Federal Perkins Regulations New & “Proposed”

1. Federal Perkins RegulationsNew & “Proposed” Maria Livolsi Director, State University of New York Vice President, COHEAO John Lynch Executive Director, Strategic Sales ECSI

2. Federal Negotiated Rulemaking • Student Loan Issues • 25 Topics Negotiated • 8 Topics Affecting Perkins • Over 400 Pages of Regulatory Changes • 2 Separate Regulatory Packages • Package 1: IBR/ICR & Total and Permanent Disability Discharge • Final Rules Published 11/1/2012 • Effective Date 7/1/2013 • Early Implementation for ICR/IBR: 12/21/12 • TPD Discharge – No Early Implementation • TPD Discharge – New Application Form to be Released Soon • Package 2 Contains Most of the Perkins-Specific Topics • NPRM Expected to be Released Soon • Effective Date 7/1/2014 at the Earliest • Early Implementation Expected for Some Rules

3. Federal Negotiated Rulemaking • Perkins-Related Topics: • Final Regulations Issued – Effective 7/1/2013 • Total and Permanent Disability Discharge • Proposed Regulations – NPRM to be Released Soon • Graduate Fellowship Deferment Eligibility • Social Security Number Requirement for Assignment of Perkins Loans to DOE • Cancellation Rate Progression Across Cancellation Categories • Economic Hardship deferment Debt-to-Income Ratio Provision • Break in Cancellation Service Due to Condition Covered Under the Family and Medical Leave Act (FMLA) • Satisfactory Repayment Arrangements of Defaulted Loans • Standard for On-Time Rehabilitation Payments

4. Total and Permanent Disability Discharge • The new TPD Regulations: • Provide consistency across the 3 Federal Loan Programs • Reduce burden on the borrower • Borrower applies directly to the Secretary • Secretary checks NSLDS to make sure all loans are included in the review process • Department will accept SSA disability notice of award for SSDI and SSI benefits when on 5-7 year review • Define a borrower’s representative as a member of the borrower's family, the borrower’s attorney, or another individual authorized to act on behalf of the borrower in connection with the discharge request.

5. Total and Permanent Disability Discharge • In the New TPD Process: • If the borrower notifies the institution of their disability, theinstitution will direct the borrower to notify the Secretary directly. • If the borrower notifies the Secretary of their disability, the Secretary will: • Provide the borrower with information on how to apply for TPD Discharge; • Notify lenders of borrower’s intent to apply; • Direct lender to suspend collection efforts for a period not to exceed 120 days; and • Inform the borrower of the suspension and the timeframe within which they must submit application. • If the borrower fails to submit TPD application within 120 days, collection resumes on borrower’s loans.

6. Total and Permanent Disability Discharge • Borrower must submit a TPD application to the Secretary that contains: • A certification by a physician that the borrower is totally and permanently disabled; or • A Social Security Administration (SSA) notice of award for Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits indicating that the borrower’s next review will be within 5-7 years. • The borrower must submit the TPD application to the Secretary within 90 days of the date the physician certifies the application, if applicable.

7. Total and Permanent Disability Discharge • After receipt of the borrower’s application, the Secretary will: • Notify the loan holders that TPD has been filed; • Direct loan holders to suspend, or maintain suspension of, collection activity; • Inform borrower that application will be reviewed; • Inform the borrower that loan holders will suspend, or maintain suspension of, collection activity during review; and • Explain the Secretary’s review process of the application. • If the application is incomplete, the Secretary notifies the borrower of the missing information. The Secretary does not make a determination of eligibility until the application is complete. • The Secretary may require the borrower to submit additional medical evidence if the Secretary determines that the borrower’s application does not conclusively prove that the borrower is totally and permanently disabled.

