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(95-L-180) (95-L-180) This letter provides guidance relating to the filing of the Lender's Interest and Special Allowance Request and Report (ED Form 799).

DCLPublicationDate: 6/1/95
DCLID: 95-L-180
Summary: This letter provides guidance relating to the filing of the Lender's Interest and Special Allowance Request and Report (ED Form 799).

June 1995

SUBJECT: This letter provides guidance relating to the filing of the
Lender's Interest and Special Allowance Request and
Report (ED Form 799).

PUBLICATION REFERENCE: Omnibus Budget Reconciliation
Act (Pub. L.103-66)

Dear Colleague:

The Omnibus Budget Reconciliation Act signed by President
Clinton on August 10, 1993 made several changes to the Higher
Education Act of 1965 (HEA) which affect reporting on the Lender's
Interest and Special Allowance Request and Report (ED Form 799).
This letter provides instructions for reporting the changes required
by the new legislation on or after July 1, 1995. In addition, this
letter contains several administrative issues that affect the
processing of your ED Form 799.


There will be a change in the formula for calculating special
allowance payments, effective for all Federal Stafford Loans first
disbursed on or after July 1, 1995. The special allowance rate
during the borrower's in-school, grace, and deferment periods shall
be determined by substituting "2.5%" for "3.10%" in the formula
described in ยง438(b)(2)(A). A new special allowance category (SH)
has been added for these loans. When the loan is in repayment or
forbearance, the formula reverts back to "3.10%". Please follow the
instructions below:

- Enter SH in Part IV, Column C for all Federal Stafford Loans
disbursed on or after July l, 1995, for loans in the following
statuses: in-school, grace or deferment.

Enter SG in Part IV, Column C for all Federal Stafford Loans
disbursed on or after July 1, 1995, for loans in the following
statuses: repayment or forbearance.

Note: If a borrower's status changes within a quarter, the lender
must accurately divide the Average Daily Principal Balance
figures between the two codes. Also, in the case of claims
pending for bankruptcy, death, disability, closed school or false
certification, the lender should report special allowance based on
the status of the loan at that given time. For example, if a claim
is pending for a borrower who became disabled while in an in-
school status, special allowance would be reported using the
"SH" code.


- DEACTIVATION PROCESS: ED is now sending letters to
lenders each quarter if a lender has not submitted an
ED Form 799 within the past two quarters (or 180 days) or if an
ED Form 799 has been submitted, but not completely processed
due to errors or timing. A lender then has 60 days to contact both
ED and their guaranty agency to inform them of the lender's
circumstances causing the late filing and their desire to remain in
the program. The guaranty agencies have agreed to assist ED to
ensure that all lenders file timely reports. If the lender is unable
to submit an accurate ED Form 799 in a timely fashion, but wishes
to pay origination fees to avoid deactivation, the lender should
contact the Federal Family Education Loan Program (FFELP)
Branch at (202)708-9776 for further instructions.

If a deactivated lender wants to be reactivated, the lender must
submit payment for all outstanding origination fees along with a
letter certifying that all fees have been paid before ED will
reactivate their lender number. A copy of the certification letter
should be sent to the guaranty agency with whom the lender

When a lender is deactivated for failure to report origination fees
on a timely basis, the guaranty agency must not guarantee any
new loans for that lender. Loans on which origination fees were
not paid will not be eligible for reinsurance or payments of
interest benefits and special allowance. This also applies to new
holders of loans that have been sold or transferred, if the
origination fees have not been paid. Once the origination fees are
paid, loans will once again become eligible for reinsurance and
payments of interest benefits and special allowance as of the date
the fees were paid. A reactivated lender may not bill ED for
interest or special allowance lost during the period the
deactivation was in effect. The decision to accept or decline a
claim filed by a lender for an unreinsured loan rests with the
guaranty agency. However, ED will not pay the claim.

PAYMENTS: In the past year, ED has noticed a dramatic
increase in the number of ACH payments that are being rejected
and returned by lenders. The process of reissuing these returned
payments is both time-consuming and costly. ED has found that
it takes an average of three weeks to receive the required
paperwork from the Treasury Department in order to begin the
repayment process. Then, each lender which rejects an ACH
payment must be contacted to determine the reason for the return
before another payment can be issued. We are offering the
following information on the two most frequent reasons for
returns in the hope that lenders will review their ACH

1) Returned payment due to erroneous routing and/or account
number - the person responsible for completing the quarterly
report should routinely check with the institution's ACH
Department to ensure that the routing and account numbers
being used for ACH transactions are still valid. If a change is
discovered, the lender should immediately contact the Lender
Update Desk by phone at (202)708-9776 or fax a notice of
change to the Lender Update Desk at (202)708-9904.
Corrections should also be noted on the cover page of the
ED Form 799.

2) Payments returned in error - due to the limited information
that can be provided on an ACH transmission, payments are
often returned (or processing delayed) if the lender's ACH
Department cannot easily determine the recipient of the
funds. ED is suggesting that lenders that have experienced
this situation consider modifying their account number to
better identify its destination. For example, there are 17
spaces available for any combination of numbers and/or
letters. Some lenders are now adding a contact person's name
behind their account number or are including the designation
"STU LOAN". Changes should meet the approval of the
lender's ACH Department.

- NAME AND ADDRESS CHANGES: Lenders are reminded to
provide name and address changes as soon as possible to both ED
and their guaranty agency. ED relies on the accuracy of the
lender file when mailing notices, forms, publications and
payments. Changes can be made by contacting the Lender
Update Desk by phone or fax as described above. If a Servicer
receives and completes the ED Form 799 for the lender, the
lender is still responsible for verifying the preprinted name and
address on a regular basis.

with the increase of new lender identification numbers (LID)
being requested. Many of the requests have been from lenders
with existing LID numbers who want additional numbers. ED
will not issue additional LID numbers to lenders who already
have a valid LID number unless the need for the additional LID
number is justified in writing and approved by ED. Justifications
that are based on a lender's desire to segregate loans processed or
serviced under multiple guarantors, servicers or bond issues or for
internal accounting purposes will not be approved. However, any
lender who acts as a Trustee for multiple tax-exempt authorities
may obtain a single LID for each authority.

Thank you for your assistance in implementing these provisions. If
you should have any questions regarding this letter, please contact
the FFELP Branch on (202)708-9776.


Linda Paulsen, Director
Accounting and Financial Management Service

Last Modified: 05/31/1995