment plan for loan systems and procedures will be revised to determine eligibility for future IBR loan forgiveness. July 31,

23 Income-Based Repayment Loan Forgiveness Loan forgiveness processing and payment 3 No later than 60 days after the loan holder 2 determines that a borrower qualifies for loan forgiveness, the loan holder must request payment from the guaranty agency. If the loan holder requests payment from the guaranty agency later than 60 days after the 25-year repayment period required for forgiveness, interest that accrues on the discharged amount after the expiration of the 60-day filing period is ineligible for reimbursement by the Secretary, and the holder must repay all interest and special allowance received on the discharged amount for periods after the expiration of the 60-day filing period. The holder cannot collect from the borrower any interest that is not paid by the Secretary. Within 45 days of receiving the holder s request for payment, the guaranty agency must determine if the borrower meets the eligibility requirements for loan forgiveness and must notify the holder of its determination. If the guaranty agency approves the loan forgiveness, it must pay the holder the amount of the forgiveness within the same 45-day period. After being notified by the guaranty agency of its determination of the eligibility of the borrower for loan forgiveness, the holder forgiveness purposes. Any payments made on a defaulted loan are not counted toward the 25- year forgiveness period 7/1/2034 Capitalization is not authorized for this period of forbearance while the borrower is under an IBR plan. systems and procedures will be revised to determine eligibility for IBR loan forgiveness. July 31,

24 Income-Based Repayment Loan Forgiveness must, within 30 days, inform the borrower of the determination and that the borrower s repayment obligation on the loans for which income-based forgiveness was requested is satisfied. The holder must apply the proceeds of the income based repayment loan forgiveness amount to satisfy the outstanding balance on those loans for which income-based forgiveness was requested. If the guaranty agency does not pay the forgiveness claim, the lender will continue the borrower in repayment on the loan. The lender is deemed to have exercised forbearance of both principal and interest from the date the borrower s repayment obligation was suspended until the new payment due date. Unless the denial of the forgiveness claim was due to an error by the lender, the lender may capitalize any interest accrued and not paid during this period (as per (b)). If the forgiveness amount exceeds the outstanding balance on the eligible loans subject to forgiveness, the loan holder must refund the excess amount to the guaranty agency. [ (g)] Income-Based Repayment Rehabilitated Loans Repurchase of rehabilitated loan 3 A lender purchasing a rehabilitated loan must 7/1/2009 If IBR is selected by the systems and July 31,

25 Income-Based Repayment Rehabilitated Loans 3 establish a repayment schedule with the same requirements for FFEL loans of the same loan type as the rehab loan and must permit the borrower to choose any repayment plan for which he/she is eligible (including IBR). The lender must treat the first rehab payment as the first payment in the maximum repayment term in the applicable repayment plan selected. [ (b)(4)] Public Service Loan Forgiveness Borrower Eligibility 3 A FFEL borrower may consolidate his/her 4 loan, including a FFEL Consolidation loan into a Direct Consolidation loan for purpose of using the Public Service loan forgiveness program. [ (e)(5)] Discharge of a Loan Obligation 3 Borrowers with Direct subsidized, 5 unsubsidized, PLUS (Parent and Grad) and Consolidation loans meeting requirements in can have remaining principal and accrued interest forgiven. [ (i)] Direct Consolidation loans made on/after 7/1/2008 For eligible Direct Loan borrowers who made required 120 payments on loan after 10/1/2007 borrower after rehab does the 25 year repayment period prior to forgiveness start over? Per Final Rule No. However, the payments made while the loan was in default do not count unless the borrower was on a Direct Loan approved post-default IBR plan. procedures will be revised to accommodate for IBR requests from rehabilitated borrowers. systems and procedures have been revised to allow for such consolidation requests. Not applicable. July 31,

26 Public Service Loan Forgiveness Purpose of Program 3 The Public Service loan forgiveness program 6 is intended to encourage borrowers to enter and/or continue in full-time public service employment. [ (a)] Definitions 3 Several new definitions introduced for 7 purposes of the Public Service loan forgiveness program. Most of the definitions refer to a public service organization which is defined as: 1. A Federal, State, local, or Tribal government organization, agency or entity; 2. A public child or family service agency; 3. A non-profit organization under section 501(c)(3) of IRS Code that is exempt from taxation under section 501(a) of IRS Code. 4. A Tribal college or university; or 5. A private organization that: Provides public services in: emergency management, military service, public safety, law enforcement, public interest law services, early childhood education (including licensed or regulated health care, Head Start, and State funded pre-kindergarten), public service for individuals with disabilities and the elderly, public health (including nurses, nurse practitioners, nurses in clinical setting, and full-time professionals engaged in health care practitioner occupations and health care support occupations, as such terms are defined by the Bureau of Not applicable. Not applicable. July 31,

