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The Higher Education Reconciliation Act of 2005

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Title: The Higher Education Reconciliation Act of 2005


1
  • The Higher Education Reconciliation Act of 2005
  • Prepared by the NCHELP
  • Program Regulations Committee
  • This presentation provides a summary of
    the changes contained in the Higher Education
    Reconciliation Act of 2005. Readers should refer
    to the detail of the law and sub-regulatory
    guidance from the U.S. Department of Education in
    determining all relevant issues. This training
    module has been updated with the final rules
    issued in the Federal Register dated 11/1/06.

2
  • Reconciliation
  • Versus
  • Reauthorization

3
Reconciliation versus Reauthorization
  • The Higher Education Act should have been
    reauthorized in 2003.
  • With no Congressional action, the automatic
    one-year extension kicked in.
  • Since then, other short-term extensions have been
    passed.

4
Reconciliation versus Reauthorization
  • Since the Higher Education Act should have been
    reauthorized, the Federal government has run huge
    budget deficits
  • 2003 377.6 billion
  • 2004 412.1 billion
  • 2005 318 billion.
  • Pressure to reduce Federal spending increased
    with each deficit.

5
Reconciliation versus Reauthorization
  • April 28, 2005 Congress passed a 5-year budget
    reconciliation bill.
  • This bill required spending cuts of 34.7 billion
    over 5 years.
  • Each Congressional committee was given
    instructions on how much spending to cut.

6
Reconciliation versus Reauthorization
  • The committees overseeing higher education were
    instructed to cut
  • House - 12.7 billion
  • Senate - 13.7 billion
  • When Hurricane Katrina hit, the committees were
    asked to cut even more.
  • At the same time, the House and Senate Education
    committees were considering bills to reauthorize
    the HEA.

7
Reconciliation versus Reauthorization
  • The end result was S. 1932, the Deficit Reduction
    Act of 2005.
  • The section of the law dealing with higher
    education is the Higher Education Reconciliation
    Act of 2005 (HERA).
  • Many of the provisions of the House and Senate
    HEA reauthorization bills were included in this
    bill.
  • Legislative history
  • 12/21/2005 Senate passed 51-50
  • 02/01/2006 House passed 216-214
  • 02/08/2006 President signed bill into law

8
Reconciliation versus Reauthorization
  • The validity of this law has been called into
    question.
  • A single provision relating to Medicare differed
    between the House and Senate versions of the
    bills.
  • At least two lawsuits have been filed to
    invalidate the law.
  • Sen. Judd Gregg, 02/28/2006
  • "It happens all the time around here if we're
    going to start holding ourselves to that
    standard, the government wouldn't function at
    all.
  • Bottom line assume the law will stand

9
Reconciliation versus Reauthorization
  • So is reauthorization still needed?
  • S. 1932 reauthorized the FFEL program through
    September 30, 2012. 424(a), 428(a)(5), 428C(e)
  • The rest of the Higher Education Act expires on
    June 30, 2007.

10
  • Effective Dates and Triggers

11
Effective Dates and Triggers
  • In general, the changes made by HERA have an
    effective date of July 1, 2006. S. 1932, Section
    8001(c)
  • However, certain changes have different effective
    dates.
  • Some of the changes are effective in the future.
  • At least two of the changes are retroactive.

12
Effective Dates and Triggers
  • Knowing an effective date is not enough in many
    cases.
  • To properly implement a change, you also need to
    know the trigger event.
  • Dear Colleague Letter GEN-06-02 establishes
    trigger events for loan program changes.

13
  • Need Analysis Changes

14
Need Analysis Changes
  • The changes to need analysis have two different
    effective dates
  • July 1, 2006
  • For determinations of need for periods of
    enrollment beginning on or after July 1, 2007.
  • The 2007 changes do not present any significant
    issues
  • The trigger date is very clear
  • The implementation date is far enough out to
    allow for orderly change.

15
Need Analysis Changes
  • HERA changed the definition of independent
    student.
  • Previously, the student had to be a veteran of
    the Armed Forces to be independent.
  • This definition has been expanded to include
    students who are currently serving on active duty
    in the Armed Forces for other than training
    purposes. 480(d)(3)
  • The definition of currently serving on active
    duty is found in 481(d)(1)-(5).

16
Need Analysis Changes
  • Eligibility for the Simplified Needs Test and
    Automatic Zero EFC has been changed by HERA.
  • The receipt of benefits under a means-tested
    Federal benefit program in the past 12 months
    qualifies a student or family for simplified
    needs testing and automatic zero.
  • HERA provides examples of means-tested Federal
    benefit programs, and allows ED to identify
    others.

17
Need Analysis Changes
  • Means-tested benefits programs specifically
    mentioned in HERA are
  • Supplemental Social Security Income,
  • Food stamps,
  • Free and reduced price school lunch program,
  • Temporary Assistance for Needy Families, and
  • WIC nutrition program. 479(d)

18
Need Analysis Changes
  • For a dependent student, if the student or
    students parents received benefits at some time
    during the previous 12-month period under such a
    program
  • the family qualifies for the simplified needs
    test 479(b)(1)(A), and
  • if the parents adjusted gross income is 20,000
    or less, also qualifies for automatic zero EFC.
    479(c)(1)(B)

19
Need Analysis Changes
  • For an independent student, if the student AND
    spouse (if any) received benefits at some time
    during the previous 12-month period under such a
    program, they qualify for the simplified needs
    test. 479(b)(1)(B)

20
Need Analysis Changes
  • An independent student with dependents other than
    a spouse qualifies for the simplified needs test
    and automatic zero EFC if the student and spouse
    (if any)
  • Received benefits at some time during the
    previous 12-month period under such a program,
    and
  • Adjusted gross income is 20,000 or less.
    479(c)(2)

