negotiated rulemaking - loans team

Negotiated Rulemaking - Loans Team

Presented by: Kevin Tharp and Betsy Mayotte

Presented to: NCHER Knowledge SymposiumDate: November, 2012

http://www.usafunds.org/pages/default.aspx

Navigating the Sea of Change 2012 NCHER Knowledge Symposium

2

Disclaimer• This material is for informational

purposes only and is not intended to serve as legal or policy advice. Individuals are advised to consult their own council to determine the issues particular to their own situation and any results that may apply.


3

Background• The Politics

• The Issues

• Guarantor Issues

• What’s Next

• Resources


4

The Politics• Election Year

• “Pay As You Earn” Implementation

• 2011 TPD News

• Current student loan debt crisis buzz


5

The Issues• Changes to Income

Contingent Repayment (ICR)

• Changes to Income- Based (IBR) Repayment

• FFEL Repayment Disclosures

• Minimum Loan Period for Transfer Students

• Participation Rate Index• Forbearance Issues

• Administrative Wage Garnishment

• Rehabilitation• Title IV• Enrollment Reporting• Perkins Loans• Closed School

Discharge• Total and Permanent

Disability Discharge• FFEL/DL Alignment


6

Effective Dates• Issues split into two packages• 1st package

– ICR/IBR/TPD– Effective 7/1/2013– NPRM this summer, Final Rule this fall

• 2nd package– Everything else– May allow early implementation– Effective 7/1/2014– Final Rule January, 2013

» Er…..we’ll have it soon


7

Closed School Discharge• Desire to specify an exceptional

circumstance and tie timeframes more closely to real life occurrences of schools closing

• To qualify for closed school discharge, borrowers must have attended within 120 days of school closure– Other eligibility rules remain the same


8

Closed School Discharge• Exceptional circumstances may

include, but are not limited to: – The school’s loss of accreditation; – The school’s discontinuation of the

majority of its academic programs; – Action by the State to revoke the

school’s license to operate or award academic credentials in the State, or

– A finding by a State or Federal government agency that the school violated State or Federal law


9

When is a School Not a School?

• For purposes of closed school discharge a school IS:– The school’s main campus and/or – Any location or branch of the main

campus

• A school is NOT:– A single program–Most but not all of a schools programs


10

Lender 60 Day Disclosure Requirements

• No longer required to provide “difficulty making payment” disclosure if payment issue has been resolved

• Timeframe to send 60 day delinquency notice changed from 5 calendar days to 5 business days


11

Military Forbearances

• Allows Mandatory forbearance for service that is eligible for partial loan repayment under any Department of Defense program– Adds this forbearance for Direct Loans• Borrower must request and provide

documentation


12

FFELP and DL Clean-up• Longest Issue Paper EVER!

• Deleted much of origination language from FFEL – added to DL as needed

• Inducement language


13

Post 270 Day Forbearances• Current rules allow verbal forbearances for both

programs up to 270 days past due– DL allows after 270 days up to transfer to collections– FFELP only allows written after 270 days past due

• New rule will allow limited verbal forbearance under both programs for loans 270 days past due or more where:– No claim has been paid under the FFELP– Loan has not been transferred to DL collections

• 120 day limit– Can be used multiple times but not consecutively


14

Administrative Forbearance

• New rules will allow administrative forbearance to be used to clear up remaining delinquency before authorized forbearance.


15

Guarantor Issues

Loan Rehabilitation

• Each of the required loan rehabilitation payments is to be “reasonable and affordable” (R & A) and agreed upon.

• Guaranty agency must determine a borrower’s reasonable and affordable payment amount based on supported financial information.


16

Loan Rehabilitation• If the borrower objects to the

monthly payment amount determined by the guaranty agency, you must recalculate the payment amount based on the IBR rules to determine the borrower’s new R & A payment amount, with a minimum payment of $5.00.


17

Loan Rehabilitation• New ED-approved form for gathering

financial information for the IBR calculation if the borrower objects to the R & A offer.

• Form now includes consideration for family size and situations of non-contributing spouse to the household income.

• Borrower must provide documentation to support the request.


18

Loan Rehabilitation• Guaranty agency is to provide the

borrower with a written rehabilitation agreement within 15 business days of its determination of the borrower’s reasonable and affordable payment amount.


19

Loan Rehabilitation• The Rehabilitation Agreement must

include:– Borrower’s reasonable and affordable

payment amount.– A prominent statement that the

borrower may object orally or in writing to the R & A payment amount.

–Method and timeframe for raising such an objection.


20

Loan Rehabilitation– An explanation of any other terms and

conditions required for the borrower’s loan to be rehabilitated.

– The effects / benefits of having a loan rehabilitated.

– Amount of collection cost to be added to the unpaid principal when the loan is sold which may not exceed 18.5% of P & I.


21

Loan Rehabilitation• The guaranty agency must limit

contact with the borrower whose loan is being rehabilitated to: – Collection activities that are required by

law or regulation. – Communications that support the

rehabilitation.


22

Loan Rehabilitation - AWG• If the guaranty agency is using

administrative wage garnishment (AWG) and voluntary payments to allow the borrower to rehabilitate the loan, the guaranty agency must suspend collection by AWG after the fifth payment unless otherwise directed by the borrower.


23

Loan Rehabilitation - AWG• Adjustments can be made to the

voluntary payment amount but should be agreed to and reflected in the written rehabilitation agreement.

