Session GA-04

1. Session GA-04 What’s New for Guaranty Agencies and Lenders Pamela Moran

2. Agenda • Legislation Update • Loan Access Initiatives • Regulations Update

3. Legislation

4. Legislation Update • Higher Education Reconciliation Act (HERA) (P.L. 109-171) – February 8, 2006 • College Cost Reduction and Access Act (CCRAA)(P.L. 110-84) – September 27, 2007

5. Legislation Update • Ensuring Continued Access to Student Loans Act (ECASLA) (P.L. 110-227) – May 7, 2008 • Higher Education Opportunity Act (P.L. 110-315) (HEOA) – August 14, 2008 • H.R. 6889 (P. L. 110-350) – October 7, 2008

6. HERA • Reauthorized FFEL Program until 2012 • Increased Loan Limits • Phase-Out of Borrower Origination Fees • Grad/Prof PLUS Introduced

7. HERA • Aligned Repayment Plans –FFEL/DL • Disbursement Relief – Cohort Default Rate Waivers for Schools • Reduced PLUS Interest Rates

8. HERA • Identity Theft Discharge • Military Deferment • Loan Rehabilitation Relief – FFEL/DL

9. HERA • Consolidation Loan – Married/In-school/Early Conversion eliminated • School-as-Lender/Use of Lender Trustee • Lender Reduced Insurance/“Negative SAP”

10. CCRAA • Reduced FFEL/DL Interest Rates for Undergrad Subsidized Loans • New Income-Based Repayment Plan –FFEL/DL • New Public Service Loan Forgiveness - DL

11. CCRAA • Revised Deferments: • Economic Hardship – Changed Eligibility Standards • Military Service Expanded and Post-Active Duty Added

12. CCRAA • Lender (Offsets): • Exceptional Performer Status Eliminated • Insurance Reduced • Loan Fees Increased • Special Allowance Payments Reduced • Origination Auction for PLUS (First-time Parent PLUS)

13. CCRAA • Guaranty Agency (Offsets): • Collection Retention Allowance Reduced • Account Maintenance Fees

14. ECASLA • Increased FFEL/DL Annual and Aggregate Loan Limits • Parent PLUS Grace Period/Relief

15. ECASLA • Lender-of-Last Resort Authority Enhanced • ED Granted Authority to Purchase Loans and Participation Interest in Loans to ensure FFEL loan access

16. ECASLA FFEL/DL LOAN LIMITS – • New $2,000 annual Unsub Stafford loan amount for dependent undergraduate students • Additional $2,000 Unsub Stafford annual loan amount for dependents with no PLUS, independent undergrads, and for non-degree preparatory coursework for undergrad programs

17. ECASLA FFEL/DL LOAN LIMITS - unchanged • $7,000 Additional Unsub Stafford for non-degree preparatory coursework for grad/professional programs • $7,000 Additional Unsub Stafford for non-degree teacher certification coursework

18. ECASLA FFEL/DL LOAN LIMITS - • Increased Aggregate total for dependent undergrads from $23,000 to $31,000 (no more than $23,000 subsidized) • Increased Aggregate total for independent undergraduate students from $46,000 to $57,500 (no more that $23,000 subsidized)

19. ECASLA FFEL/DL LOAN LIMITS - • Aggregate total for graduate/professional remains at $138,500 (no more than $65,000 subsidized)

20. ECASLA PLUS Loan Changes - • Optional delayed repayment start date for parent PLUS borrowers based on dependent’s enrollment status • Extenuating circumstances for PLUS adverse credit may include delinquency of up to 180 days on mortgage or medical bill payments

21. ECASLA- Loan Access Initiatives FFEL Lender-of-Last-Resort - • Mandates LLR coverage for all loan types –Subsidized and Unsubsidized Stafford and PLUS for parents and graduate/professional students • Authorizes institutional designation for LLR through June 30, 2009

22. ECASLA-Loan Access Initiatives ED FFEL Loan Purchase Authority - • Terms and conditions established by the Secretary in consultation with Treasury and OMB • May produce no “net” cost to the Federal government • Includes no advance funding for lenders

23. ECASLA-Loan Access Initiatives • Loan Purchase Commitment Program - • ED Commitment to purchase eligible 2008-2009 FFEL loans through September 30, 2009 from any FFEL lender/holder • Loans must be fully disbursed to be purchased • 45-day advance notice from lender of loans to be sold

24. ECASLA-Loan Access Initiatives • Loan Participation Purchase Program - • ED Commitment to purchase “participation interests” in eligible 2008-2009 FFEL loans • Purchase provides liquidity to lender • To terminate ED interest, lender repays ED by redeeming loans or selling them to ED

25. ECASLA-Loan Access Initiatives Go to www.ifap.ed.gov and hit ECASLA link for ECASLA DCLs and Legislative and Legal Notices, Electronic Announcements, and Implementation Webinars on Loan Purchase Programs

26. HR 6889- Loan Access Initiatives Extends Loan Purchase Programs through 2009-2010 academic year

27. Higher Education Opportunity Act (HEOA) Reauthorization of the HEA • Signed into law August 14, 2008 • Authority for insurance of FFEL loans and to make Consolidation Loans extended to 2014 • Provisions effective August 14, 2008, unless otherwise specified

28. HEOA -Implementation • Six Hearings Concluded 10/15/09 • Notice Announcing Formation of Committees and Soliciting Nominations for Non-Federal Negotiators – 11/08 • Committees Established - 12/08 • Negotiations – 2/09 – 4/09

29. HEOA -Implementation • NPRM Prepared/Cleared by OMB – 4/09-7/09 • NPRM Published - 8/09 • Comment Period Ends – 9/09 • Final Regulations Prepared/Cleared by OMB – 9/09-10/09 • Final Regulations Published – 11/1/09