21
Need Analysis Changes
  • Before HERA
  • The treatment of 529 education savings plans and
    Coverdell education savings accounts were not
    addressed, and
  • 529 prepaid tuition plans were defined as being
    part of other financial assistance (EFA)
  • After HERA
  • All of these plans fall under the definition of
    qualified education benefits and are considered
    assets. 480(f)(1)
  • HERA also stipulates that a qualified education
    benefit cannot be considered an asset of a
    dependent student. 480(f)(3)

22
Need Analysis Changes
  • HERA also changed other definitions effective
    July 1, 2006.
  • The definition of asset was changed to exclude
    the net value of a small business if
  • The business has 100 or less full-time or FTE
    employees, and
  • The business (or any part of it) is owned and
    controlled by the family. 480(f)(2)(C)

23
Need Analysis Changes
  • The definition of Estimated Financial Assistance
    now excludes non-Title IV State assistance
    designated to offset a specific component of COA.
    480(j)(3)
  • An example might be payments from a Department of
    Rehabilitative Services.
  • Some changes were made to the components of the
    employment expense allowance for clarifying
    purposes. 478(h)

24
Need Analysis Changes
  • HERA makes several changes for 2007 that will
    have the effect of lowering Estimated Family
    Contribution
  • Income protection allowances will be increased by
    5 in 2007.
  • ED has new authority to increase these allowances
    annually based on
  • The percentage increase in the Consumer Price
    Index
  • Rounding to the nearest 10. 478(b)(2)

25
Need Analysis Changes
  • For dependent students, the student income
    protection allowance will increase from 2,200 to
    3,000. 475(g)(2)(D)
  • For independent students without dependents other
    than a spouse, the allowances increase from
  • 5,000 to 6,050 for a single student
  • 5,000 to 6,050 for married students where both
    are enrolled
  • 8,000 to 9,700 for married students where one
    is enrolled. 476(b)(1)(A)(iv)

26
Need Analysis Changes
  • Assets will also be treated differently in 2007
  • For dependent students, the student contribution
    is being reduced from 35 to 20 475(h)
  • For independent students without dependents other
    than a spouse, the asset conversion rate will
    drop from 35 to 20 476(c)(4)
  • For independent students with dependents, the
    asset conversion rate drops from 12 to 7.
    477(c)(4)

27
Cost of Attendance (COA)
  • HERA makes two changes to the law regarding Cost
    Of Attendance (COA).
  • Before HERA
  • COA for less than half-time students was limited
    to
  • Tuition and fees
  • Allowance for books, supplies and transportation
  • Allowance for dependent care. 472(4)

28
Cost of Attendance (COA)
  • After HERA
  • Room and board is now included for less than
    half-time students, but with conditions
  • These costs are limited to a maximum of 3
    semesters or the equivalent, and
  • No more than 2 semesters or the equivalent can be
    consecutive.
  • A new allowable component of COA was added for
    students in programs requiring professional
    licensure or certification. 472(13)
  • The one-time cost of obtaining the first
    professional credentials can be added to COA at
    the schools option.
  • The school determines the amount of this
    allowance.

29
  • Student, Borrower and Program Eligibility

30
Student Borrower Eligibility
  • Eligibility for students convicted of drug
    offenses has been liberalized by HERA.
  • Before HERA, the student lost eligibility for a
    specified period of time regardless of
  • When the offense occurred, and
  • Whether the student was receiving Title IV aid at
    the time.

31
Student Borrower Eligibility
  • After HERA
  • The conduct leading to the conviction has to
    occur during a period of enrollment for which the
    student was receiving Title IV
  • Grants
  • Loans
  • Work assistance. 484(r)(1)
  • If the conduct leading to the conviction does not
    occur while the student is receiving Title IV
    aid, a conviction has no effect on the students
    future eligibility for aid.

32
Student Borrower Eligibility
  • HERA adds a new eligibility condition concerning
    fraud in obtaining funds under Title IV.
  • Students obtaining Title IV funds through fraud
    are ineligible for aid if they have
  • Been convicted
  • Pled nolo contendere (no contest) or
  • Pled guilty. 484(a)(6)

33
Student Borrower Eligibility
  • This provision was also added for parents or
    graduate or professional students under the PLUS
    program. 424B(a)(1)(B)
  • Students and parents regain eligibility when they
    have completed repayment to ED or another holder
    of the loan.

34
Program Eligibility
  • Before HERA, the academic year for clock hour
    programs was
  • A minimum of 30 weeks
  • During which the student was expected to complete
    900 clock hours.
  • This meant that students typically could not earn
    more than 30 clock hours in a given week.
  • Schools wishing to run clock hour programs like a
    typical 40-hour workweek were effectively
    prevented from doing so by this rule.

35
Program Eligibility
  • After HERA
  • reduces the minimum number of weeks of
    instruction to 26 for clock hour programs to
    address this issue. 481(a)(2)(A)(ii)
  • This change is effective July 1, 2006.

36
Student-Program Eligibility
  • Before HERA
  • Students were generally prohibited from receiving
    grants, loans or work assistance for
    correspondence courses.
  • The exception was if the course led to associate,
    bachelor or graduate degree.
  • This limited the growth of distance education by
    treating correspondence and telecommunications
    courses as the same thing.
  • Students were ineligible for aid under previous
    law if the school offered more than 50 of its
    total courses via telecommunications and
    correspondence or if 50 or more of its students
    were enrolled in correspondence courses.

37
Student-Program Eligibility
  • After HERA
  • Eliminated the 50 rule, making more students
    eligible for aid, thus allowing for greater use
    of distance education. 102(a)(3), 484(l)(1)
  • A related change allows students to receive aid
    for certificate programs of less than one year
    that are offered by telecommunications. 481(b),
    484(l)(1)(A)
  • The 50 rule continues to apply to correspondence
    courses and students.

