Publication Date: April 2002
DCL ID: CB-02-05
Revised Policies and Procedures for Assigning Perkins Loans
This document includes a revision to the contact information contained in Attachment 1, Section IV. (Revised 5/9/02)
April 2002
CB-02-05
SUBJECT: Revised Policies and Procedures for Assigning Perkins Loans
SUMMARY: This letter provides information concerning revised policies and procedures reducing paperwork requirements for the assignment of defaulted Federal Perkins Loans, National Direct Student Loans (NDSL) and National Defense Student Loans (Defense) to the U.S. Department of Education (ED) for collection.
Dear Colleague:
Enclosed are revised policies and procedures designed to reduce the paperwork requirements for institutions submitting defaulted Federal Perkins Loans, National Direct Student Loans, and National Defense Student Loans to ED for assignment under Section 463(a)(5) of the Higher Education Act of 1965, as amended (HEA). Additionally, institutions that close or otherwise wish to end their participation in the Perkins Loan Program must liquidate their loan portfolio by following these procedures to assign all of their outstanding loans, both defaulted and non-defaulted.
Institutions may assign defaulted loans to ED at any time during the program year. All loans that an institution assigns to ED are assigned without recompense, meaning that the Department will not reimburse an institution's Fund for the loans, and all rights, authorities, and privileges associated with the loan are transferred to the U.S. Government. However, the institution is relieved of incurring additional expenses in attempting to collect on the loan. All funds subsequently collected on these loans are the property of the U.S. Government. Assignment of defaulted loans will not affect the calculation of an institution's Perkins Loan cohort default rate.
We recognize that an institution may have exhausted all of its available collection options on some of their defaulted Perkins and NDSL loans and we encourage these institutions to consider assigning these loans for collection so that we can take additional steps to recover the loan funds. We have collection tools that are not available to institutions, such as administrative wage garnishment, federal offset, and litigation by the Department of Justice.
To encourage institutions to assign defaulted loans, we modified the regulations to allow for greater flexibility in the assignment process. The proposed regulations were negotiated with the higher education community, received public comment, were published as final rules on November 1, 2000 and became effective on July 1, 2001. Consistent with the new rules, we have made several procedural changes so that institutions are no longer required to submit the following documents when assigning a loan:
- copies of the repayment schedule,
- the repayment history,
- acceleration notices,
- recall documentation, or
- documentation of approved cancellations and deferments with the assignment package.
However, this documentation must be retained by the institution for at least three years from the date the loan is assigned.
In addition to these initial steps to reduce unnecessary paperwork in the Perkins Loan Program assignment process, we continue to work with the higher education community to find additional ways to streamline the process and to reduce the administrative steps and documentation necessary for assigning loans. Any additional revisions or clarifications of the assignment requirements will be transmitted to institutions in future "Dear Colleague" letters.
Institutions must submit accounts for assignment using the enclosed ED Form 553 [Attachment 3]. A photocopy or a computer facsimile of ED Form 553 is acceptable. Please note that we no longer require institutions to submit computer facsimiles of ED Form 553 for our approval. Upon assigning a loan to ED, an institution must update the status of the assigned loan with the national credit bureau. In most cases, this may be done either by withdrawing the account entirely from the credit bureau or requesting that the credit bureau recode the account to indicate that the loan is being assigned to ED (see page 11 of Attachment 1).
Institutions must have already successfully reported the loan to the National Student Loan Data System (NSLDS) before the loan may be assigned. Before submitting a loan to ED for assignment, the institution must update the NSLDS record, using Loan Transfer Code AE, to reflect the assignment.
At this time, we have made only minor changes to ED Form 553. If your institution is currently using a computer facsimile of ED Form 553, you may continue to use that computer facsimile with the following adjustments:
- In the second sentence of the Paperwork Reduction Act Notice, replace "1840-0091" with "1845-0048"
- In the last sentence of the Paperwork Reduction Act Notice, replace the address with "Federal Student Aid, U.S. Department of Education, Students Channel Collections, 830 First Street, N.E., MS 5320, Washington, D.C. 20202"
- After "Form Approved" replace "08/18/98" with "03/27/2002"
- After "OMB Number" replace "1840-0091" with "1845-0048"
- After "Approval Expires" replace "08/31/2001" with "03/31/2003"
- In the box between Section A and Section B replace "WARNING" with "Certification"
- In Section C, after "If YES provide date of acceleration" delete "and attach documented proof."
Please carefully read and follow the enclosed procedures. Loan assignments not strictly adhering to these procedures may be rejected.
Questions regarding assignment procedures should be directed to the offices listed in Section VI of Attachment A, "Information Sources" of the enclosed assignment procedures. Please do not contact the Assignment Processing Center.
Please contact the appropriate ED Regional Office regarding payment status of past assignments. All other questions on loan assignments can be directed to Federal Student Aid Collections at (202) 377-3373.
As noted above, institutions that will no longer be participating in the Perkins Loan Program should direct questions on liquidation procedures to our Federal Student Aid Campus-Based Operations staff at (202) 377-3180. Institutions that have closed or are in the process of closing should also contact our Closed School Unit at (202) 377-4367.
We look forward to continuing to work with you to increase collections on defaulted student loans and reduce administrative burdens on institutions.
Sincerely,
Sally Stroup
Assistant Secretary
Office of Postsecondary Education
Attachment 1 - Assignment Submission Procedures
Attachment 2 - ED Form 553 Instructions
Attachment 3 - ED Form 553