| AwardYear: 1995-1996 EnterChapterNo: 6 EnterChapterTitle: Federal Perkins Loan Program SectionNumber: 10 SectionTitle: Credit-Bureau Reporting PageNumbers: 103-106 [[Final Rule 11-30-94]] The provisions discussed in this section regarding credit-bureau reporting are included in the Final Rule published in the Federal Register on November 30, 1994. [[Include default information in promissory notes]] The promissory notes for a Federal Perkins or NDSL made by a school on or after July 23, 1992 must state that the school is required to disclose to any one national credit bureau the amount of the loan made to the borrower, and that if the borrower defaults on the loan, the school must disclose that the borrower has defaulted, along with other relevant information, to the same national credit bureau to which it originally reported the loan. [[Provide default information to student]] Before a school makes its first disbursement to a student, the school must provide the student with certain information, including a statement in writing that the school must report any default on the loan to a national credit bureau. This statement may be part of the written application material, part of the promissory note, or on a separate written form. [[Report disbursement to credit bureau]] At the time each disbursement is made, the school must report to any one national credit bureau with which ED has an agreement the amount of the disbursement, the date the disbursement was made, and the balance outstanding on the loan. [[Credit bureaus with which ED has an agreement]] The Department has entered into an agreement with each of the four national credit bureaus listed below. In order to comply with the credit-bureau reporting requirement, schools should enter into an agreement with ONE of the following national credit bureaus: Trans Union: Contact person- Lanny Stone (312) 466-7961 or David Huesing (312) 466-7863 TRW: Contact person- Debbie Taylor 1-(800) 831-5614, Ext. 7532 CBI Equifax: Contact person- Lisa Mendelson or Phyllis Reichert (412) 787-7365 Consumer Credit Association, Inc.: Contact person- Jim Jolly (713) 589-1190, Ext. 113 [[Credit bureau fees]] Each credit bureau charges a fee for its services. These fees differ from national credit bureau to national credit bureau. These national credit bureaus also have affiliated credit bureaus, which may have different fees from those of the national credit bureaus. ED does not keep a list of these affiliated bureaus and their fees. A school must obtain ED's approval before using an affiliated credit bureau. [[Credit bureau information in exit interview]] During the exit interview at the time a borrower leaves school, the school must explain to the borrower the consequences of defaulting including, at a minimum, possible referral to a collection firm, reporting to a credit bureau, and litigation. [[Credit bureau information in final demand letter]] If the borrower fails to respond to the school's billing notices or to the overdue notices, the school must send a final demand letter within 15 days after the second overdue notice. This letter must inform the borrower that unless the school receives a payment or a request for deferment, postponement, or cancellation within 30 days of the date of the letter, it will refer the account for collection or litigation and will report the default to a credit bureau. [[Reporting the default]] If a borrower does not satisfactorily respond to the final demand letter or the following telephone contact, the school must report the defaulted account to any one national credit bureau and continue attempting to collect the amount due, using the school's own staff or a collection agency. [[Report changes in account status]] If the account status of a borrower's loan changes, the school must report the changes to the same national credit bureau to which it originally reported the default and must report the changes according to the procedures of that credit bureau. If a school receives an inquiry from any credit bureau regarding the information reported on the loan amount, the school must respond within one month of receiving the inquiry (refer to Section 674.45(b) of the November 30, 1994 Final Rule). [["Satisfactory arrangements to repay"]] A borrower who has made "satisfactory arrangements to repay" a defaulted loan re-establishes his or her eligibility to apply for federal student aid. However, the loan is still considered to be in default and must continue to be reported as defaulted to a national credit bureau organization with which ED has an agreement. "Satisfactory arrangements to repay" is defined in the November 30 Final Rule as the "establishment of a new written repayment agreement and the making of one payment each month for six consecutive months." [[Report rehabilitated loan]] Section 674.5 (e) of the November 30, 1994 Final Rule provides that a defaulted loan is considered to be "rehabilitated" after the borrower has signed a new repayment agreement and has made one payment each month for 12 consecutive months. Within 30 days of the rehabilitation, the school must report the rehabilitation to the same national credit bureau to which it originally reported this defaulted loan. A rehabilitated loan is not included in determining a school's cohort default rate. [[Costs chargeable to the Fund]] The cost associated with reporting Federal Perkins Loan disbursements to a national credit bureau may not be charged against the Federal Perkins Loan Fund. However, the school may use its administrative cost allowance to pay for these charges. Collection costs, which include the costs associated with reporting defaulted Federal Perkins Loan borrowers to a national credit bureau, must be charged to the borrower. The Fund can be charged for these costs only in relation to the amount collected from the bureau, as described in Section Seven of this chapter. [[Disclosure of borrower's account information]] The Privacy Act authorizes disclosure of a borrower's account information to creditors without the borrower's consent if such a disclosure would help enforce the terms and conditions of the loan. This permits the release of information concerning loans in both default and nondefault status. It is not a violation of the Family Educational Rights and Privacy Act (FERPA) to disclose student account information to creditors, because the report would help enforce the terms and conditions under which the financial aid was awarded. This policy applies whether the reporting takes place at the time the loan is being disbursed or at the time the loan is in default status. Reporting good credit history as well as reporting defaulted loans is essential to ensure that current and future creditors have complete information regarding the credit obligations of the borrower. The disclosure would provide the negative reinforcement of being turned down for credit if the student's account is in default; disclosure would reward students who keep their loans in nondefault status by giving them a good credit rating. [[Borrower may appeal accuracy of information reported]] The Fair Credit Reporting Act allows a borrower/debtor to appeal the accuracy and validity of the information reported to the credit bureau and reflected in the credit report. The school should be aware of this right and should be prepared to handle and potentially accept the borrower's correction of information in accordance with the provisions of the Act. |