38
Program Eligibility
  • A corresponding change was made to the definition
    of institution of higher education.
  • Before HERA
  • This definition excluded a school that offered
    more than 50 of the schools courses by
    correspondence.
  • After HERA
  • Changes this definition to exclude
    telecommunications courses from the 50 limit.
    102(a)(3)(A)

39
Program Eligibility
  • A program can be offered in whole or in part
    through telecommunications if it meets the
    following criteria
  • It is otherwise eligible
  • It is offered by a U.S. school (foreign schools
    are specifically excluded)
  • The schools accrediting agency determines the
    school has the capability to effectively deliver
    distance education programs
  • The evaluation of distance education is in the
    accrediting agencys scope of review
  • The accrediting agency is approved by ED.
    481(b)(3)

40
  • Academic Competitiveness Grant and National SMART
    Grant

41
Academic Competitiveness Grant and National
SMART Grant Program
  • HERA created two new forms of grant aid
  • Academic Competitiveness Grant for the first and
    second year of a program of undergraduate
    education
  • National Science and Mathematics Access to Retain
    Talent Grant or National SMART Grant for the
    third and fourth year of a program of
    undergraduate education.

42
Academic Competitiveness Grant and National
SMART Grant Program
  • The grants are limited to
  • 1 academic year for the first academic year of a
    program of undergraduate education
  • 1 academic year for the second academic year of a
    program of undergraduate education
  • 2 academic years for a borrower who is in his/her
    third or fourth year of a program of
    undergraduate education
  • The Academic Competitiveness Grant and National
    SMART Grant expire at the end of academic year
    2010-2011.

43
Academic Competitiveness Grant and National
SMART Grant Program
  • ED has been authorized to spend a certain amount
    of money on these grants each year
  • 790,000,000 for fiscal year 2006
  • 850,000,000 for fiscal year 2007
  • 920,000,000 for fiscal year 2008
  • 960,000,000 for fiscal year 2009
  • 1,010,000,000 for fiscal year 2010
  • As a result, if there are more eligible students
    than there is money, the grant amounts could
    change.

44
Academic Competitiveness Grant and National
SMART Grant Program
  • If the amount made available each year is less
    than the amount required to provide grants to all
    eligible students, the amount of each grant to
    each eligible student shall be ratably reduced.
  • If additional amounts are appropriated for any
    such fiscal year, such reduced amounts shall be
    increased on the same basis as they were reduced.
  • At the end of a fiscal year, all excess funds
    shall remain available for awarding grants during
    the subsequent fiscal year.

45
Academic Competitiveness and National SMART
Grant Program
  • Grade level is also a determining factor in the
    grant amount
  • 750 for the first academic year
  • 1,300 for the second academic year
  • 4,000 for the third or fourth academic year
  • The amount, in combination with the Federal Pell
    Grant and other financial assistance, cannot
    exceed the COA.

46
Academic Competitiveness and National SMART
Grant Program
  • General Program Requirements
  • Eligibility for these grants also varies by grade
    level, but at all grade levels the student must
    be
  • Attending a 2- or 4-year degree granting school
  • A U.S. citizen
  • A full-time student
  • Pell eligible

47
Academic Competitiveness Grants
  • Academic Competitiveness Grant Requirements
  • In the case of a student enrolled or accepted for
    enrollment in the first academic year
  • Has successfully completed, after January 1,
    2006, a rigorous secondary school program of
    study established by a State or local educational
    agency and recognized as such by the Secretary,
    and
  • Has not been previously enrolled in a program of
    undergraduate education.

48
Academic Competitiveness Grants
  • Academic Competitiveness Grant Requirements
  • In the case of a student enrolled or accepted for
    enrollment in the second academic year
  • Has successfully completed, after January 1,
    2005, a rigorous secondary school program of
    study established by a State or local educational
    agency and recognized as such by the Secretary
    and
  • Has obtained a cumulative grade point average of
    at least 3.0 at the end of the first academic
    year of such program of undergraduate education

49
National SMART Grant
  • National SMART Grant Requirements
  • In the case of a student enrolled or accepted for
    enrollment in the third or fourth academic year
  • Is pursing a major in the physical, life, or
    computer sciences, mathematics, technology, or
    engineering (as determined by the Secretary
    pursuant to regulations) or
  • Is pursing a major in a foreign language that the
    Secretary, in consultation with the Director of
    National Intelligence, determines is critical to
    national security of the U.S., and
  • Has obtained a cumulative grade point average of
    at least 3.0 in the coursework required for the
    major.

50
Academic Competitiveness Grants and National
SMART Grant Program
51
  • Interest Rate Changes

52
Interest Rates - Stafford
  • HERA allows for changes in interest rates
  • The Higher Education Act already called for
    Stafford loan rate to change 427A(l)(1)
  • Applies to Stafford loans (sub and unsub) with a
    first disbursement on or after July 1, 2006
  • Rate is fixed at 6.8
  • Result borrowers may have both variable and
    fixed rate loans

53
Interest Rates - PLUS
  • Before HERA, the PLUS rate was scheduled to
    change to a 7.9 fixed rate
  • HERA changed this for FFELP borrowers
    427A(l)(2)
  • Trigger event is loans with a first disbursement
    on or after July 1, 2006
  • Rate is fixed at 8.5
  • Result borrowers may have both variable and
    fixed rate loans
  • This will also be the rate for FFELP Grad PLUS
    borrowers

54
Interest Rates - PLUS
  • HERA did NOT make a corresponding change to the
    Direct Loan PLUS rate.
  • This was a drafting error and was unintentional.
  • The DL PLUS rate will be 7.9 unless Congress
    takes additional action.

