DCLID: Disaster Letter-98-81
Summary: Flooding in Tennessee.
August 6, 1998
Disaster Letter 98 - 81: Flooding in Tennessee.
Dear Guaranty Agency Director:
Earlier this year, we notified you that the Federal Emergency Management Agency had designated Carter and Unicoi counties Tennessee to be disaster areas that qualify for federal assistance under FEMAs "Individual Assistance" program because of flooding that began January 6. It has come to our attention that FEMA later made the same designation for Johnson and Washington counties. Guaranty agencies and lenders are authorized to use the Departments disaster-related forbearance policies to assist FFEL borrowers who are residents of those counties.
1. Loan holders are strongly recommended to grant forbearances to borrowers who contact them and indicate that they have been adversely affected by the disaster and need temporary relief from their loan obligations. If the holder believes that the borrower has been harmed and needs assistance, the holder may grant a forbearance for up to 3 months based on either the borrower's oral or written request for assistance, which must be documented in the holder's files.
2. The holder does not need to obtain supporting documentation or a signed written agreement from the borrower to justify a forbearance for this initial 3-month period. The Secretary will decline to enforce the requirements of 34 CFR 682.211(c) for this period.
3. A continuation of the forbearance past this 3-month period will require supporting documentation and a written agreement from the borrower.
When does the 3-month forbearance begin?
Because there have been several FEMA designations recently that have occurred some months after the disaster events, it may be helpful to summarize the guidance issued by the Department during the past few years concerning how the disaster forbearance policy is intended to work.
The holder of the loan decides if it will grant forbearance to the borrower. The holder is in the best position to know about the difficulties that the borrower has experienced. In many cases, the holder (particularly one in the local area) may be familiar with the actual extent of damage resulting from the disaster. Some borrowers may be affected by the disaster immediately. Others may encounter problems weeks after the disaster occurs. This is particularly true for floods, which create problems sequentially, for weeks at a time, as they spread over wide areas. Conversely, an earthquake begins at a precise moment and affects a fixed geographic area.
We have strongly encouraged loan holders to grant forbearances of up to 3 months to borrowers who contact them and indicate that they have been adversely affected by a disaster and need some temporary relief from their loan obligations. For this initial forbearance period, the holder will not be required to obtain a signed agreement from the borrower, but the holder must document its files to show the date that the borrower requested the forbearance. To continue a forbearance past this initial period, the borrower must provide supporting documentation and agree to the terms of the forbearance in writing, as is normally required under 34 CFR 682.211(c).
To illustrate how this could work, let's look at some examples involving a flood. On August 15, a lender receives a call from a borrower who lives in a county listed in a disaster letter because it had been designated by FEMA as a disaster area due to flooding that began August 1. The borrower asks for forbearance because of financial problems caused by flood damage to her home. The lender decides that it will grant forbearance, and informs the borrower that she does not need to make her next 3 monthly payments. However, if she continues to need forbearance after the 3-month period expires, she will need to provide documentation satisfactory to the lender showing that she continues to have financial or other problems that would justify the lender's approval of an extension of the forbearance. The borrower would need to sign a forbearance agreement for this extended forbearance.
Three months later, the same holder is contacted by two more borrowers who live in the same county. One borrower asks for forbearance because of flood damage that just affected him the day before. The other borrower says that her home was flooded in August, and shes been so busy since then that she forgot about her student loan until now. Once again, the loan holder is expected to make a reasonable decision of how to handle these requests. Some borrowers may need forbearance to cover their overdue payments retroactively to the beginning date of the flood. Other borrowers may only need forbearance as of the date they asked for it, or as of the date that the flood actually affected them. The holder could also decide that the borrower has not been affected by the flood and does not need a forbearance. These are judgment calls by the loan holder, and the Department expects loan holders will exercise their judgment reasonably.
Obviously, there are limits that could be reached, for example, if the holder receives a call from a borrower who claims that he was harmed by a flood that occurred one year ago. Most people probably would be skeptical of such a belated claim, and would question why the holder routinely granted the 3-month, semi-administrative disaster forbearance to the borrower rather than a normal forbearance. The general approach the Department anticipates that loan holders will take is to be generous in the granting of disaster forbearances that cover the immediate time periods when the disasters occur. As time goes by, and the impact of the disaster recedes, the holder should eventually reach a point where borrowers claiming that they suffered a disaster-related problem long after the disaster would be treated under the normal forbearance rules.
Lenders and guaranty agencies may contact the Department's toll-free number at 1-800-433-7327, Monday through Friday from 9:00 a.m. to 5:00 p.m. EST for further updates. This letter has also been sent to each regional office of the Department, plus the National Council of Higher Education Loan Programs, Inc., the Consumer Bankers Association, the National Association of Student Financial Aid Administrators, and the Student Loan Servicing Alliance.
Chief, Policy Section
Federal Family Education Loan Program
Policy Development Division
Student Financial Assistance Programs