Session 6 The Federal Perkins Loan Program Update

1. Session 6 The Federal Perkins Loan Program Update Tamy Garofano and Pat Stephenson I Nov – Dec 2016 U.S. Department of Education 2016 FSA Training Conference for Financial Aid Professionals

2. Topics • Perkins Extension • Office of Management and Budget-Approved Forms • Perkins Excess Liquid Capital • Perkins Questions and Answers • Perkins Loan Program Information • Liquidation

3. Perkins Extension • Perkins Loan Program Extension Act of 2015 • Enacted on December 18, 2015 • Extended Perkins Loan Program through September 30, 2017 • Eliminated grandfathering of students after the new expiration date

4. Perkins Extension - continued • Perkins Loan Program Extension Act of 2015 • Prohibited any further extensions of the Perkins Loan Program under General Education Provisions Act (GEPA) • Required school disclosures • Required return of Federal share of Revolving Fund

5. Perkins Extension - continued • Institutions may make Perkins Loans through September 30, 2017 to an eligible undergraduate student: • Current undergraduate student has an outstanding balance on a Perkins Loan made by the institution and is awarded all Direct Subsidized Loan aid for which the student is eligible • New undergraduate student does not have an outstanding balance on a Perkins Loan made by the institution and is awarded all Direct Subsidized and Unsubsidized Loan aid for which the student is eligible

6. Perkins Extension - continued • Undergraduate Students • If a student receives a disbursement of a Perkins Loan after June 30, 2017 and before October 1, 2017 for the 2017-2018 award year, the student may receive any subsequent disbursements of that Perkins Loan. However, disbursements are not permitted after June 30, 2018.

7. Perkins Extension - continued • Graduate Students • Institutions may make Perkins Loans through September 30, 2016 to an eligible graduate student who has received a Perkins Loan before October 1, 2015. • If an eligible graduate student receives a disbursement of a Perkins Loan after June 30, 2016 and before October 1, 2016 for the 2016-2017 award year, the student may receive any subsequent disbursements of that Perkins Loan through June 30, 2017.

8. Perkins Extension - continued • Disclosures to borrowers • Institutions must provide additional disclosures: • Regarding the end of future availability of Perkins Loans • Regarding Direct Loan (DL) repayment and forgiveness benefits not available to Perkins Loans • Regarding the borrower’s option to consolidate a Perkins Loan, and benefits of consolidation

9. Perkins Extension - continued Disclosures (continued) Providing a comparison of Perkins Loan and Direct Loan interest rates. Informing the borrower that the borrower has reached the maximum annual Direct Subsidized Loan borrowing limit or Direct Subsidized Loan and Direct Unsubsidized Loan borrowing limit.

10. Perkins Reporting on FISAP • Fiscal Operations Report and Application to Participate (FISAP) Reporting *No more new Perkins Loans after September 30, 2017 *No disbursements after June 30, 2018

11. OMB-Approved Forms • OMB approved DL/Federal Family Education Loan Program/Perkins deferment forms for: • In-school • Graduate fellowship • Rehabilitation training program • Economic hardship • Unemployment • Currently in the OMB-forms clearance process • Military Deferment

12. OMB-Approved Forms - continued • Forbearance Forms • Combined DL/FFEL/Perkins forms for: • Mandatory Forbearance Request (student loan debt burden) • General Forbearance Request (other acceptable reasons)

13. Perkins Excess Liquid Capital • Authority to require return of Excess Liquid Capital (ELC) under Section 466(c) of the Higher Education Act • Annual process of returning ELC is not directly related to the wind-down of the Federal Perkins Loan Program • Last year’s process and formula

14. Perkins Excess Liquid Capital • Current year’s process • Emails to institutions with “estimated” Excess Liquid Capital based on latest FISAP information • Formula – used 2015-2016 data reported on most recent FISAP • Process for requesting an adjustment • November 17, 2016 deadline to return the Federal share through G5* (process discussed later in this presentation) *G5 is the Department of Education’s system through which authorized recipients complete payment-related activities

15. Notification of Excess Liquid Capital • First Notification: • Sent to institutions with Excess Liquid Capital • Instructs institution to check Self-Service Page • Provides Deadline

16. eCampus-Based System Self-Service Page • ELC 1st Notice • ELC 2nd Notice (reminder) • Adjustment Responses will not be system-generated this year

17. Perkins Excess Liquid Capital • Official Letter • Excess Liquid Capital determined to be in Revolving Fund • Federal Share • Institutional Share • Deadline to return funds • Instructions for remitting payment • ELC Adjustment Request Process and deadline

18. Perkins Excess Liquid Capital System-Generated Proportional Shares Worksheet • FISAP Data and FISAP corrections

19. Perkins Excess Liquid Capital ELC Adjustment Request

20. Perkins Excess Liquid Capital Excess Liquid Capital Adjustment Request

21. Perkins Loan Questions & Answers Scenario: An institution is considering awarding the student a Perkins Loan and the parents have been denied a PLUS Loan. Question: For a new Perkins Loan borrower, should the additional Direct Unsubsidized Loan funds resulting from the denial of a PLUS Loan be included when determining the student’s eligibility for the Perkins Loan?

