NASFAA National Conference

Seattle, Washington -- July 5 - 8, 2006

Washington State Convention & Trade Center

Loan Forgiveness, Cancellation and Discharge

Gail McLarnon

U.S. Department of Education

Today’s Agenda

• Teacher loan forgiveness in the Federal Direct Loan and the Federal Family Education Loan (FFEL) Programs

• Teacher loan cancellation in the Federal Perkins Loan Program

• Permanent and total disability loan discharges in the Title IV Loan Programs

Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

• FFEL and DL loan forgiveness of up to $5,000 adopted in the Higher Education Amendments of 1998

• Taxpayer-Teacher Protection Act of 2004 (TTPA) increases loan forgiveness to up to $17,500 until September 30, 2005

• TTPA requires all teachers to be “highly qualified”

Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

• Higher Education Budget Reconciliation Act (HERA) makes up to $17,500 in loan forgiveness permanent (retroactive to October 1, 2005)

• HERA extends loan forgiveness to certain private school teachers effective 7/1/06

Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

• Resources:– FFEL Program regulations: §682.215– Direct Loan Program regulations: §685.217– Dear Colleague Letter GEN-04-14 summarizes

teacher loan forgiveness provisions of TTPA http://ifap.ed.gov/dpcletters/GEN0414.html

– Dear Colleague Letter GEN-06-02 summarizes HERA changes to teacher loan forgiveness http://ifap.ed.gov/dpcletters/GEN0602.html

Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

• Resources (cont.)– Teacher loan forgiveness application and forbearance

forms http://ifap.ed.gov/dpcletters/GEN0502Revised.html

– Look for Interim Final Regulations with Comments in late July implementing TTPA and HERA changes to teacher loan forgiveness on http://ifap.ed.gov

Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

• TTPA changes to teacher loan forgiveness– Loan forgiveness of up to $5,000 if a teacher teaches

five years in an elementary or secondary school with a population of 30% of more low-income children

– Teacher must be “highly qualified”

Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

• A “highly qualified” teachers is:– Fully certified or has passed a state licensing exam;

licensed by the State in which he or she teaches– A new teacher who holds a B.A. and passes a rigorous

State test demonstrating knowledge and teaching skills; secondary teachers also must complete major, graduate degree, or coursework equivalent to a major in teacher areas

– Any other teacher who demonstrates competence in subject areas in which he or she teaches based on uniform State standards

Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

• TTPA authorizes loan forgiveness up to $17,500 if a teacher– Meets the previous requirements AND– Teaches special education in elementary or

secondary school OR– Teaches mathematics or science in secondary school

Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

• Teachers who began qualifying service before the new law was enacted:

– Do not have to meet the new requirements to get the $5,000, but

– Must meet the new requirements to get the $17,500

Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

• All Bureau of Indian Affairs Schools are considered low-income schools

• Statutory interpretation of “highly qualified” changed—No longer tied to NCLB date of enactment

Teacher Loan Cancellation in the Federal Perkins Loan Program

• Higher Education Act authorizes up to 100% loan cancellation over a five year period for:– Full-time teachers in a school serving students from low-

income families

– Full-time special education teachers, including teachers of infants, toddlers children or youth with disabilities

– Full-time teachers of mathematics, science, foreign languages, bilingual education of any other field of expertise determined by a State education agency to have a shortage of qualified teachers

Teacher Loan Cancellation in the Federal Perkins Loan Program

• Cancellation Rates– 15% of principal and interest for first and second

years of teaching– 20% of principal and interest for third and fourth

years of teaching– 30% of principal and interest for fifth and final year

of teaching

Teacher Loan Cancellation in the Federal Perkins Loan Program

• Borrowers placed in deferment during periods of teaching service in anticipation of loan cancellation

• The Department of Education does not approve or supply Perkins Loan cancellation and deferment forms.

Teacher Cancellation in the Federal Perkins Loan Program

• Resources:– Perkins Loan Program regulations: Subpart D of 34

CFR 674– Volume 6, Chapter 4 Financial Aid Handbook:

http://ifap.ed.gov/sfahandbooks/030106Vol6FSAHandbook.html

– Campus-Based Program Materials

http://ifap.ed.gov/IFAPWebApp/currentCBPMaterialsPag.jsp

Requirements for FFEL, Direct and Perkins Loan Forgiveness

• Borrowers cannot receive benefits for qualifying teaching service under both HEA and National & Community Service Act

• Loan holders do not refund payments received during a period when borrower qualified for loan forgiveness/cancellation

• Directory of Designated Low-Income Schools for Teacher Cancellation Benefits used across Title IV loan programs-All BIA schools are low-income

Total and Permanent Disability (TPD) Discharge of Title IV Loans

• June 1999 – Department of Education’s Inspector General issues Report identifying weaknesses in the TPD process

• November 1999 – Dear Colleague Letter GEN-99-36 strengthens process http://ifap.ed.gov/dpcletters/doc0625_bodyoftext.htm

• November 2000 – Final regulations issued changing eligibility for post-TPD discharge http://www.ifap.ed.gov/fregisters/1101200010.html

Overview of TPD Discharge Process

• Borrower applies to the loan holder for a disability discharge and loan holder makes preliminary determination of TPD.

