DCLPublicationDate: 6/1/95 DCLID: 95-L-180 AwardYear: 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 95-L-180 95-G-279 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. ED FORM 799 INSTRUCTIONAL CHANGES - PART IV, SPECIAL ALLOWANCE 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. ED FORM 799 - ADMINISTRATIVE ISSUES - 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 participates. 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. - RETURNED AUTOMATED CLEARING HOUSE/ELECTRONIC FUNDS TRANSFER (ACH/EFT) 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 procedures: 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. - REQUEST FOR NEW LENDER NUMBERS: ED is concerned 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. Sincerely, Linda Paulsen, Director Accounting and Financial Management Service |