22. Perkins Loan Questions & Answers Answer: Yes. This student’s eligibility would include the additional Direct Unsubsidized funds that are received as a result of a parent’s denial of a PLUS Loan.

23. Perkins Loan Questions & Answers Scenario:An undergraduate borrower received a Perkins Loan for the 2017-2018 academic year and at least one disbursement of that loan was made prior to October 1, 2017. Question: Is an institution permitted to make a disbursement after June 30, 2018 for a cross-over summer period?

24. Perkins Loan Questions & Answers Answer: No. An institution is not permitted to make a Perkins Loan disbursement after June 30, 2018 for a prior year’s crossover summer term.

25. Perkins Loan Questions & Answers Scenario: Student advances a grade level after Perkins Loan was awarded. Question: Must the institution use the increased amount of eligibility for Direct Subsidized and Direct Unsubsidized Loans when determining the amount of Perkins Loan the borrower is eligible to receive?

26. Perkins Loan Questions & Answers Answer: Yes. The annual maximum Direct Subsidized and Direct Unsubsidized Loan eligibility for which the student is eligible must be considered in determining the student’s eligibility for a Perkins Loan. An institution may be required to reduce a Perkins Loan that has already been disbursed because the student’s Direct Loan (subsidized and/or unsubsidized) eligibility increased.

27. Perkins Loan Questions & Answers Scenario: A student’s Perkins Loan has fully disbursed. The institution then receives a denial of the PLUS Loan. Question: Is the institution required to re-evaluate the student’s eligibility for the Perkins Loan because of the additional Unsubsidized Loan funds for which the student may be eligible?

28. Perkins Loan Questions & Answers Answer: Yes. The institution must re-evaluate the student’s eligibility for the Perkins Loan even if all or part of the loan had been disbursed. The institution may need to reduce or cancel the Perkins Loan, including any amounts that had already been disbursed because the student’s Direct Loan eligibility has increased. Perkins Questions and Answers posted to IFAP

29. Resolving An Overaward

30. Perkins Loan Program • Cohort Default Rate • Perkins Loan Program cohort default rate is separate from FFEL/DL default rate calculations • Schools with a Perkins Loan Program cohort default rate at 50% or higher for three consecutive years are notified of the appeal process and requirement to liquidate their school Perkins portfolio

31. Perkins Loan Program • Cohort Default Rate – Appeals • Valid reason to appeal a Perkins Loan Program cohort default rate of 50% or higher for three consecutive years: • Inaccurate calculation of the cohort default rate reported on the FISAP • Small number of borrowers entering repayment (on average fewer than 10)

32. Perkins Loan Program • Cohort Default Rate – Appeals • School President is notified via registered mail of the status of the Perkins portfolio (FAA is copied) • If appeal is not received, school President is notified via registered mail to begin liquidating the Perkins portfolio and is provided contact information and links to the procedures • If appeal is received, the school is notified of the decision by registered mail. Those denied must begin liquidating their Perkins portfolio • Schools in this group are referred to the Compliance Area

33. Perkins Loan Program • Reminders of Key Perkins Program Requirements • Use of Funds— • Making loans to students; • Administrative expenses (if it makes loans to students); • Capital distributions (liquidation or return of excess liquid capital); • Litigation costs; • Other collection costs, agreed to by the Secretary in connection with the collection of principal, interest, and late charges on a loan made from its fund (see §674.47); and • Repayment of any short-term, no-interest loans made to its fund by the institution in anticipation of collections • Reporting to National Student Loan Data System (NSLDS) — • It is the school’s responsibility to ensure that its required reporting to NSLDS (which includes Perkins loan account detail) is completed on time and accurately

