ENSURING CONTINUED ACCESS TO STUDENT LOANS ACT MATRIX*

Transcription

1 ENSURING CONTINUED ACCESS TO STUDENT LOANS ACT MATRIX* The U.S. Congress passed the Ensuring Continued Access to Student Loans Act of 2008 (HR 5715) on April 30, The President signed the bill (P.L ) on May 7, 2008, which is the date of enactment. Unless otherwise indicated, the effective date of the changes in the legislation is the date of enactment. Unless otherwise noted, the provisions outlined in this matrix are not subject to negotiated rulemaking or HEA Master Calendar provisions *This matrix is a summary of the Ensuring Continued Access to Student Loans Act. The information provided is subject to change based upon guidance obtained from the Department of Education or clarifications that may be received. Readers should refer to the actual statutory or legislative language to resolve any questions. 1

2 Table of Content Stafford loan limits... 3 Unsubsidized Stafford Loan Limits: Dependent Undergraduate Students... 3 Aggregate Stafford Loan Limits: Dependent Undergraduate Students... 3 Unsubsidized Stafford Loan Limits: Independent Undergraduate Students... 4 Aggregate Stafford Loan Limits: Independent Undergraduate Students... 5 PLUS Loan Program changes... 6 Parent PLUS Repayment Start Date/Postponement of Repayment... 6 PLUS Interest Capitalization... 6 PLUS Underwriting Criteria/Credit Check... 7 Lender of last resort and lender liquidity issues... 8 Parameters of LLR Program... 8 School-Wide LLR Designation... 8 Eligible LLR Loan Types... 8 No Borrower Benefits under LLR... 9 Mandatory Advances to Guaranty Agencies from the Department Lender Liquidity Options Department of Education Authority to Purchase FFELP Loans Department Reporting and Disseminating of LLR Program Information Inducements

3 KEY Date/Trigger = Effective date of statutory change and trigger event as provided for in the legislation. = Outlines additional guidance provided by the Department of Education and/or clarifying comments provided by the FFELP community. = Notes on how Great Lakes intends to implement the changes. This information is subject to change as Great Lakes works through the implementation issues associated with the changes. STAFFORD LOAN LIMITS 1 Unsubsidized Stafford Loan Limits: Dependent Undergraduate Students The annual amount that dependent undergraduate students are able to borrow in unsubsidized Stafford loans is increased by $2000. The annual limits for subsidized and unsubsidized Stafford loans are as follows: Year Subsidized Stafford Limit Unsubsidized Stafford Limit (minus any subsidized loan amount) Maximum Combined Stafford Loan Limit Loans first disbursed on or after July 1, 2008 No changes made to annual subsidized Stafford loan limits for dependent undergraduate students. No changes made to annual subsidized Stafford loan limits for graduate students. The maximum amount remains at $8,500. The Stafford MPN Addendum and Plain Language Disclosure statement are being revised to reflect the increased loan limits. Great Lakes has made the necessary system revisions to accommodate the increased loan limits for loans certified with a first disbursement on or after July 1, For questions about the increased limits, please contact Client Services at (800) st year 2 nd year 3 rd year and beyond $3,500 $5,500 $5,500 $4,500 $6,500 $6,500 $5,500 $7,500 $7,500 [HEA 428H(d)(3)] 2 Aggregate Stafford Loan Limits: Dependent Undergraduate Students The aggregate amount for unsubsidized Stafford loan borrowing for dependent undergraduate students is increased as follows: Aggregate Loan Limits Undergraduate Students Subsidized Stafford Loans Combined Stafford Loans (including subsidized limit) $23,000 $31,000 (with no more than $23,000 in subsidized loans) [HEA 428H(d)(4)] Loans first disbursed on or after July 1, 2008 No changes made to aggregate subsidized Stafford loan limit for undergraduates. No changes made to aggregate subsidized Stafford loan limit for graduate students. This amount remains at $65,500. The Stafford MPN Addendum and Plain Language Disclosure statement are being revised to reflect the increased loan limits. Great Lakes has made the necessary system revisions to accommodate the increased loan limits for loans certified with a first disbursement on or after July 1, For questions about the increased limits, please contact Client Services at (800)

