Summary: This letter provides guidance relating to the filing of the Lenders Interest and Special Allowance Request and Report (ED Form 799)
SUBJECT: This letter provides guidance relating to the filing of the Lenders Interest and Special Allowance Request and Report (ED Form 799)
PUBLICATION REFERENCES: Omnibus Budget Reconciliation Act (Pub.L. 103-66), Emergency Student Loan Consolidation Act of 1997, and the Debt Collection Improvement Act of 1996.
The Omnibus Budget Reconciliation Act (1993) and the Emergency Student Loan Consolidation Act of 1997 made changes to the Higher Education Act of 1965 (HEA) which affect reporting on the Lenders Interest and Special Allowance Request and Report (ED Form 799). This letter provides instructions for reporting changes required by the legislation. Information on how the Debt Collection Improvement Act of 1996 affects the receipt of payments is also addressed. The remainder of this letter covers various lender reporting issues.
NEW LOANS DISBURSED AFTER JULY 1, 1998
The Omnibus Budget Reconciliation Act signed by President Clinton on August 10, 1993 contained changes in the way interest rates and special allowance will be calculated after July 1, 1998. These changes will require new special allowance codes. However, due to the HEA reauthorization proposal now before Congress these requirements could change again before July 1. With that in mind, ED will delay announcing any new codes until the reauthorization issue is resolved. At that time a special lender bulletin will be issued to address the subject.
EMERGENCY STUDENT LOAN CONSOLIDATIONS
The Emergency Student Loan Consolidation Act of 1997 changed the interest rate on consolidation loans from the weighted average interest rate of the loans being consolidated rounded upward to the nearest whole percent, to a variable interest rate. The variable rate applies to consolidation loan applications received on or after November 13, 1997 and prior to October 1, 1998. The rate is set each July 1 and is determined based on the bond equivalent rate of the 91 day T-bills auctioned at the final auction held prior to June 1, plus 3.10 percent, not to exceed 8.25 percent. The rate for the period from November 13, 1997 through June 30, 1998 is 8.25%.
Accordingly, system edits related to the processing of ED Form 799 have been modified for the reporting of variable rates under consolidation loans as of April 1, 1998. In Parts II and IV, the combination of Loan Type "TC" with Interest Rate "EVAR" is now acceptable for consolidation loans covered under this emergency legislation. The correct special allowance code in Part IV is "SG". These modifications are retroactive for the quarter ending December 31, 1997.
NEW SPECIAL ALLOWANCE CODES FOR SOME 8/10% LOANS
Due to a decision by EDs Policy office, a small group of 8/10% loans will be given a new code to more accurately calculate special allowance. The loans involved are the 8/10% loans made on or after July 23, 1992 and prior to July 1, 1994 to old borrowers (borrowers with outstanding debts) when they reach the 49th month of repayment. Previous guidance indicated that these loans would never reach the 10% level because of the requirement to convert to a variable rate. The reporting changes, are:
For loans made on or after 7/23/92 and prior to 10/1/92, when loans reach the 49th month of repayment, use the combination of SD FVARX. Loans made with tax-exempt obligationswill use the combination of XB FVARX. These codes are valid beginning with the quarter ending September 30, 1996 and have a special allowance add-on factor of 3.25 percent and 3.50 percent, respectively.
For loans made on or after 10/1/92 and prior to 7/1/94, when loans reach the 49th month of repayment, the combination of SE FVAR10 has been reinstated. Loans made with tax-exempt obligationswill use the combination of XB FVAR10. These codes are valid beginning with the quarter ending December 31, 1996 and have a special allowance add-on factor of 3.10 percent and 3.50 percent, respectively.
NOTE: The FVAR10 combinations are available now; the FVARX combinations cannot be used for reporting until July 1, 1998.
PART V, LINE 10 - ED FORM 799
ED has noticed that some lenders often "purchase" or "sell" loans internally and report these activities on Part V, Line 10 (Principal Paid by Borrowers & Other Principal Reductions). This line should not include any reductions due to the internal sale or movement of loans (mainly due to the securitization of loans), because it inaccurately inflates/decreases collection numbers for the individual holder.
DEBT COLLECTION IMPROVEMENT ACT OF 1996
The U.S. Treasury Departments Debt Collection Improvement Act of 1996 mandates that ALL recipients of Federal funds must receive payments by Electronic Funds Transfer (EFT) after January 1, 1999. ED still has approximately 1,000 lenders receiving payment by check.
Reminders were sent out with the quarterly ED Form 799 in March 1998, along with copies of the form required for EFT signup. If your institution has not submitted this form, please do so as soon as possible. If you did not receive a form and need one, please contact the Lender Reporting Team at 202-708-9776.
ELECTRONIC LOCKBOX PAYMENTS
In November 1994, ED set up a bank lockbox for the receipt of lender payments. While primarily intended for Consolidation Loan Rebate Fees, ED also uses the lockbox to receive other types of payments if the payment is sent electronically (EFT). Lenders sending EFT payments are reminded that they must submit a cover letter detailing how the payment is to be applied. This cover letter should be transmitted by fax to the Lender Reporting Team at 202-708-9106.
AUTOMATED VOICE RESPONSE SYSTEM AND THE WEB SITE
The Lender Reporting Team is pleased to announce that the automated voice response system is now back up and running after being out of service for repairs. This system is accessed by dialing 202-205-0045 and following the instructions to receive information on the T-Bill rate for the current quarter, T-Bill rates for the last four quarters, and current interest rates. An option is also available to transfer directly to a specialist on the Lender Reporting Team for further information.
In addition, were on the Web! The URL (web address) for ED is http://www.ed.gov. For faster access to the interest rates and T-Bill rates, the Federal Family Education Loan (FFEL) Branch can be found by typing http://www.ed.gov/offices/OPE/Professionals/sfaorg/AFMS/.
Both the automated voice response system and the web site are updated as quickly as possible at the beginning of each new quarter.
EDs customers and service providers need to ensure that their computer systems are able to store, process, and report date data in ways that differentiate between years before and after the Year 2000. This will prevent disruptions in internal operations, data exchanges, receiving funds, and other critical activities. If it has not already done so, the education community leadership needs to take action immediately because addressing the Year 2000 issue requires significant lead time and resources.
For information on EDs Year 2000 Project and guidance on how to ensure your computer system meets compliance requirements, go to the Departments Year 2000 Project web site at http://www.ed.gov/y2k.
NOTES FROM THE INTEREST PAYMENT PROCESSING CENTER
The Interest Payment Processing Center (Center) has noticed a large increase in the number of careless errors on Part I on the ED Form 799 which significantly increase processing time. Whenever there is a discrepancy between reported information and the information stored in the database, the Center must initiate a phone call to the lender or servicer to resolve the issue before processing can continue. Currently, the most significant problem results from leaving the routing and account number fields blank. If the form does not match EDs database a call is required. Also, when using computer-generated forms the leading zeroes on routing, account, and EIN numbers are often dropped. Again, a call is required to resolve the discrepancy.
In addition to the problems on Part I the Center is seeing numerous typographical errors. Commas are being confused with decimals and many documents are illegible. The Center is required to return any document that cannot be keyed as presented. Sometimes the necessary correction seems obvious, but the Center cannot bear the responsibility for making corrections because an error on their part could result in a loss of money to the lender.
Finally, the Center would like to suggest that all forms receive a quick review before mailing to ensure quick and accurate processing. If a change is needed on Part I, please either make a note on the ED Form 799 that the item is a change, or submit your change in advance by faxing the Lender Update Desk at 202-708-9106. And please, remember all submitted forms must have the 10/99 expiration date to be valid.
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