55
Interest Rates - Consolidation
  • Consolidation rate did not change
  • Fixed rate based on the weighted average of the
    loans being consolidated
  • Cap is 8.25
  • FFELP PLUS borrowers will be paying more (8.5)
    than the Consolidation cap (8.25)
  • Unless Congress acts, FFELP PLUS borrowers could
    consolidate to obtain a lower rate

56
Interest Rate Disclosures
  • The Stafford and PLUS MPNs have identical
    interest rate language.
  • Interest
  • Unless my lender notifies me in writing of a
    lower rate(s), the rate(s) of interest for my
    loan(s) is that specified in the Act. Interest
    rate information is presented in the Borrowers
    Rights and Responsibilities Statement
    accompanying this MPN. The interest rate is
    presented in a disclosure that is issued to me.

57
Interest Rate Disclosures
  • The current Borrower Rights and Responsibilities
    statements reference variable rates.
  • Stafford
  • 13. Interest Rates The interest rate on a
    Federal Subsidized Stafford Loan and a Federal
    Unsubsidized Stafford Loan is a variable rate
    that is based on a formula established in the
    Act. The interest rate may be adjusted each year
    on July. As a result, my interest rate may
    change annually, but it will never exceed 8.25
    percent. After reviewing the actual interest
    rate, I may cancel or reduce any loan obtained
    under this MPN in accordance with the Loan
    Cancellation section that follows.

58
Interest Rate Disclosures
  • PLUS
  • 9. Interest Rates For Federal PLUS loans
    first disbursed on or after July 1, 1998, the
    interest rate will be a variable rate, adjusted
    annually each July 1, not to exceed 9. The
    actual interest rate applicable to each of my
    loans will be disclosed to me. After reviewing
    the actual interest rate, I may cancel or reduce
    any loan obtained under this MPN in accordance
    with the provisions of Item 11, Loan
    cancellation.

59
Interest Rate Disclosures
  • At this time Stafford and PLUS interest rates and
    other program changes are being disclosed to the
    borrowers in two ways
  • New borrowers
  • The addenda would be integrated into the existing
    e-sign processes or they are given in hard copy
    to borrowers using a paper MPN.
  • Serial borrowers
  • The Plain Language Disclosure is provided to all
    borrowers obtaining new loans under an existing
    MPN.

60
  • Loan Fees

61
Origination Fees
  • One of the best provisions of HERA is the gradual
    elimination (for FFELP) and reduction (for DL) of
    origination fees.
  • Since the DL program does not have a guarantee
    fee, the DL origination fee is 1 higher under
    both previous and current law.

62
Origination Fees
  • The origination fee reductions apply to Stafford
    loans only not PLUS.
  • The fee reductions are based on the first
    disbursement date, so schools will have some
    degree of control over the fee a student pays.

63
Origination Fees
  • The following chart shows the schedule for
    reducing the origination fees
  • 438(c)(2)(B) and 455(c)(2)

64
Origination Fees
  • Before HERA
  • The Secretary had the authority to reduce
    interest rates for DL borrowers to encourage
    on-time repayment if the reductions were
  • Cost neutral, and
  • In the best financial interest of the Federal
    Government.
  • After HERA
  • Allows the Secretary to reduce the Direct Loan
    origination fee. 455(b)(8)(A)
  • The cost neutrality and best financial interest
    standards also apply to any potential reduction
    in the Direct Loan origination fee.

65
Federal Default Fee
  • Until July 1, 2006 guarantors have the authority
    to charge a guarantee fee not to exceed 1.
  • HERA eliminates this fee but substitutes a very
    different 1 fee.
  • For loans guaranteed on or after July 1, 2006
    guarantors must pay a 1 Federal default fee into
    their Federal Reserve Funds. 428(b)(1)(H)(ii),
    428H(h)
  • This applies to Stafford and PLUS loans only.

66
Federal Default Fee
  • This applies to all guarantors, including those
    operating under a VFA. 428A(a)(1)(C)
  • The Federal Default fee may be
  • Deducted from the borrowers proceeds, or
  • Paid from other non-Federal sources.
  • Other non-Federal sources would probably mean the
    guarantors Operating Fund.
  • The Guaranty Agency may choose to pay all or any
    portion of the fee on the borrowers behalf.
  • Lenders may also choose to pay all or any
    portion of the fee on the borrowers behalf if
    the Guaranty Agency doesnt.

67
Federal Default Fee
  • The guarantee fee and Federal Default fee have
    some obvious similarities
  • Both are 1
  • Both can be deducted from loan proceeds.
  • However, if a guarantor chooses not to charge the
    borrower, the fees are very different
  • For the guarantee fee, it represents revenue not
    received
  • For the Federal Default fee, it represents an
    expense to the agencys Operating Fund.

68
Federal Default Fee
  • Guarantors use their Operating Funds to pay for
    most of their activities including
  • Training
  • Publications
  • Default prevention activities
  • Sponsorships.
  • To the extent that the guarantor pays the Federal
    default fee on the borrowers behalf, this is
    less money the guarantor can spend on these
    activities.

69
Federal Default Fee
  • There is one operational note schools need to
    keep in mind based on the effective date of the
    fee.
  • Because the fee is based on the date of
    guarantee, schools may not know whether a fee was
    imposed until after the loan is guaranteed.
  • Another operational issue is that disbursement
    amounts could vary by guarantor for the same
    gross loan amount.
  • The default fee is to be deducted proportionately
    from each disbursement prior to disbursing to the
    borrower.

70
  • Graduate and Professional PLUS Loans (Grad PLUS)

71
Grad PLUS Loans
  • HERA amends Section 428B of the HEA to make
    graduate and professional students eligible for
    PLUS loans.
  • Dear Colleague Letter GEN-06-02 establishes the
    trigger date for these loans.
  • For FFELP, the trigger is loans certified on or
    after July 1, 2006.
  • For DL, the trigger is loans originated on or
    after July 1, 2006.

