(GEN-22-12) Replacement of London Interbank Offered Rate (LIBOR) Based Special Allowance Payment (SAP) with Secured Overnight Financing Rate (SOFR) Under the Adjustable Interest Rate (LIBOR) Act

Publication Date
August 09, 2022
DCL ID
GEN-22-12
Subject
Replacement of London Interbank Offered Rate (LIBOR) Based Special Allowance Payment (SAP) with Secured Overnight Financing Rate (SOFR) Under the Adjustable Interest Rate (LIBOR) Act
Summary
The Adjustable Interest Rate (LIBOR) Act amended the Higher Education Act of 1965, as amended to allow lenders or beneficial holders of Federal Family Education Loan (FFEL) Program loans to replace LIBOR-based SAP with SOFR.

Dear Colleague:

On March 15, 2022, the President signed the Adjustable Interest Rate (LIBOR) Act into law. The LIBOR Act established a uniform benchmark replacement process for the London Interbank Offered Rate, which is scheduled to be phased out by June 30, 2023. Among other things, the LIBOR Act amended section 438(b)(2)(I) of the Higher Education Act of 1965, as amended. This new provision requires FFEL Program lenders or an entity that holds a beneficial ownership interest in a FFEL Program loan (beneficial holder) to transition away from LIBOR based SAP payments to a new formula set by the law based on SOFR. The transition may occur any time on or before June 30, 2023. However, a FFEL Program lender or beneficial holder must transition to the SOFR based SAP calculation by July 1, 2023, as a condition of continued participation in FFEL Program.

Loans Subject to LIBOR Transition. FFEL Program loans that have their SAP calculated based on LIBOR. This would include FFEL Program loans made on or after January 1, 2000, and through June 30, 2010.

Entities Authorized to Transition to SOFR. Either a FFEL Program lender or beneficial holder can request to transition to the SOFR on or before June 30, 2023.

SAP Affected by a SOFR Transition. All SAP calculated for calendar quarters subsequent to the date the U.S. Department of Education (the Department) approves the FFEL Program lender or beneficial holder’s transition to SOFR.

SAP Adjustments. Adjustments of previously reported SAP will be calculated based on the SAP rate in effect during that quarter.

Procedures to Transition to SOFR. To exercise the SOFR election, a FFEL Program lender or a beneficial holder must submit to the Department:

  • Either a CEO Authorizing Statement or Incumbency Certificate; and

  • The SOFR Election Form, which differs depending on whether a FFEL Program lender or beneficial holder is making the election.

The CEO Authorizing Statement, Incumbency Certificate, and SOFR Election Forms will be made available in a subsequent announcement once the SOFR Election Forms have completed OMB clearance. An opportunity for public comment on the Election Form is available through the Federal Register.

Required Transition Date. The new law permits a FFEL Program lender or beneficial holder to transition to SOFR prior to July 1, 2023. However, all SAP payments for calendar quarters beginning on or after July 1, 2023, will be based on SOFR even if neither the FFEL Program lender or beneficial holder in question affirmatively elected to transition from LIBOR to SOFR. The requirement to transition may be accelerated under the law if the LIBOR ceases to be published or representative earlier than July 1, 2023. If the Department determines the requirement to transition to SOFR before July 1, 2023, SOFR calculations will begin with the calendar quarter following the calendar quarter in which the Department announces its acceleration of the transition and continue thereafter.

Filing Requirements. Submissions of required documents must be emailed to FSA_LR@ed.gov. Include in the subject line of the email SOFR Election Date. The Department will send a confirmation receipt to the sender. Please note that the required documents, consisting of the CEO Authorizing Statement, Incumbency Certificate, and SOFR Elections Forms, will be made available in a subsequent announcement once the SOFR Election Forms have completed OMB clearance.

Please send all questions to FSA_LR@ed.gov.

Sincerely,

Richard Cordray
Chief Operating Officer
Federal Student Aid

Attachments

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Special Allowance Payment (SAP) Codes Memo in PDF Format, 1 Page, 164KB