34. Perkins Loan Program • Reporting to NSLDS (continued)— • Schools that use a third-party servicer must communicate these requirements to its third-party servicer and ensure that its servicer complies with timely and accurate reporting requirements. It is important for schools to understand that they will be responsible for any non-compliance by the servicer • For the purposes of Perkins liquidation and closeout, schools must ensure that NSLDS reflects that all borrower loan accounts are fully retired, accepted for assignment by the Department of Education (ED) or purchased by the school • In some cases, a school may need to request a reconciliation report from NSLDS to ensure its records are consistent with NSLDS, reconcile any discrepancies and update NSLDS accordingly. It is recommended that all schools complete this reconciliation with NSLDS at least every six months • Until ED accepts a loan and is able to successfully report on the loan to NSLDS, the loan is still the responsibility of the school and the school must report the loan to NSLDS as transferred for assignment using the code “AE” and the “certification date” as the loan status date

35. Perkins Loan Program • Liquidation of Perkins • A school’s Perkins Loan portfolio and its Perkins Loan Revolving Fund must both be liquidated when it ends its participation in the Perkins Loan Program

36. Perkins Loan Program • Liquidation of Perkins • A school must liquidate its Perkins Loan portfolio and program fund, when it: • voluntarily withdraws from the program; • has had its eligibility to participate in the Perkins Loan Program terminated by ED; • has not been approved by ED for continued participation during the school's recertification process; or • is closing

37. Perkins Loan Program • The process of liquidating includes a review of the outstanding Perkins Loans to determine if the loans have been maintained and administered properly so they can be assigned to ED • Liquidation begins in the eCampus-Based (eCB) system with the submission of intent • All loans must be properly accounted for and updated in NSLDS • This process also includes liquidating the funds in the Perkins Loan portfolio and accounting for any Perkins Loans that could not be assigned to ED • A school's Perkins Loan portfolio and program fund is not considered liquidated and closed out until an official letter of completion has been received from ED

38. Perkins Loan Program • Go to IFAP for the updated Assignment and Liquidation procedures. • Click on the Campus-Based Programs Information Page • Under the orange Perkins Liquidation and Assignment section • Click on the updated version of the procedures

39. Perkins Loan Program • DRAP – Default Reduction Assistance Program • DRAP assists schools in bringing defaulted Perkins Loan borrowers back into repayment before their accounts are sent to collection agencies • A letter is sent from ED on official letterhead to defaulted Perkins Loan borrowers that explains the serious consequences of default, including: • The inability to obtain other federally supported financial assistance • Withholding of federal and state income tax refunds • Salary garnishment • Damage to credit history The letter encourages borrowers to contact the school to initiate repayment arrangements.

40. Perkins Loan Program • DRAP • Participation in the DRAP program is voluntary • There is no cost to the school • It is most effective when used during the 30-day period when the school is waiting for the defaulted borrower to respond to the final demand letter • Do not request default reduction assistance once the account has been referred to a collection agency

41. Perkins Loan Program • DRAP • Through the DRAP process, a school or its third-party servicer will need to: • Submit borrower name and address information for letters to be printed and mailed by ED; • Maintain/Update borrower name and address information; • Edit school’s DRAP contact information; • Run a report that assists in monitoring the letters mailed to borrowers

42. Perkins Loan Program • DRAP • Accessing and Initiating the DRAP process: • Information related to accessing and initiating the DRAP process is posted to IFAP each year in October: • http://ifap.ed.gov/eannouncements/090816FederalPerkinsLoanDefaultReductionAssistanceProgramDRAP.html

43. Considering Liquidation?

44. What is Perkins Liquidation? • Perkins Liquidation is— • Accounting for all the loans that remain in the portfolio, and • Accounting for the remaining Perkins Revolving Fund

45. What does Liquidation Involve? • Turn over loans to ED – Assignment • Account for all loans/Update NSLDS accordingly • Ascertain any liabilities as a result, e.g., purchased loans • Split the remaining fund – distributional shares of remaining cash asset

46. Official System of Records • The eCampus-Based (eCB) system is the system of record for all institutions’ collective Perkins portfolio • NSLDS is the system of record for loan detail

47. How to Prepare • Assess your portfolio • How many loans remain open? • Are loans accurately being reported on FISAP? • Are loans accurately being reported/updated to NSLDS?

48. How to Prepare • Sign up for Perkins Loan Assignment System (PLAS) • Begin assigning older, defaulted loans now • Ensure NSLDS accurately reflects your institution’s portfolio!

49. How to Begin You will start with eCB and finish with eCB.

50. How to Begin Institution’s access the eCB system at https://cbfisap.ed.gov Note: Only institutions participating in the Federal Perkins Loan Program have access to the Perkins Liquidation module.