72
Grad PLUS Loans
  • HERA simply added the phrase graduate or
    professional student before each instance of the
    word parent.
  • This means that all eligibility and qualifying
    conditions that previously applied only to
    parents will also apply to graduate and
    professional students, notably
  • No adverse credit history
  • Determining maximum loan amount COA less EFA
  • Interest rate
  • Repayment requirements.

73
Grad PLUS Loans
  • Dear Colleague Letter GEN-06-02 adds two
    requirements for Grad PLUS loans
  • Students are required to complete the FAFSA and
  • Students must first apply for their maximum
    annual Stafford eligibility, both subsidized and
    unsubsidized.
  • Borrowers under the Grad PLUS program may decline
    the Stafford loan.

74
Grad PLUS Loans
  • Every graduate or professional student obtaining
    a PLUS loan will have to complete and sign the
    PLUS MPN.
  • The student must complete both the parent and
    student sections of the application until a new
    form is published.

75
Grad PLUS Loans
  • Law and regulations require PLUS repayment to
    begin within 60 days of final disbursement.
  • Grad PLUS borrowers are not exempt from this
    requirement.
  • Grad PLUS borrowers are eligible for a deferment
    or forbearance while in school.

76
Grad PLUS Loans
  • For new borrowers on or after July 1, 1993 the
    regulations say
  • (2) In-school deferment. An eligible borrower
    is entitled to a deferment based on the
    borrowers at least half-time study in accordance
    with the rules prescribes in 682.210(c), except
    that the borrower is not required to obtain a
    Stafford or SLS loan for the period of enrollment
    covered by the deferment.

77
Grad PLUS Loans
  • The Grad PLUS borrower does not have to file a
    deferment form
  • (c) In-school deferment. (1) Except as provided
    in paragraph (c)(5) of this section the lender
    processes a deferment for full-time study or
    half-time study at a school when
  • (i) The borrower submits a request and
    supporting documentation for a deferment
  • (ii) The lender receives information from the
    borrowers school about the borrowers
    eligibility in connection with a new loan or
  • (iii) The lender receives student status
    information from the borrowers school, either
    directly or indirectly.

78
Grad PLUS Loans
  • Electronic processing will require Commonline and
    CRC changes.
  • NCHELP Electronic Standards Committee is
    evaluating adding new codes
  • Loan type for CL4 and CL5
  • Form Type for CL4, CL5 and CRC
  • Award Type for CLC.

79
  • Loan Limits

80
Loan Limit Increases
  • HERA increases the annual loan limits for certain
    borrowers
  • 34 CFR 682.204
  • Aggregate undergraduate loan limits did not
    increase.
  • The Final Regulations published on November 1,
    2006 changed the trigger event from for a loan
    certified to for a loan disbursed" on or after
    July 1, 2007.

81
Loan Limit Increases
  • The annual Stafford loan limit for students who
    have not completed the first year of a program of
    undergraduate study is increased from 2,625 to
    3,500. 428(b)(1)(A)(i)(I)
  • For second year undergraduates, the annual
    Stafford loan limit is increased from 3,500 to
    4,500. 428(b)(1)(A)(ii)(I)

82
Loan Limit Increases
83
Loan Limit Increases
  • One limit did not change - 4,000 for preparatory
    coursework necessary for enrollment in an
    undergraduate degree or certificate program.
  • HERA raises the unsubsidized Stafford loan limits
    for preparatory coursework and teacher
    certification programs for students who have
    already earned their Baccalaureates.

84
Loan Limit Increases
  • The annual unsubsidized Stafford loan limit is
    raised from 5,000 to 7,000 for
  • Preparatory coursework necessary for enrollment
    in a graduate or professional program,
    428H(d)(2)(D)(i) and
  • Teacher certification programs.
    428H(d)(2)(D)(ii)
  • The Final Regulations published on November 1,
    2006 changed the trigger event from for a loan
    certified to for a loan disbursed" on or after
    July 1, 2007.

85
Loan Limit Increases
  • The annual unsubsidized loan limit for graduate
    and professional students will rise from 10,000
    to 12,000. 428H(d)(2)(C)
  • The Final Regulations published on November 1,
    2006 changed the trigger event from for a loan
    certified to for a loan disbursed" on or after
    July 1, 2007.

86
Loan Limit Increases
87
Loan Limit Increases
  • The combined aggregate limit for graduate and
    professional students of 138,500 is not found in
    law only in regulation. 682.204(e)(2)
  • Because of the change in law, the Secretary may
    have to increase the aggregate limit found in
    regulation. 428H(d)(3)

88
Loan Limit Increases
89
  • Disbursement Rule Changes

90
Disbursement Rule Changes
  • HERA restores two popular disbursement rules that
    expired on October 1, 2002
  • Qualifying schools do not have to make multiple
    disbursements for single-term (one semester, one
    trimester, one quarter or 4 months) loans
    428G(a)(3)
  • Qualifying schools do not have to wait 30 days to
    deliver loan funds to first-year, first-time
    borrowers 428G(b)(1)

91
Disbursement Rule Changes
  • To qualify, schools must have a cohort default
    rate of less than 10 for each of the most recent
    3 years for which data are available.
  • This change took effect on the date of enactment
    - February 8, 2006.
  • The trigger is any disbursement made on or after
    February 8, 2006.

92
Disbursement Rule Changes
  • HERA also modified disbursement rules for
    students studying abroad. 428(b)(1)(N)(2)
  • Before HERA
  • Disbursements were made directly to the student
    upon the students request if
  • Student was enrolled in a U.S. school in a study
    abroad program, or
  • Student was enrolled in a foreign school

93
Disbursement Rule Changes
  • After HERA
  • Students studying abroad
  • Student can still receive a direct disbursement
    upon request, however
  • Disbursement cannot be made until the enrollment
    is verified by the lender or guarantor.
  • Students enrolled in an eligible foreign
    institution
  • The request for disbursement directly to the
    student must be made by the foreign institution,
    and
  • Disbursement cannot be made until the enrollment
    is verified by the lender or guarantor.
  • The trigger is for loans first disbursed on or
    after July 1, 2006.

