DCLPublicationDate: 5/1/95 DCLID: 95-G-277 AwardYear: Summary: Requirements for Federal Stafford loans subject to rebates of excess interest ("windfall profits") and conversion to an annual variable interest rate. May 1995 95-L-179 95-G-277 SUBJECT:Requirements for Federal Stafford loans subject to rebates of excess interest ("windfall profits") and conversion to an annual variable interest rate. PUBLICATION REFERENCE: Dear Colleague Letter 94-L-171 (October 1994). Dear Colleague: This letter is to remind lenders of the following actions which should have been completed by this time: - Application of the windfall profits rebates to eligible borrower accounts. Lenders should have calculated and applied rebates to eligible borrower accounts no later than January 30, 1995. - Reporting windfall profits due to the Secretary of Education. Lenders that elected to close out rebates through 1992 or 1993 were instructed to report the adjustments on ED Form 799 (Lenders Interest and Special Allowance Request and Report) for the quarter ending December 31, 1994. The windfall profits adjustments for 1994, or for previous years for which the lender chose to reverse previously applied rebates, are to be reported on the ED Form 799 for the quarter ending March 31, 1995. See Dear Colleague Letter 94-L-171 (the DCL), p. 2, paragraphs two and three. - Conversion to an annual variable interest rate. For 8/10 percent loans which were eligible for a rebate on the 10 percent portion only, lenders must convert the loan to the annual variable interest rate when the 10 percent rate would be applicable under prior law, i.e., the beginning of the fifth year of repayment. For all other loans, lenders must have completed the conversion to the annual variable interest rate no later than the January 1, 1995 date required in statute. See 427A(i)(6)(C) of the Higher Education Act of 1965, as amended, and the DCL, p. 1, paragraph three. Staff of the Loans Branch have been contacted since the publication of the Dear Colleague Letter by many lenders that are actively working to comply with the requirements of the law. The Department appreciates the efforts taken by the loan industry to implement these requirements under short timelines. However, the Department recently has received calls from some borrowers indicating that some lenders have not yet converted their loans to the annual variable interest rate as required. Lenders should be advised that the Department's regional office personnel will be instructed to review lender portfolios over the next few months to determine compliance with the requirements as noted above. In cases where lenders have not complied, the Department will consider taking appropriate enforcement action if a lender has not concluded all activities related to these requirements by the close of the quarter ending March 31, 1995. If you need further guidance related to the requirements of the law and Dear Colleague Letter 94-L-171, please contact the regional office serving lenders in your State. Thank you for your efforts thus far in implementing these provisions. Sincerely, Leo Kornfeld Senior Advisor to the Secretary |