27 Public Service Loan Forgiveness Labor Statistics), public education, public library services, school library or other school-based services; and Is not a business organized for profit, a labor union, a partisan political organization, or an organization engaged in religious activities, unless the these activities are unrelated to religious instruction, worship services, or any form of religious converting practices. [ (b)] Definitions 3 Other new definitions include: 8 Eligible Direct loan subsidized, unsubsidized, PLUS, or Consolidation loan. Employee or employed individual who is hired and paid by a public service organization. Full-time working in qualifying employment in one or more jobs (excluding vacation or leave time) for the greater of: (1) an annual average of at least 30 hours per week; or for contractual or employment of at least 8 months, an average of 30 hours per week; or (2) unless the qualifying employment is with two or more employers, the number of hours the employer considers full-time. Vacation or leave time provided by the employer or leave taken under FMLA is not considered in determining the average hours worked on an annual or contract Not applicable. July 31,

28 Public Service Loan Forgiveness basis. Government employee individual employed by a local, State, Federal, or Tribal government, but is not a member of the U.S. Congress. Law enforcement service performed by an employee of a publicly-funded public service organization whose primary activities pertain to crime prevention, control or reduction of crime, or the enforcement of criminal law. Military service (1) for uniformed members of the U.S. Armed Forces or National Guard active duty service or full-time National Guard duty as defined in section 101(d)(1) and (d)(5) of title 10 of the US Code (excluding training or attendance at a service school); (2) for civilians service performed by an employee of a public service organization on behalf of the U.S. Armed Forces or National Guard. Peace Corps position means a full time assignment under the Peace Corps Act as provided for under 22 U.S.C Public interest law legal services provided by a public service organization that are funded in whole or in part by a local, State, Federal, or Tribal government. [ (b]) Borrower Eligibility 3 Borrowers are eligible for forgiveness if: 9 For eligible DL borrowers who Payments are not required to be Not eligible. July 31,

29 Public Service Loan Forgiveness Not in default on a loan for which forgiveness is requested; Employed full-time by a public service organization, as defined above Serving full-time in AmeriCorps or the Peace Corps; Made 120 monthly payments while employed or serving in public service organization or AmeriCorps or the Peace Corps; Must be employed or serving in public service organization, AmeriCorps, or the Peace Corps at time of application for forgiveness and still serving at time of forgiveness. Must make 120 separate monthly payments after 10/01/2007 on DL loans for which forgiveness is requested. Payments must be full-amount scheduled and paid within 15 days of due date. An exception is permitted for borrowers serving in AmeriCorps and also Peace Corps. See (c)(2) summary below. Payments may be made under all available repayment plans with the exceptions of: IBR and ICR for Parent PLUS borrowers For Consolidation borrowers, plans longer than 10-year standard repayment [ (c)(1)(i) (iv)] Borrower Eligibility 4 AmeriCorps lump sum payments will be 0 converted to a monthly equivalent up to 12 monthly payments for purposes of qualifying. made required 120 payments on loan after 10/1/2007 consecutive. Payments made by Consolidation loan borrowers that are less than the amount required under a 10-year standard repayment are not eligible. Need for counselors to be prepared to discuss issue with such borrowers. Not applicable. July 31,

30 Public Service Loan Forgiveness Payments derived from full or partial Peace Corps transition payments will be converted to a monthly equivalent of up to 12 monthly payments for purposes of qualifying if the lump sum payment is made no later than six months after leaving the Peace Corps. [ (c)(2)] Forgiveness Amount 4 Amount forgiven is the remaining principal 1 balance on eligible loans at time of application for forgiveness, plus accrued interest. [ (d)] Application 4 Borrower can apply for Public Service loan 2 forgiveness after making 120 qualifying payments. Application will be provided by the Department. If Department determines the borrower is eligible for forgiveness, it will notify borrower of its decision, and forgive the outstanding balance. If Department determines the borrower is not eligible for forgiveness, it will notify the borrower, provide the basis for the denial, resume collection of the loan, and grant forbearance of payment on both principal and interest for the period in which collection activity was suspended. The Department may capitalize any interest accrued and not paid during this period. [ (e)] For eligible Direct Loan borrowers who made required 120 payments on loan after 10/1/2007 Not applicable. Not applicable. Consolidation 4 FFELP borrowers are permitted to systems and July 31,