94
Disbursement Rule Changes
  • Foreign schools are no longer exempt from
    multiple disbursement requirements and must delay
    delivery of the first disbursement to a
    first-time undergraduate for 30 days.
  • The trigger is for loans with loan periods on or
    after July 1, 2006.

95
Disbursement Rule Changes
  • ED already had rules in place requiring
    verification of enrollment for students enrolled
    in a foreign school. DCL G-03-348
  • Lenders and guarantors will have to determine
    method for verifying enrollment for students in
    study abroad programs.

96
Disbursement Rule Changes
  • School responsibilities for late disbursements
    are changed by HERA.
  • Once a school has determined a borrowers
    eligibility for a late disbursement or
    post-withdrawal disbursement, the school must
  • Contact the borrower
  • Explain to the borrower the obligation to repay
    the loan funds following such a disbursement
  • The Federal Register published November 1, 2006
    clarifies that this provision only applies to
    post-withdrawal disbursements for withdrawn
    students.

97
Disbursement Rule Changes
  • The school must then
  • Obtain the borrowers confirmation that the loan
    funds are still required
  • Document the borrowers file with the result of
    such contact and the final determination made
    concerning such disbursement. 484B(a)(4)(A)

98
Disbursement Rule Changes
  • HERA made some other minor disbursement rule
    changes.
  • Law previously allowed lenders to fund
    disbursements through escrow accounts up to 21
    days before disbursement. Maximum is now 10 days.
    428(i)(1)
  • Limits the interest lenders can receive on loans
    disbursed through an escrow agent to no more than
    3 days before the first disbursement.
    428(a)(3)(A)(v)

99
  • Direct Loan Repayment Plans

100
Direct Loan Repayment Plans
  • HERA requires that the repayment plans offered in
    the Direct Loan Program must generally be the
    same as those offered in the FFEL program under
    section 428(b)(9). This applies to standard,
    graduated and extended repayment plans.
  • Except Direct Loan will continue to offer the
    Income Contingent Repayment Plan and FFEL will
    continue to offer the Income-Sensitive Plan.

101
Direct Loan Repayment Plans
  • Before HERA
  • The Direct Loan graduated plan allowed terms
    from 12 to 30 years based upon the balance.
  • After HERA
  • Standard and Graduated repayment plan must be
    paid over a fixed period not to exceed 10 years,
    regardless of amount
  • Effective for Direct loan borrowers who enter
    repayment on their loans after July 1, 2006

102
Direct Loan Repayment Plans
  • Before HERA
  • Direct Loans extended plan also allowed terms
    from 12 to 30 years based upon the balance.
  • After HERA
  • Applies to new borrowers on/after October 7, 1998
  • Must have more than 30,000 in loans after
    October 7, 1998
  • Repayment cannot exceed 25 years
  • Effective for Direct Loan borrowers entering
    repayment on or after July 1, 2006

103
Direct Loan Repayment Plans
  • Direct Loan Consolidation Borrowers repayment
    plan changes options that are offered to
    borrowers.
  • Standard or graduated 10-year maximum term
  • Extended 25-year maximum for new borrowers
    on/after 10/7/1998 with 30,000 debt
  • For borrowers with 30,000 debt
  • 30,001 through 39,999 20-year maximum term
  • 40,000 through 59,999 25-year maximum term
  • 60,000 and above 30-year maximum term

104
  • Consolidation Loans

105
Consolidation Loans
  • In some respects, HERA is as important for what
    it did not change about Consolidation as for what
    it did
  • The interest rate is unchanged.
  • The changes that were made
  • Add parity between Direct and FFELP Consolidation
    loans
  • Generally put more restrictions on Consolidation
    loans regardless of the program.

106
Consolidation Loans
  • Two sections of the Higher Education Act
    regarding Direct Consolidation loans were
    changed.
  • Before HERA, the HEA required parallel terms,
    conditions, benefits, and amounts for FFELP and
    Direct Stafford and PLUS loans but not
    Consolidation.
  • Direct Consolidation loans were added to this
    requirement. 455(a)(1)
  • The trigger event for this provision is
    applications received by Direct Loans on or after
    July 1, 2006.

107
Consolidation Loans
  • Additional language was added to this section
    requiring
  • DL Consolidation borrowers to meet the same
    eligibility requirements as FFELP Consolidation
    borrowers
  • The Secretary has to comply with the same
    requirements as a FFELP Consolidation lender.

108
Consolidation Loans
  • HERA explicitly eliminates in-school
    consolidation in both the Direct Lending and FFEL
    programs.
  • This change in the law eliminates the ability of
    a borrower to request to enter repayment before
    the end of the grace period. 428(b)(7)
  • Trigger event borrower requests received by
    lenders on or after July 1, 2006 will be denied.

109
Consolidation Loans
  • The law requires Consolidation borrowers to be in
    grace or a repayment status, so this new
    provision effectively eliminates in-school
    consolidation. 428C(a)(3)
  • This also eliminates in-school consolidation in
    DL due to the requirement for parallel terms.

110
Consolidation Loans
  • HERA also eliminates spousal consolidation.
    Deletes 428C (a)(3)(C)
  • This applies to both FFEL and Direct Loans.
  • The trigger is Consolidation applications
    received on or after July 1, 2006.

111
Consolidation Loans
  • HERA eliminates the ability of a borrower to
    reconsolidate a consolidation loan between the
    FFEL and DL programs. 428C(a)(3)(B)(i)
  • There is an exception to this if
  • A FFELP Consolidation borrower seeks a DL
    Consolidation to obtain an income-contingent
    repayment plan, and
  • The FFELP Consolidation loan has been submitted
    to the guarantor for default aversion assistance.
    428C(a)(3)(B)(v)
  • The trigger event is consolidation applications
    received on or after July 1, 2006.

