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(95-L-181) (95-L-181) 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-181
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-181 (LD)
Tax-Exempt

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)
for tax-exempt lenders. 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 with tax-exempt obligations ("new money") 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 loans made or purchased with funds obtained by the
holder for the issuance of obligations originally issued on or after
October 1, 1993 ("new money"). 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 with tax-exempt obligations ("new money") 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 with tax-exempt obligations ("new money") on or after
July 1, 1995, for loans in the following statuses: repayment or
forbearance.

Tax-exempt loans made or purchased with funds obtained by the
holder from the issuance, or refinancing, of obligations originally
issued prior to October 1, 1993 ("old money") will continue to be
calculated by taking the greater of one-half the annual special
allowance rate using 3.5% in the formula, or using the floor of 9.5%
less the applicable interest rate. Because there are two possible
applicable interest rates, depending on the status of the loan, there
will be a new code of XH as follows:

- Enter XH in Part IV, Column C for all Federal Stafford Loans
disbursed with tax-exempt obligations ("old money") on or after
July 1, 1995, for loans in the following statuses: in-school, grace
or deferment.

Enter XG in Part IV, Column C for all Federal Stafford Loans
disbursed with tax-exempt obligations ("old money") 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

Last Modified: 05/31/1995