s. 1932: changes to the student loan programs school and student perspectives

S. 1932: Changes to the Student Loan Programs

School and Student

Perspectives

Loan Limits

First year students: $ 3,500Second year students: $ 4,500Third and Fourth year: $ 5,500 no changeStudents in prep coursework: $ 7,000Teacher certification pgms: $ 7,000Undergrad aggregate limits: $23,000 no changeGrad Unsub: $12,000Effective: 7/1/07

PLUS Eligibility

New PLUS eligibility for graduate and professional students

Same eligibility criteria as parent PLUS including credit checks and no in-school status

Eligible for in-school deferment

Effective: 7/1/06

Teacher Loan Forgiveness

Extends Teacher Loan Forgiveness from Teacher-Taxpayer Act

$17,500 for highly qualified math, science and special ed teachers at qualified low-income schools

Effective: date of enactment, retroactive to Oct. 1, 2005

Teacher Loan Forgiveness for Private School Teachers

Under “certain conditions,” private school teachers who are exempt from State certification requirements may still be eligible for loan forgiveness.

Effective: date of enactment, retroactive to Oct. 1, 2005

Disbursement Rule Changes

Reinstatement of low-default disbursement rule waivers (cohort default rate less than 10% for 3 most recent fiscal years exempt from 2 separate disbursements for 1 term loans and from the 30-day delay requirement for first time students.)

Effective: Date of Enactment

Repayment Plans

Standard, graduated, and extended repayment plans in DL are now identical to the same plans in FFELP.

Maintains differences between FFEL’s Income Sensitive and DL’s Income Contingent repayment plans

Effective: 7/1/06

Interest RatesStafford Loan Interest Rates:

Maintains scheduled fixed interest rate for Stafford Loans at 6.8% fixed for new loans made on or after 7/1/06

Consolidation Loan Interest Rates:Maintains current fixed interest rates (calculated using the weighted average of the loans being consolidated, rounded to the next 1/8 percent) on both FFEL and DL

PLUS for FFEL fixed at 8.5%PLUS for DL fixed at 7.9% Effective: 7/1/06

Borrower Fees - FFELPPhase out of current 3% FFELP Stafford origination fee by 7/1/10

7/1/06 2%7/1/07 1.5%7/1/08 1.0%7/1/09 .5%7/1/10 0.0%

Guaranty Fee mandatory at 1%Effective: 7/1/06

Borrower Fees – Direct LoansPhase down of current statutory 4% DL Stafford origination fee by 7/1/10

7/1/06 3%7/1/07 2.5%7/1/08 2.0%7/1/09 1.5%7/1/10 1.0%

Equal to FFELP GA fee in 7/1/10Secretary retains ability to use her discretion to reduce DL fees to remain competitive with FFELP as long as its cost-neutral and in best interest of federal governmentEffective: 7/1/06

Consolidation Loans No re-consolidation allowed (Prevents the two-step!)

Unless FFEL consolidator is in default and wants DL ICR

FFEL borrowers can’t consolidate into DL unless lender refuses a FFEL consolidation loan, even if student wants ICR repayment planEliminates ability of borrower to request early repayment status or forego grace in order to consolidate Eliminates DL in-school consolidationEliminates joint consolidation loansEffective: 7/1/06

School as Lender Moratorium and Restrictions

No loans to undergraduate studentsNo PLUS to graduate studentsAward contracts on competitive basis onlyMust offer loans with lower origination fees or interest rates than Title IVCohort default rate 10% or lowerAnnual full compliance reports to SecretaryIncome from sale of loans, SAP, and interest must be used for new need-based grantsSchool must make loans by 4/1/06 and be an eligible lender by date of enactmentEffective: 7/1/06

Lender and Guarantor Provisions

Betsy MayotteDirector of Regulatory Compliance and

PrivacyAmerican Student Assistance

TopicsRehabilitationSubsidies and Special AllowanceEscrowClaimsCollege Access InitiativeMiscellaneous

*Note that all mentioned trigger events are speculative

Rehabilitation

Reduces required payments from 12 to 9 consecutive

Must be made within 20 rather than 15 days from due date

Note that current language still requires payments within 15 days for regaining Title IV eligibility

Special AllowanceRemoves limitations on special allowance payments for

PLUS loans disbursed between 10/1/1998 and 7/1/2003 andConsolidation loans disbursed between 10/1/1998 and 7/1/2003

InsteadLender must credit excess interest earned back to ED annually

• Quarters where applicable interest rate exceeds SAP• SAP payments made on or after 4/1/2006 for loans disbursed on or

after 4/1/2006

Escrow

Lenders may not begin to bill for interest subsidy prior to 3 days before the 1st disbursement date

Regardless of if the funds are sent through an escrow agent

Funds may not stay in escrow longer than 10 days (reduced from 21)

Claims

Ineligible borrower claimsDisbursed on or after July 1, 2006 will receive 100% rather than 98% reinsurance

Exceptional performers

Default claims submitted on or after July 1st, 2006 will receive 99% rather than 100% reinsurance

Non-exceptional performersDefault claims paid by the guarantor on or after July 1st, 2006 will receive 97% rather than 100% reinsurance

College Access Initiative

Guarantors must provide information on postsecondary education opportunities, programs, web sites, publications and other services within their designated states

Must be provided to ED and the public

Effective 270 days from date of enactment

Foreign Schools

No longer exempt fromMultiple disbursement ruleDelayed disbursement rule

The borrower may no longer request direct disbursement

School may

Note that foreign schools are eligible for the low cohort provisions.

Miscellaneous

Military defermentsLoans disbursed on or after July 1, 2001Applications received on or after July 1, 2006

Foreign schoolsNo longer exempt from multiple disbursement or delayed delivery rulesBorrower can no longer request direct disbursement

• But school can• Study abroad does not apply

Miscellaneous

ForbearanceMandatory forbearances may be verbal

Includes:• Excessive debt

• National service

• Medical internship

Lender must send terms in writing

Miscellaneous

False CertificationLoans may be discharged if was falsely approved as a result of identity theft

FraudPLUS borrowers (including graduates) convicted or pleading no contest must pay back all monies prior to future Title IV eligibility

Miscellaneous

Wage GarnishmentsGuarantors may garnish up to 15% of a defaulted borrower’s disposable pay

Per pay period

Up from 10%