112
  • Deferment Forbearance Changes

113
Deferment and Forbearance
  • A new deferment for military service was added to
    the Higher Education Act
  • Section 428(b)(1)(M) adds a new deferment for
    military service for FFELP borrowers
  • Direct Loan borrowers get the same benefit
    455(f)(2)(C)
  • Perkins borrowers were also included in this
    change 464(c)(2)(A)
  • Effective date is for loans with the first
    disbursement on or after July 1, 2001.

114
Deferment and Forbearance
  • Consolidation loans also qualify for this
    deferment, but...
  • All of the borrowers Title IV loans being
    consolidated must have a first disbursement on or
    after July 1, 2001.

115
Deferment and Forbearance
  • The effective date creates some issues
  • Deferments have typically been borrower-based,
    NOT loan-based
  • Creates situation where a borrower may have some
    loans in deferment but others in repayment
  • Because the effective date is retroactive,
    borrower could have made payments on loans that
    could have been in deferment
  • Nothing in the amendments made by this section
    shall be construed to authorize any refunding of
    any repayment of a loan.

116
Deferment and Forbearance
  • Deferment is limited to not in excess of 3 years
  • To qualify the borrower must be
  • serving on active duty during a war or other
    military operation or national emergency or
  • performing qualifying National Guard duty during
    a war or other military operation or national
    emergency
  • This wording requires that the law contain some
    definitions.

117
Deferment and Forbearance
  • Active Duty
  • The term active duty' has the meaning given such
    term in section 101(d)(1) of title 10, United
    States Code, except that such term does not
    include active duty for training or attendance at
    a service school.
  • Section 101(d)(1) of title 10, USC The term
    active duty means full-time duty in the active
    military service of the United States. Such term
    includes full-time training duty, annual training
    duty, and attendance, while in the active
    military service, at a school designated as a
    service school by law or by the Secretary of the
    military department concerned. Such term does not
    include full-time National Guard duty.

118
Deferment and Forbearance
  • Military Operation
  • A contingency operation as such term is defined
    in section 101(a)(13) of title 10, United States
    Code.
  • Section 101(a)(13) of title 10, USC The term
    contingency operation means a military
    operation that
  • (A) is designated by the Secretary of Defense as
    an operation in which members of the armed forces
    are or may become involved in military actions,
    operations, or hostilities against an enemy of
    the United States or against an opposing military
    force or
  • (B) results in the call or order to, or retention
    on, active duty of members of the uniformed
    services under section 688, 12301 (a), 12302,
    12304, 12305, or 12406 of this title, chapter 15
    of this title, or any other provision of law
    during a war or during a national emergency
    declared by the President or Congress.

119
Deferment and Forbearance
  • National Emergency
  • The national emergency by reason of certain
    terrorist attacks declared by the President on
    September 14, 2001, or subsequent national
    emergencies declared by the President by reason
    of terrorist attacks.

120
Deferment and Forbearance
  • Serving on active duty during a war or other
    military operation or national emergency means
    service by an individual who is
  • A Reserve of an Armed Force ordered to active
    duty under section 12301(a), 12301(g), 12302,
    12304, or 12306 of title 10, United States Code,
    or any retired member of an Armed Force ordered
    to active duty under section 688 of such title,
    for service in connection with a war or other
    military operation or national emergency,
    regardless of the location at which such active
    duty service is performed and
  • Any other member of an Armed Force on active duty
    in connection with such emergency or subsequent
    actions or conditions who has been assigned to a
    duty station at a location other than the
    location at which such member is normally
    assigned.

121
Deferment and Forbearance
  • Qualifying National Guard Duty
  • Service as a member of the National Guard on
    full-time National Guard duty (as defined in
    section 101(d)(5) of title 10, United States
    Code) under a call to active service authorized
    by the President or the Secretary of Defense for
    a period of more than 30 consecutive days under
    section 502(f) of title 32, United States Code,
    in connection with a war, other military
    operation, or a national emergency declared by
    the President and supported by Federal funds.
  • Section 101(d)(5) of title 10, USC The term
    full-time National Guard duty means training or
    other duty, other than inactive duty, performed
    by a member of the Army National Guard of the
    United States or the Air National Guard of the
    United States in the members status as a member
    of the National Guard of a State or territory,
    the Commonwealth of Puerto Rico, or the District
    of Columbia under section 316, 502, 503, 504, or
    505 of title 32 for which the member is entitled
    to pay from the United States or for which the
    member has waived pay from the United States.

122
Deferment and Forbearance
  • This has required the creation of a new form and
    is currently waiting approval from OMB.
  • DCL GEN-06-02 lists the documentation
    requirements
  • Copy of the borrowers military orders, or
  • Statement from the borrowers commanding or
    personnel officer indicating the borrower is
    serving in a capacity that meets the terms of
    this deferment

123
Deferment and Forbearance
  • HERA makes it easier for borrowers to obtain
    forbearance.
  • It eliminates the requirement that forbearance be
    in writing, a provision originally included in
    the Fed Up legislation. 428(c)(3)
  • This applies to all types of forbearance but
    still requires documentation where applicable.
  • The trigger is agreements entered into or
    renegotiated with a borrower on or after
    July 1, 2006.

124
Deferment and Forbearance
  • To document the forbearance, the lender must
  • confirm the agreement of the borrower by notice
    to the borrower from the lender and
  • recording the terms in the borrowers file.
    428(c)(10)
  • DCL GEN-06-02 indicates these additional steps
    apply to non-written forbearance.