8. Total and Permanent Disability Discharge • If Secretary determines that the borrower is totally and permanently disabled, the borrower is considered disabled as of – • The date the physician certified the borrower’s application; or • The date the Secretary received the SSA notice of award for SSDI or SSI benefits. • The Secretary: • Notifies the borrower and the lenders that TPD application has been approved; • Provides the disability date to the loan holders; • Directs the institution to assign the loan to the Secretary within 45 days of the date of the notice; • Once assigned, notifies the borrower and institution that the loan has been discharged; and • Directs that any payments received after the certification date must be returned to the person that made the payments.

9. Total and Permanent Disability Discharge • If Secretary determines that the physician’s certification or the SSA notice of award for SSDI or SSI benefits does not support the conclusion that the borrower is totally and permanently disabled, the Secretary: • Notifies the borrower and the institution that the application has been denied and provides the reason(s) for denial; • Instructs the borrower that the loan is due and payable to the institution under the terms of the promissory note and that the loan will return to the status that would have existed at the time of filing; • Instructs the borrower that the loan is due and payable to the institution; • Instructs the borrower that the institution will provide notification of the date the borrower must resume making payments; • Informs the borrower that they can request re-evaluation within 12 months of the date of the notification, without submitting a new application, if additional information that supports the discharge is submitted; and • Informs the borrower that they must submit a new application if they wish the Secretary to re-evaluate after 12 months from the notification date has passed.

10. Total and Permanent Disability Discharge • Conditions for Reinstatement of the Loan • The Secretary reinstates the borrower’s obligation to repay a loan that was discharged if, within three years after the date the Secretary granted the discharge, the borrower - • Has annual earnings from employment that exceed 100% of the poverty guideline for a family of two; • Receives a new TEACH Grant or a new loan under the Perkins or Direct Loan programs (excluding consolidation loan for loans not discharged); • Fails to ensure that the full amount of any disbursement of a Title IV loan or TEACH Grant received prior to the discharge date is returned within 120 days of the disbursement date; or • Receives a notice from the SSA indicating that the borrower is no longer disabled or that the borrower’s continuing disability review will no longer be the five to seven year period.

11. Total and Permanent Disability Discharge • If the borrower’s obligation to repay is reinstated, the Secretary – • Notifies the borrower that the borrower’s obligation to repay the loan has been reinstated; • Returns the loan to the status that would have existed had the total and permanent disability discharge application had not been received; and • Does not require the borrower to pay interest on the loan for the period from the date the loan was discharged until the date the borrower’s obligation to repay the loan was reinstated. • The Secretary’s notification will include – • The reason(s) for the reinstatement; • An explanation that the first payment due date following reinstatement will be no earlier than 60 days from date of the notification; and • Information on how the borrower may contact the Secretary if the borrower has questions about the reinstatement.

12. Total and Permanent Disability Discharge • Areas of Concern: • Notification process • Specific to School listed on NSLDS • Servicer delays • Increase in workload • NSLDS updates • Timeliness • Senators Raise Several Points of Concern in Letter to DOE • DOE acceptance of SSA discharges was not negotiated • Statutory authority to implement questioned • Budgetary cost for DOE and SSA • Ability to handle capacity and related inquiries • Backlog at SSA of Continuing Disability Reviews (CDR) • Appeals to SSA of CDR rulings

13. Graduate Fellowship Deferment Eligibility • For consistency, the Perkins regulations will be modified to include the same eligibility criteria for graduate fellowship deferment that currently exists in the FFEL Program. • Ed policy has been to refer Perkins loan holders to the FFEL regulations when there were questions about the graduate fellowship deferment regulations. • This should not change the current procedures that schools apply in making a determination for eligibility for graduate fellowship deferments. • The qualifying criteria needs to be added to the graduate fellowship deferment form that the school is using.

14. Social Security Number Requirement for Assignment of Perkins Loans to DOE • Currently, the Secretary will not accept an assignment of a Perkins Loan if the social security number of the borrower is not included. • The Department has worked over the last few years to streamline the liquidation process to make it easier for schools to assign their loans, but some schools have not been able to complete their liquidation process due to the absence of SSNs on older loans. • The proposed regulation will allow the assignment of Perkins loans to the Secretary without a social security number if the loan was made prior to September 13, 1982, which was the date the Department began requiring that institutions collect the SSN on the Perkins promissory note.