30. HEOA – Lenders and GAs • Lender forbearance disclosures for forbearances on or after August 14, 2008: • Impact of capitalization as interest and total interest for life of loan • Contact every 180 days regarding capitalization and options to pay accruing interest or end forbearance

31. HEOA – Lenders and GAs • Lender methods of granting in-school deferment includes confirmation of borrower’s enrollment status using NSLDS, if requested by school • Required borrower notice upon loan transfer, sale, or assignment must include date of transfer and date new servicer will accept payments

32. HEOA – Lenders and GAs • Guaranty Agency default notice for claims received on or after August 14, 2008: • Two separate notices to borrower • Simple and understandable terms • Options to exit default and related costs and conditions

33. HEOA – Lenders and GAs • Defaulted Loan Rehabilitation Consumer Credit Reporting: • Applies to GA and all prior holders of the loan • Required request to consumer reporting agency to remove default record • Loan rehabilitations on or after August 14, 2008 • GA required to provide rehabilitated borrowers with economic and financial materials

34. HEOA – Lenders and GAs • Lender Consolidation Loan Disclosures to Federal Perkins and Direct Loan borrowers at time of application: • Must be simple and understandable • Must include statement that simply applying does not obligate the borrower • Information on any loss of Perkins and Direct Loan benefits upon consolidation

35. HEOA – Lenders and GAs • Lender Consolidation Loan Disclosures to Federal Perkins and Direct Loan borrowers at time of application (cont.): • Information on consolidation loan or repayment plans and options to change plan, options and information to prepay or pay over shorter period • Information on consequences of default • Must include statement that lender-based benefits may vary

36. HEOA – Lenders and GAs • Revised and new FFEL borrower disclosures • Required lender disclosures for each private education loan based on section 128(e) of Truth in Lending Act • Required lender reporting and certification

37. HEOA – Lenders and GAs • Before Loan Disbursement: • Notice of whether lender will pay required fees • Types of repayment plans • Forbearance circumstances • Types of loan forgiveness and eligibility requirements • Notice of option to pay accrued interest and capitalization frequency if unpaid

38. HEOA – Lenders and GAs • Before repayment: • Timing change to no more than 150 days before first payment due date • Name of loan servicer, if applicable • For PLUS borrowers, repayment start date after in-school deferment • Repayment plans and option to change plans • Info on lender-offered repayment benefits and limits/conditions • Options to avoid default and any associated costs • Projected total interest and amount of any interest paid • Resources for advice and assistance

39. HEOA – Lenders and GAs • Sample projections for PLUS and Unsub Stafford Loans must include loan costs of paying or capitalizing accruing interest • New disclosures during repayment for loans with first payment due date on or after July 1, 2009 • Required bill or statement for all borrowers • Required disclosures for borrowers having difficulty making payments • Required disclosures for delinquent borrowers

40. HEOA – Lenders and GAs • Required lender annual reporting for preferred lender arrangements: • ED identified minimum information to institutions and institution-affiliated organizations • Information to ED on reasonable expenses paid to FAO staff or others with education loan responsibilities • Required lender certification of compliance with HEOA section 120 requirements no later than February 4, 2010, and as part of lender compliance audit

41. HEOA – Lenders and GAs • Prohibited inducement provisions revised for activities undertaken by lenders or GAs on or after August 14, 2008 • For GAs(changes): • Prohibited payments include stock or other securities, prizes, travel, entertainment expenses, tuition payment or reimbursement, or other inducements to school or its employees, or any lender and its agents, employees, or independent contractors to secure guarantees • School exit counseling excluded from prohibited school-required functions a GA can perform or pay to have performed

42. HEOA – Lenders and GAs • For Lenders(changes): • Prohibited payments same as GAs, but also includes lender payments for referrals and processing or finder’s fees, provision of information technology at below-market value, and additional financial aid funds to any school or its employees • Consulting arrangements or contracts to provide services to lender with FAO employees or other school employees with student loan responsibilities prohibited

43. HEOA – Lenders and GAs • For Lenders (cont.): • School exit counseling excluded from prohibited school-required functions a lender can perform or pay to have performed • Lender reimbursement of reasonable incurred expenses for school employee service on lender advisory boards permitted • Payments permitted to school’s student as lender’s representative if student is otherwise employed by lender and disclosure of employment made

44. HEOA – Lenders and GAs • GAs required to develop and make available educational programs and materials on budgeting and financial management for students and parents • Must be presented in simple and understandable formats • Must address cost of using high interest loans • Programs and materials may be provided to Direct Loan only schools • Considered default reduction activities for section 422(h)(4)(B) of HEA

45. HEOA –Student Loan ProgramsBorrowers • Estimated Financial Assistance Excludes all Veterans’ Education Benefits • Servicemembers Civil Relief Act (SCRA) applied to FFEL and Direct Loan Borrowers • 6% interest rate cap during active duty service beginning date of enactment • Does not apply to PLUS endorsers

46. HEOA – Borrowers • SCRA - continued • Borrower must make written request • Related special allowance change for loans first disbursed on/after July 1, 2008

47. HEOA – Borrowers • PLUS Loan deferment for: • in-school period • up to six months for post-half-time enrollment period

48. HEOA – Borrowers • PLUS Loan deferment • At specific request of parent PLUS borrower based on dependent’s status • Granted automatically to grad/prof borrower for post-enrollment period with required notice

49. HEOA – Borrowers • Capitalization of PLUS Loan deferment-related accrued interest may be paid monthly or quarterly or capitalized no more frequently than quarterly for all borrowers

50. HEOA – Borrowers • PLUS Loan “adverse credit standard” clarified for special extenuating circumstances to be existing regulatory standard