4 STAFFORD LOAN LIMITS # Summary of Regulatory Change Date/Trigger 3 Unsubsidized Stafford Loan Limits: Independent Undergraduate Students The annual amount that independent undergraduate students (or dependent students whose parents are unable to borrow PLUS loans) are able to borrow in unsubsidized Stafford loans is increased by $2000. The annual limits for subsidized and unsubsidized Stafford loans are as follows: 1 st year 2 nd year Year 3 rd year and beyond Base Sub/Unsub Stafford Limit Additional Unsubsidized Stafford Loan Amount Maximum Combined Stafford Loan Limit $3,500 $6,000 $9,500 $4,500 $6,000 $10,500 $5,500 $7,000 $12,500 [HEA 428H(d)(4)] Loans first disbursed on or after July 1, 2008 No changes made to subsidized Stafford annual limits for independent undergraduate students. No changed made to additional annual unsubsidized Stafford loan limits for graduate students. This amount remains at $12,000. The Stafford MPN Addendum and Plain Language Disclosure statement are being revised to reflect the increased loan limits. Outstanding Issue/Tentative Guidance: Independent students taking preparatory courses for enrollment in an undergraduate degree program are able to receive up to $6000 (up from $4000). However, there appears to be no increase for dependents students enrolled in these same programs. Also, the additional unsubsidized Stafford loan amount for independent students taking preparatory courses for enrollment in a graduate degree program or teacher certification program remains at $7,000. Great Lakes has made the necessary system revisions to accommodate the increased loan limits for loans certified with a first disbursement on or after July 1, For questions about the increased limits, please contact Client Services at (800)

5 STAFFORD LOAN LIMITS # Summary of Regulatory Change Date/Trigger 4 Aggregate Stafford Loan Limits: Independent Undergraduate Students The aggregate amount for unsubsidized Stafford loan borrowing for independent undergraduate students (or dependent students whose parents are unable to borrow a parent PLUS loan) is increased as follows: Aggregate Loan Limits Undergraduate Students Subsidized Stafford Loans Combined Stafford Loans (including subsidized limit) $23,000 $57,500 (with no more than $23,000 in subsidized loans) [HEA 428H(d)(4)] Loans first disbursed on or after July 1, 2008 No changes made to aggregate subsidized Stafford loan limit for independent undergraduate students. No changes made to combined aggregate Stafford loan limits for graduate students. This maximum remains at $138,500 (no more than $23,000 can be in subsidized Stafford loans). The Stafford MPN Addendum and Plain Language Disclosure statement are being revised to reflect the increased loan limits. Great Lakes has made the necessary system revisions to accommodate the increased loan limits for loans certified with a first disbursement on or after July 1, For questions about the increased limits, please contact Client Services at (800)

6 PLUS LOAN PROGRAM CHANGES 5 Parent PLUS Repayment Start Date/Postponement of Repayment For parent PLUS loans first disbursed on or after July 1, 2008, borrowers may elect to postpone repayment of principal until the day after six months after their dependent student beneficiary ceases to be enrolled on at least a half-time basis. As a result, parent borrowers who have PLUS loans first disbursed on or after July 1, 2008, will have two repayment options: 1. Begin repayment within 60 days after the loan is fully disbursed. 2. Begin repayment the day after the six months following the date their dependent student beneficiary ceased to be enrolled on at least a half-time basis (as determined by the school). [HEA 428B(d)(1)(A); 428(b)(7)(C)] 6 PLUS Interest Capitalization Interest on PLUS loans (parent and Grad PLUS) shall be capitalized as follows: For loans that enter repayment within 60 days of disbursement, the accrued interest shall be added to the principal of the loan. For loans on which repayment is postponed or are deferred, interest shall, if agreed to by the borrower and the lender, be paid monthly or quarterly, or be added to the principal amount of the loan by the lender nor more frequently than quarterly. [HEA 428B(d)(2)] Loans first disbursed on or after July 1, 2008 Loans first disbursed on or after July 1, 2008 Parent PLUS loans disbursed prior to July 1, 2008, are not eligible for the postponement option and enter repayment within 60 days of the final disbursement. As a result, parent borrowers with loans made both prior to and on or after July 1, 2008, may have loans in different repayment statuses. As written in the statute, this change is a postponement of repayment rather than a deferment. A legislative change has been proposed to clarify the postponement may be processed as a deferment. The PLUS MPN Addendum and Plain Language Disclosure statement are being revised to reflect this option for parent PLUS borrowers. The PLUS MPN Addendum and Plain Language Disclosure statement are being revised to reflect this option for parent PLUS borrowers. Great Lakes has made the necessary system revisions to accommodate a postponement request from a parent PLUS borrower. For questions about this option, please contact Client Services at (800) Great Lakes has made the necessary system revisions to accommodate a postponement request from a parent PLUS borrower. For questions about this option, please contact Client Services at (800)