15. Cancellation Rate Progression Across Cancellation Categories • The proposed regulation will allow a borrower to continue their same progression towards cancellation when they change public service fields. Applies to all categories that follow the standard cancellation progression of 15%, 15%, 20%, 20%, 30%. • This developed as an issue due to the increase in cancellation categories that are similar and tend to overlap, especially in the teaching categories. • Excluded are Early Childhood and Volunteer Service because the cancellation rate progressions are different: Early Childhood is 15% per year until cancelled and Volunteer Service is 15% for first two years and 20% for years three and four, with a cap of 70%. • Approximately 8–10% of SUNY borrowers will benefit from this change.

16. Economic Hardship deferment Debt-to-Income Ratio Provision • Ed previously eliminated the debt-to-income economic hardship deferment category for a borrower who is working less than full-time from the Direct Loan and FFEL regulations due to changes in the law, but inadvertently retained this category in the Perkins regulations, thus creating a disparity between the loan programs. • This is purely a technical correction to remove language that should have been removed previously but was inadvertently printed in the Federal Register.

17. Break in Cancellation Service Due to Condition Covered Under The Family and Medical Leave Act (FMLA) • The proposed changes allow a break in Perkins teacher cancellation service due to a condition covered by the FMLA, as is currently provided for in the FFEL and DL teacher forgiveness regulations. The proposed regulations also allow for a break in service in the other Perkins cancellation categories due to a condition covered by the FMLA. • For Teacher Cancellations: • Under the proposed changes, if a borrower is unable to complete an academic year of eligible teaching service due to a condition that is covered under FMLA, the period of qualifying FMLA condition does not constitute a break in teaching service if – • The borrower completes one half of the academic year; • The borrower’s employer considers the borrower to have fulfilled his/her contract requirement for the academic year; and • The borrower resumes eligible teaching service no later than the beginning of the next regularly scheduled academic year.

18. Break in Cancellation Service Due to Condition Covered Under The Family and Medical Leave Act (FMLA) • For cancellations in all other public service fields, the proposed changes state that: • If the borrower is unable to complete a year of eligible service due to a condition that is covered under the FMLA, the period of the qualifying FMLA condition does not constitute a break in the required year of eligible service if – • The borrower completes at least 6 consecutive months of eligible service; and • The borrower resumes eligible service no later than six months from the beginning date of the period of the qualifying FMLA condition.

19. Satisfactory Repayment Arrangements of Defaulted Loans • The proposed changes amend the current definition of “satisfactory repayment arrangement” for Perkins, FFEL and Direct Loans. • The proposed Perkins regulations add the requirements that the payments be “voluntary” and “full” monthly payments and specify that voluntary payments do not include payments obtained by income tax offset, garnishment, or income or asset execution. • The proposed Perkins regulations specify that a borrower may only receive the benefit of regaining Title IV eligibility by a satisfactory repayment arrangement once, not once on a defaulted loan. • The proposed regulations specify that if a borrower makes six, monthly, qualifying rehabilitation payments without receiving additional Title IV aid, and then re-defaults, that borrower does not lose the option to regain Title IV eligibility by making satisfactory repayment arrangements.

20. Standard for On-Time Rehabilitation Payments • To successfully rehabilitate their Perkins loan, borrowers are required to make “9 on-time, consecutive monthly payments of amounts owed on the loan as determined by the institution.” • In the Perkins Loan program, there is no uniform standard for when a payment made under loan rehabilitation must be received. It only states that the payment must be “on-time as determined by the institution.” • Currently, in the FFEL and Direct Loan programs, a qualifying payment made under a loan rehabilitation agreement must be received “within 20 days of the due date.” • The proposed changes in regulations would define on-time as “within 20 days of the due date.”

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