31 Public Service Loan Forgiveness 3 consolidation into the Direct Loan program for the following reasons: To obtain Public Service loan forgiveness benefit To obtain Income-Contingent Repayment plan To reconsolidate to obtain Public Service loan forgiveness benefit [ (d)(3) (5)] procedures will allow for such consolidation requests. Economic Hardship Deferment Definition of Poverty Line 4 Changes poverty line reference from 4 Community Service Block Grant to HHS Guidelines. Stipulates that if a borrower is not a resident of a State, the guideline used is the one applicable to the borrower s family size for the 48 contiguous States. [ (s)(6)(iii)(B)] Debt-to-income criteria removed 4 The criterion is eliminated that qualified 5 borrowers for economic hardship deferment (HRD) if they were working full time, but their federal education debt burden equaled or exceeded 20% of their AGI, and the difference between their AGI minus (-) their debt burden was less than 220% of the greater of: the minimum wage under section 6 of the Fair Labor Standards Act of 1938; or 7/1/2009 procedures have been revised to use HHS poverty guidelines. Deferments requests received on or after 7/1/2009 for a period of deferment that begins on or after that date The Department confirmed that an economic hardship deferment may not be granted to a borrower based on either the 20/220 or the working less than full-time criteria on loans that did not entered repayment The Final Rule preamble (pg ) clarifies that lenders are permitted to grant an economic hardship deferment based on the 20/220 criterion to an eligible borrower who requests a deferment after July 1, 2009, for a deferment period that began prior to systems and procedures have been revised to no longer allow this type of economic hardship deferment, except as allowed per Final Rule clarification (i.e., deferment period began prior to July 1, 2009). July 31,

32 Economic Hardship Deferment 150% of the poverty line applicable to prior to July 1, July 1, 2009, and is for a their family size as published annually by the Dept of HHS. One of the underlying period not to exceed 12 months from the pre-july Also eliminated is the criterion that qualified requirements for 1, 2009 start date. for borrowers working less than full time if obtaining a However, no additional their monthly income was not in excess of deferment is that the economic hardship twice the minimum wage or 150% of the loan must be in deferment periods may poverty line applicable to their family size as repayment status, be granted based on that published annually by the Dept of HHS and, which means any criterion to the borrower after deducting their debt burden, the applicable grace at the conclusion of that remaining amount of income does not exceed period must expire deferment period, or for the limits set in (s)(6)(iii). first. any deferment request on To qualify for the HRD deferment, the or after July 1, 2009, for a borrower must be: deferment period that begins on or after that Employed full time and making at or date. below the minimum wage. Employed full time and making an amount equal to 150% of the poverty line based on family size. Receiving economic hardship deferment under Direct Loan or Perkins Receiving public assistance. Serving in the Peace Corps. [ (s)(6)(i) (iv)] Definition of Family Size 4 6 A definition of family size has been added to the regulations that aligns with the FAFSA definition. Family includes the following: 7/1/2009 Not applicable. Borrower Spouse Children, including unborn children (if receive more than half their support from borrower) July 31,

33 Economic Hardship Deferment Other individuals who live with borrower and receive more than half their support from borrower Support is defined as money, gifts, loans, housing, food, clothes, car, medical and dental care, and payment of college costs. [ (s)(6)(ix)] Military Deferments Military Service Deferment 180-day Extension 47 The regulation is clarified to state that the 180-day extension is for borrowers whose active duty service includes 10/1/2007. Also clarifies in regulation that the extension can be obtained after each period of service; not limited to one time only. [ (t)(2)] Deferment requests received on or after 7/1/2009, unless implemented early Military Service Deferment Documentation Waiver 48 A new paragraph has been added to the Deferment regulations to incorporate HEROES Waiver requests received to grant initial 12-month deferment without on or after supporting documentation from the borrower 7/1/2009, unless or borrower s representative. implemented early [ (t)(9)] Post-Active Duty Student Deferment 49 The regulations are clarified to state that the deferment is for borrowers whose service includes 10/1/2007 or begins on or after that date. Also clarifies that the 13 months follows the conclusion of any applicable Deferment requests received on or after 7/1/2009, unless implemented early Effective date/trigger event aligns with original date/trigger from the 11/1/2007 Final Rule that put military service in place. Final Rule preamble (pg ) allows for early implementation of provision at the discretion lender, guaranty agency, or servicer, as appropriate. The Department confirmed how to view the grace period for a borrower who was called in the midst of his grace systems and procedures have been revised to reflect the clarification. systems and procedures have been revised to accommodate for such requests. systems and procedures have been revised to reflect this clarification. July 31,