7 PLUS LOAN PROGRAM CHANGES 7 PLUS Underwriting Criteria/Credit Check The legislation temporarily broadens the definition of extenuating circumstances to allow, but not require, lenders to approve PLUS loan borrowers who are up to 180 days delinquent on mortgage payments and/or medical bill payments. The approval is contingent upon the borrower being less than 90 days delinquent on the repayment of other debt. [HEA 428B(a)(3)(B)] Extenuating circumstances decisions made on or after the date of enactment (May 7, 2008) for delinquencies during the period beginning January 1, 2007 and ending December 31, Mortgage loans are defined as extensions of credit secured for the borrower s primary residence. Also, the provision is not limited to first mortgages (can be second or third mortgages). The change is not limited to parent PLUS borrowers and does include credit standards for graduate and professional PLUS borrowers. This provision is subject to regulations promulgated by the Secretary, but is not subject to negotiated rulemaking or Master Calendar provisions. Great Lakes is evaluating this change to determine system and procedural implications and will notify lenders for whom we originate on any changes in operational policy or procedures related to PLUS credit checks. In the interim, please direct questions to Client Services at (800)

8 8 Parameters of LLR Program School-Wide LLR Designation The legislation provides the Secretary with the authority to designate schools as eligible for the lender of last resort program on an institutional basis, rather than on a student-by-student basis as was previously required. In using her authority, the Secretary does not need to verify that all students and parents from a school are not able to obtain loans before the school is able to participate in the lender of last resort program. However, the Secretary may require that a school demonstrate that they have been unable to secure lenders, despite diligent efforts. The Secretary may also require the school to demonstrate that a certain percentage of students have been rejected by eligible lenders. The threshold and other standards are to be determined by the Secretary of Education in consultation with the Secretary of Treasury. [HEA 428(j)(1)] Eligible LLR Loan Types The statute is amended to clarify that the program is not limited to subsidized Stafford loans, but includes unsubsidized Stafford loans and PLUS loans as well. The legislation, however, does specifically exclude Consolidation loans from the LLR program. [HEA 428(j)(1)] Date of enactment. Authority to designate schools as eligible expires on June 30, School-Wide LLR Designation The statute directs the Secretary to determine a school s eligibility for LLR on a school-wide basis. However, guarantors are working with the Department to determine how guarantors may help facilitate this designation process. Great Lakes has offered the following commitment to every institution in its designated states: GL will work with every school and applicant to secure a student loan lender or choice of lenders willing to make conventional FFELP loans. GL will work with every school to obtain the necessary certification as an LLR school, or certification of any applicant to obtain a loan under the LLR program. GL schools, lenders and student loan applicants who participate in the LLR program should experience minimal change to existing loan processes and will continue to receive the same high level of customer service they ve come to expect. Cont d. 8

9 8 Parameters of LLR Program Cont d No Borrower Benefits under LLR No lender of last resort loans can be made with interest rates, origination fees or default fees or other terms and conditions that are more favorable to the borrower than the maximum terms applicable under the HEA for the type of loan. [HEA 428(j)(1)] Dear Guaranty Agency Director letter [GEN-08-05/FP-08-05], dated May 5, 2008, includes specific questions and answers related to the LLR program. Q & A #13 states the following related to the fees attached to LLR loans: Origination fee the borrower must be assessed the origination fee on an LLR loan. Default fee the borrower must be assessed the federal default fee on an LLR loan. Lender fee the lender fee must be paid by a lender making an LLR loan and by a guaranty agency making LLR loans using its own funds. Outstanding issues/questions It is not clear whether a lender that is currently subsidizing the origination fee for non-llr Stafford borrowers in a certain State must begin to charge this fee to all borrowers if the lender begins participation in the LLR program. Although a lender is not allowed to offer benefits on LLR loans it makes, it appears the lender may offer benefits (such as reduced interest rates for auto-debit payments) under its non-llr program. Cont d. GL will make every effort to ensure that all of the applicant s loans are combined for repayment purposes, particularly if a student has prior FFELP loans. GL will attempt to use a school s existing application process for the making of LLR loans, whenever possible. If a school s existing processes do not have connectivity to GL, we will work with the school to establish this connectivity with minimal impact. Please contact your current Great Lakes representative or Client Services at (800) with any questions about the LLR program or any other concerns. 9