125
  • School as Lender

126
School as Lender
  • HERA contains two new lender eligibility
    requirements
  • The school must have met the requirements to be
    an eligible lender as of February 7, 2006 and
  • The school must have made a loan on or before
    April 1, 2006. 435(d)(2)(A)(ix)
  • There are no provisions for approving new school
    as lender applications after April 1, 2006.
  • Schools that are lenders may continue to make
    loans, but with some new conditions.

127
School as Lender
  • Under HERA, as of July 1, 2006, school lenders
  • Cannot make loans to undergraduate students
  • Cannot make PLUS loans to parents or
    graduate/professional students
  • Cannot make a loan to a borrower not enrolled at
    that school
  • Can make both subsidized and unsubsidized
    Stafford loans to graduate or professional
    students
  • Must offer a lower origination fee and/or
    interest rate than the maximum allowed by law for
    any loans first disbursed on or after July 1,
    2006.
  • 435(d)(2)(A)

128
School as Lender
  • New restrictions on school lenders
  • Cannot have a cohort default rate greater than
    10 (previously 15)
  • Must use a competitive basis for awarding a
    contract for financing, servicing or
    administering loans
  • Must submit an annual lender compliance audit to
    ED

129
School as Lender
  • New restrictions on school lenders
  • Earnings from any special allowance payments,
    interest payments from borrowers, interest
    subsidy from ED, and any other proceeds from the
    sale or other disposition of loans must be used
    for need-based grant aid and must supplement, not
    supplant non-federal funds that would otherwise
    go toward grant aid. 435(d)(2)(A) (C)

130
School as Lender
  • Administrative Expenses
  • School may use special allowance interest
    payments and interest subsidy payments, and any
    proceeds from the sale or other disposition of
    loans for reasonable and direct administrative
    expenses.
  • 435(d)(2)(B)

131
  • Miscellaneous
  • Part B Changes

132
Miscellaneous Part B Changes
  • There are a few other changes to Part B of the
    HEA worth mentioning
  • ED now has the authority to standardize forms and
    procedures regarding the anticipated graduation
    date. 432(l)(1)(H)
  • ED funding in Section 458 of the HEA is no longer
    mandatory. It is now subject to the annual
    appropriations process. 458
  • Requires guarantors to file for reinsurance
    within 30 days rather than 45 days. 428(c)(1)(A)

133
  • Reductions in Lender Income

134
Reductions in Lender Income
  • Some of the ways lender income will be reduced
    are
  • For loans with a first disbursement on or after
    July 1, 2006, default claims will be paid at 97
    instead of 98 428(b)(1(G)(ii)
  • Lenders designated as exceptional performers, or
    a lender contracting with a servicer designated
    as an exceptional performer, will be paid 99
    instead of 100 on default claims submitted to
    the guarantor on or after July 1, 2006.
    428I(b)(1)

135
Reductions in Lender Income
  • Elimination of the 9.5 minimum yield on loans
    made or purchased with pre-October 1, 1993,
    tax-exempt funding when such tax-exempt funding
    is refunded on or after September 30, 2004,
    including when such loans are no longer held in
    minimum yield eligible tax-exempt funds on or
    after September 300, 2004.
    438(b)(2)(B)(iv) (v)

136
Reductions in Lender Income
  • Elimination of recycling for loans made or
    purchased on or after February 8, 2006, and for
    loans held by the lender that are not receiving
    the minimum yield for eligible tax-exempt funding
    as of February 8, 2006.
    438(b)(2)(B)(vi) (vii)

137
Reductions in Lender Income
  • Permitted exceptions until December 31, 2010, in
    the case of a holder that is, on February 8,
    2006, and during the applicable quarter for which
    special allowance is paid
  • A unit of State or local government or a
    nonprofit private entity
  • Not owned or controlled by, or under the common
    ownership or control with, a for-profit entity
    and
  • Held, directly or through any subsidiary,
    affiliate, or trustee, a total unpaid balance of
    principal equal to or less than 100,000,000 on
    loans for which special allowances were paid at
    9.5 in the most recent quarterly payment prior
    to September 30, 2005.

138
Reductions in Lender Income
  • For loans first disbursed on or after April 1,
    2006, lenders are required to remit excess
    interest back to ED when the special allowance
    calculation for a given quarter is at a rate that
    is less than the applicable interest rate.
    438(b)(2)(I)(v)
  • ED intends to collect the excess interest from
    lenders quarterly

139
  • Special Allowance Payments

140
Special Allowance Payments
  • HERA corrects the SAP Gap.
  • This eliminates the restriction placed on the
    amount of special allowance that may be paid on
    PLUS and Consolidation loan payments made on or
    after April 1, 2006. 438(b)(2)(I)(iii) (iv)

141
  • Teacher Loan Forgiveness

142
Teacher Loan Forgiveness
  • HERA makes permanent the loan forgiveness
    provisions in the Taxpayer-Teacher Protection Act
    of 2004.
  • The Taxpayer-Teacher Protection Act provides for
    increased loan forgiveness of up to 17,500 for
    Stafford borrowers meeting certain teaching
    requirements.

143
Teacher Loan Forgiveness
  • The Taxpayer-Teacher Protection Act took effect
    October 30, 2004.
  • The Teacher-Taxpayer Act was passed as a budget
    bill, as a result, it expired at the end of the
    2005 Federal fiscal year September 30, 2005.
  • HERA retroactively eliminated the ending date for
    this program ensuring no break in benefits under
    this program.

144
Teacher Loan Forgiveness
  • The Taxpayer-Teacher Protection Act defines an
    eligible borrower as one
  • Who has taught at least 5 years in an eligible
    low-income (Title I) school and is a -
  • Secondary school math or science teacher, or
  • Special education teacher, and
  • Who is highly qualified as defined in No Child
    Left Behind (NCLB).

145
Teacher Loan Forgiveness
  • HERA allows teachers in private schools, not
    subject to state certification, to qualify for
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