• If loan holder determines that borrower does not meet criteria for TPD, loan is returned to prior status.

• If loan holder determines borrower meets criteria for TPD, loan is assigned to Department’s Disability Discharge Unit. For FFEL loans, both loan holder and GA determine borrower eligibility.

Overview of TPD Discharge Process

• Department reviews all assigned loans to affirm borrower eligibility for TPD.

• Loan placed in conditional discharge status and monitored for 3 years if TPD affirmed.

• Final TPD discharge granted if borrower’s earnings do not exceed poverty level for family of two and borrower does not receive any new Title IV loans during conditional period.

TPD Discharge and Title IV Eligibility

• Title IV eligibility requirements vary depending upon date of TPD discharge– Before July 1, 2001– On or after July 1, 2001 and before July 1, 2002– On or after July 1, 2002

• Refer to ISIR Codes and comments

TPD Discharge and Title IV Eligibility

• Discharge before July 1, 2001– Certification from physician that borrower can

engage in substantial gainful activity (i.e., no longer TPD) (NOTE: Need one per school)

– Borrower statement acknowledging no discharge of new loan for pre-existing conditions unless substantial deterioration(NOTE: Need each loan)

TPD Discharge and Title IV Eligibility

• Discharge on or after July 1, 2001 and before July 1, 2002 with new loan request within 3 years of TPD date:– Physician Certification– Borrower Acknowledgement Statement– Reaffirmation of Discharged loan

• After 3 years from TPD date only certification and borrower acknowledgement required

TPD Discharge and Title IV Eligibility

• Reaffirmation– If ISIR Discharge Date is within 3 years of

new loan request, contact holder to identify 3 years from TPD date

– If reaffirmed, requires new promissory note or signed repayment schedule

TPD Discharge and Title IV Eligibility

• Reaffirmation– Do not certify/originate before holder confirms

reaffirmation– If defaulted prior to discharge, reaffirmed loan

retains default status and satisfactory repayment arrangements are required

– Satisfactory repayment arrangements also applies during conditional period for conditional discharge

TPD Discharge and Title IV Eligibility

• Discharge on or after July 1, 2002– If final discharge granted – same as before 7/1/01– If “conditional” discharge

• Physician certification and borrower acknowledgement for new loan

• Borrower acknowledgement that neither new loan nor conditionally discharged loan are dischargeable now or in the future based on pre-existing condition unless substantial deterioration

• Collection resumes on conditional loan/prior status applies

NSLDS Tracking of TPD Discharges

• NSLDS uses Outstanding Principal Balance in conjunction with the loan status DS (disability) or DI (defaulted, then disabled), to distinguish between conditional and final discharge.

• Borrowers denied final TPD discharge are returned to repayment status on NSLDS.

• NSLDS May 2005 Newsletter on NSLDS Reporting http://ifap.ed.gov/nsldsmaterials/Newsletter10.html

Department of Education Conditional Disability Discharge Unit

• Conditional Disability Discharge Unit Website– http://www.fsacollections.ed.gov/contractors/ga/cdd/

index.asp– Updates and Bulletins– Forms and Applications– FFEL Lender Performance Reports– Dear Colleague Letters and NCHELP Q&A

TPD Discharge Facts and Figures

• Common reasons TPD Discharge Assignments are rejected– Promissory note missing– Condition begin date missing/incomplete– Payment history missing/incomplete– Loan Discharge application missing/incomplete

TPD Discharge Facts and Figures (cont.)

• Processing Statistics: – Of total TPD applications received since inception:

• 50% of borrowers reinstated to prior status on loan• 20% of borrowers received final TPD discharge• 30% of borrowers still in conditional discharge period

• Borrowers reinstated to prior status on loan because:– 37% failed medical review– 7.8% received a new title IV loan– 54.6 failed to respond to request for income information– Less than 1% had income that exceed poverty guidelines

Upcoming TPD Discharge Dear Colleague Letters

• Dear Colleague Letter announcing new address for TPD assignments:– U.S. Department of Education

Conditional Disability Discharge6201 Interstate 30Greenville, TX 75402

• Dear Colleague Letter announcing credit bureau reporting for TPD Discharge Assignments

• Dear Colleague Letter announcing new TPD Forms

Thank You !!

Gail.McLarnon@ed.gov

(202) 219 -7048