Legislative and Regulatory Impact on Technology Standards

OverviewOverview

– 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 OverviewHigher 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

– 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

• 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 anti-inducement enforcement:– Rebuttable presumption

– Expansion of FTC Holder Rule

– Claim/guarantor review of inducement practices

Prohibited Inducements

• The activities on the prohibited list are only prohibited if they are tied to loans, loan volume, or placement on a school's preferred lender list since you can't have an improper inducement without intent.

Prohibited Inducements

• Similarly, it is still okay for a bank participating in the FFELP to extend benefits to a school in connection with a product line/service unrelated to student-aid, as long as it is not tied to loans, loan volume, or placement on a school's preferred lender list.

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 non-recurring, to assist a school with financial aid-related functions

Lender Permissible Activities

• The activities on the permitted list are permitted even if they are tied to loans or loan volume, or undertaken to obtain a PLL listing.

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 in-person school required entrance or exit counseling, as long as the name of the entity that developed and paid for any materials is provided to the participants and the lender does not promote its student loan or other products

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

• 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 20082008 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 re-evaluated annually

• Government pays the interest on qualifying subsidized Stafford loans for not more than 3 years (not counting periods of Economic Hardship deferment)

Income-Based Repayment

• The repayment period can extend beyond 10 years regardless of the amount of the eligible debt but not beyond 25 years

• Payment application order different - 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 RepaymentPOSSIBLE 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 RepaymentPOSSIBLE 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 RepaymentPOSSIBLE 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

– 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.

QUESTIONSQUESTIONS