10 8 Parameters of LLR Program Cont d Mandatory Advances to Guaranty Agencies from the Department Under the HEA, guaranty agencies are obligated to serve as lenders of last resort if requested to do so by the Secretary. The legislation clarifies that the Secretary of Education is authorized to advance federal funds to guaranty agencies in the event that they do not have sufficient capital to originate new loans and appropriates such sums as may be necessary to carry out the lender of last resort program. [HEA 421(b)] Date of Enactment In a DCL dated May 21, 2008, the Department indicates it is prepared to provide, if necessary, federal advances to guaranty agencies so that they can make LLR loans to students who are otherwise unable to obtain FFELP loans. The letter indicates that the applications for advances will be accepted beginning June 1, However, the Department has not yet responded to guarantor-submitted plans. Finally, Q & A s #33 & 35 in Dear Guaranty Agency Director letter [GEN-08-05], dated May 5, 2008, and subsequent statements in the Dear Guaranty Agency Director letter dated May 16, 2008, state that if the guarantor uses federal advances to make LLR loans, these loans are subject to immediate assignment to the Department whereby the Department will subsequently determine servicing arrangements. There are ongoing discussions with the Department related to the immediate assignment of LLR loans made with federal advances and the negative impact it could have on borrowers due to split servicing of loans between FFELP and those serviced by the Department. Great Lakes has submitted its LLR plan according to the requirements in GEN-08-03/FP (dated March 26, 2008), and commitment information according to the requirements of the subsequent Dear Guaranty Agency Director letter (dated May 16, 2008). 10

11 # Summary of Regulatory Change Date/Trigger 9 Lender Liquidity Options Department of Education Authority to Purchase FFELP Loans The legislation provides temporary authority to the Secretary to purchase FFELP loans (except Consolidation loans) originated on or after October 1, 2003, if the Secretary determines there is inadequate availability of loan capital. This authority does include forward purchase agreements. The Secretary of Education, in consultation with the Secretary of Treasury, must determine that the sale is in the best interest of the U.S. and that the proceeds paid will be used by the lenders in a way that is consistent with ensuring continued participation by such lenders in FFELP. This new authority is contained in Part D of the HEA, which implies that these loans, once purchased, will become Direct Loans. The Secretaries of Education and Treasury, along with the Office of Management and Budget (OMB) shall publish a joint notice in the Federal Register with the terms and conditions of the purchase, methodology and factors in setting the price and how the methodology will not result in any net cost to the government. [HEA 459A] Loans first disbursed on or after October 1, 2003 and before July 1, The Department will publish the terms and conditions on which it will purchase FFELP loans originated for the academic year in the Federal Register. The FR will include the final prices, terms, and conditions, as well as the methodology used by the Department for determining cost neutrality. To date, this FR has not been published. In a DCL dated May 21, 2008, the Secretary of Education outlined a plan developed by the Departments of Education and Treasury. The plan contains four components, including the plan to purchase loans from lenders (but not going back to October 1, 2003 as the legislation allowed). The four components are: Component 1: A specific package to offer to purchase loans from lenders for the academic year and to offer lenders access to short-term liquidity. This component has the following two options: Purchase plan The Department will purchase an eligible FFELP loan at a price equal to the sum of (i) par value, (ii) accrued interest (net of special allowance payments), (iii) the 1% origination fee paid to the Department, and (iv) a fixed amount of $75 per loan (used to defray the lender s estimated administrative costs). The Department will determine Component 1: On June 3, 2008, Great Lakes announced the suspension of its federal default fee waiver, effective for loans guaranteed on or after July 1, Great Lakes revenues have decreased significantly as a result of the Higher Education Reconciliation Act of 2005 and the College Cost Reduction and Access Act of Most recently, the Ensuring Continued Access to Student Loans Act of 2008 was enacted in response to the current capital market crisis and its direct impact on potential availability of student loans. In its May 21, 2008 Dear Colleague Letter and subsequent statements, the Department announced its intent to convert loans it purchases under the lender liquidity provisions of this most recent legislation to the Federal Direct Loan servicer. This conversion will remove these loans from Great Lakes guaranty and eliminate the revenues that would otherwise support the fee waiver. Great Lakes will closely monitor its guaranty portfolio losses under the newly enacted lender liquidity provisions and to DL directly. We will also engage our school and lender partners in discussion that may otherwise support a waiver of the federal default fee. 11