• A borrower may obtain the benefit of suspending wage garnishment only once while attempting to rehabilitate a defaulted loan.


24

Loan Rehabilitation - AWG• If the borrower attempts to

rehabilitate again, AWG would remain in place during the entire loan rehabilitation period.

• If AWG resumes, the AWG hearing and notice requirements would not apply.

• The guaranty agency would be required to notify the borrower of the resumption of the AWG process.


25

Administrative Wage Garnishment

• Provides that only an authorized official of the guaranty agency may determine that an individual AWG order is to be issued.

• The guarantor may not delegate to any third party the decision to issue the order of withholding.

• Requires the agency to record the official’s determination for each order it issues.


26


• Continues to require a guaranty agency to send a 30-day notice to the borrower before initiating garnishment proceedings and requires additional information to be included in the notice.


27


• The 30-day notice must describe:– Nature and amount of the debt.– Intention to collect the debt through

deductions from disposable pay.– An explanation of the borrower’s rights.– Deadlines by which the borrower must

exercise those rights.– Consequences of failure to exercise

those rights in a timely manner.


28


• Continues to require a guaranty agency to offer the borrower an opportunity for a hearing, but expands the reasons for which the borrower may object.


29


• A borrower can object concerning the:– Existence of the debt.– The amount of the debt– Enforceability of the debt. (New)– Amount of collection cost exceeds the

permissible amount– Financial hardship caused due to the

amount or at the withholding rate proposed in the notice.


30


• If the borrower’s objection is due to financial hardship based on the AWG amount or withholding rate the agency proposed in the notice, the borrower must prove the claim by providing credible documentation that the amount of wages proposed in the notice would leave the borrower unable to meet basic living expenses of the borrower, the borrower’s spouse, or the borrower’s dependents.


31


• If the borrower’s objection to the rate or amount proposed in the AWG notice is upheld in part, the garnishment may be ordered at a lesser rate or amount to allow the borrower to meet proven basic living expenses.

• If this financial hardship determination is made after a garnishment order is already in effect, the guaranty agency must notify the borrower’s employer of any change in the AWG order.


32


• Provides that if the borrower’s written request for a hearing is received on or before the 30th day (changed from 15 days) following the date of the AWG notice, the guaranty agency may not issue a withholding order until the borrower has been provided the requested hearing and a decision has been rendered. The hearing must be scheduled so that a decision can be rendered within 60 days.


33


• Clarifies that under no circumstances may the hearing official be under the supervision or control of the head of the guaranty agency, “or of a third-party servicer or collection contractor employed by the agency.”


34


• Requires the guaranty agency to ensure that all oral communications — except for logistical issues relating to the hearing — with any representative of the guaranty agency or with the borrower are made within the hearing of the other party, and that copies of any written communication with either party are promptly provided to the other party.


35


• Clarifies that when an employer is served for the first time with an AWG order for a borrower, the employer must deduct from the borrower’s disposable pay and pay to the guaranty agency an amount that does not exceed the smallest of: – Amount specified in the AWG order.– 15% of the borrower’s disposable pay

(as permitted by section 488A(a)(1) of the HEA).


36


• Permits a borrower, at any time, to raise an objection to the amount or rate of withholding on the ground of financial hardship.

• However, the guaranty agency does not have to consider the objection or provide a hearing until at least six months after the most recent AWG order was issued.


37

Regaining Title IV Eligibility• Borrower gets one opportunity to

renew his/her eligibility for title IV assistance.

• Making monthly payments under an agreement to rehabilitate a defaulted loan doesn't mean that he/she has used up the one opportunity, unless the borrower received additional title IV assistance.


38

Regaining Title IV Eligibility

• Definition of “on-time” changed from agreed upon

• payments within 15 days of the scheduled due date to

• within 20 days of the scheduled due date.


39

Participation Rate Index

• Changes ceiling from 0.0615 to .0625• Effective for October 1, 2011 cohort

fiscal years.


40

Transfer of Credits• For students transferring into clock hour or

credit hour schools with no standard terms• Current rules only allow new loan origination – For remainder of program if program is less than

academic year in length or– For remainder of academic year but only– If school accepts credits from “old” school

• New rule eliminates requirement new school accepts old school’s credits


41

Perkins Cancellation• Teacher Loan

Forgiveness/employment based forgiveness– Borrower who does not complete year

for FMLA reasons still gets credit as year worked• Must have completed at least half of year

• Borrowers who change employment but maintain same cancellation progression category maintains status


42

Other Perkins Changes• On-time repayment definition for rehab

changed from 15 to 20 days

• Perkins loans made prior to 1982 can now be assigned to ED without an SSN

• Eliminates debt to income provisions for economic hardship deferment

• Aligns graduate fellowship deferment requirements with those of the FFEL and DL


43

Resources

Negotiated Rulemaking & Pending Regulatory Changes

• Additional Resources/References can be obtained by accessing the NCHER Negotiated Rulemaking 2011-1202 web-link:

• http://www.ncher.us/?page=158

• Neg Reg pages• http://www2.ed.gov/policy/highered/reg/hearul

emaking/2011/index.html

http://www.ncher.us/?page=158

http://www2.ed.gov/policy/highered/reg/hearulemaking/2011/index.html

http://www2.ed.gov/policy/highered/reg/hearulemaking/2011/index.html


44

Negotiated Rulemaking & Pending Regulatory Changes

Thank You

Questions and Discussion

negotiated rulemaking - loans team

Documents