Summary: Requirements for Federal Stafford loans subject to rebates of excess interest ("windfall profits") and conversion to an annual variable interest rate.
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
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,
- 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
- 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.
Senior Advisor to the Secretary