12 servicing arrangements for the loans based on costs and security concerns, taking into account the best interest of schools and students. Participation interest option The Department will purchase participation interests in pools of loans made by lenders for the academic year, and will hold these interests up to September 30, Under this program, new loans originated by FFELP lenders will be put into short-term trusts. The Department then buys participation interests in these trusts. The participation interests will be priced to yield the Department the commercial paper rate plus 50 basis points. Upon expiration, a trust may refinance the loans in the private financial market and pay off the Department s participation interest or sell the loans to the Department, whereby the Department will subsequently determine servicing arrangements. 9 Lender Liquidity Options, Cont d Department of Education Authority to Purchase FFELP Loans, Cont d If you have any questions or comments, please contact your current Great Lakes representative and watch for updates posted on the web at or 12

13 9 Lender Liquidity Options, Cont d Department of Education Authority to Purchase FFELP Loans, Cont d Component 2: A commitment to continue working with the FFELP community to explore programs that might re-engage the capital markets. Component 3: An enhanced lender-oflast-resort program to ensure all students continue to have access to FFELP loans. See discussion on LLR Parameters. Component 4: The capability of doubling the capacity of the Direct Loan program should it be needed. Component 2: See GL notes on LLR plan in #8 of this document. Component 3: See GL notes on LLR plan in #8 of this document. Component 4: Many schools have already opted to, or are considering shifting to Direct Loans to ensure continued Title IV loan availability. There are, however, a number of reasons why this may not be a universal or optimal alternative. Direct loans has limited capacity to originate and service all Title IV loan volume. The Secretary has stated publicly that DL s capacity could be doubled from $15 billion to $30 billion. This $15 billion capacity increase is significantly less than the potential $25 billion shortfall, and will be further strained by the high likelihood that Direct loans will be the only available consolidation loan option for the expected surge in the consolidation of DL and FFELP variable rate loans that will follow the July 1 interest rate reset. 13

14 9 Lender Liquidity Options, Cont d Department of Education Authority to Purchase FFELP Loans, Cont d School and borrowers will experience a significant qualitative service level difference between DL and FFELP, particularly in the areas of delinquency avoidance and default aversion. Split servicing for serial borrowers will cause a separate set of issues, which is expected to result in higher delinquency and default rates. The FFELP capital shortfall will not impact all sectors. It will largely be limited to less than 4-year schools and/or schools with high cohort default rates. If there is a limited near term ramp-up capacity in DL, it should be utilized for these most vulnerable cohorts and not for those institutions that can readily find willing FFELP lenders. 10 Department Reporting and Disseminating of LLR Program Information The legislation instructs the Secretary to review, and as needed, revise guarantor inducement regulations and report to the Senate and House Committees on the results of the review. The Department is directed to disseminate information on the LLR program and make plans and agreements available for public inspection and report on the activities, including budget estimates. The Department reports to Committees starting July 1, 2008 and ending June 30, [HEA 428(j)(9)] Beginning July 1, 2008 through June 30, 2009 To date, the LLR plans and agreements have not been released. Great Lakes is prepared to ensure compliance with any applicable LLR reporting requirements. 14

15 11 Inducements Each guarantor or lender that participates in the LLR program is subject to the prohibited inducement provisions and shall not advertise, market, or promote lender of last resort loans. The only exception is for guarantors in communicating with schools regarding the program. [HEA 428(j)(8)] Within 180 days of enactment The inducement provisions applicable to lenders would apply to guarantors LLR programs. Great Lakes is prepared to ensure compliance with all applicable inducement provisions for loans it makes under the LLR program. Federal guidance issued on Lender of Last Resort and Lender Liquidity issues to date: March 26, 2008 Dear Guaranty Agency Director letter GEN-08-03/FP Guarantor LLR Plan submission date extended to May 16, May 5, 2008 Dear Guaranty Agency Director letter (includes Q&A document). Department establishes fees to guarantors for LLR loans made with federal advances. Requires all loans made with advances to be subject to immediate assignment to the Department, where the loans will become Direct Loans. Department requires guarantors commitment notification. May 21, 2008 Dear Colleague letter. Department establishes liquidity plans, allowing federal advances to lenders. Expects to issue details in Federal Register (expected within two weeks). Also notes that expected to begin accepting applications for guarantor LLR federal advances on June 1, 2008, however unsure of status of guarantor plan submissions thus far. 15