| AwardYear: 1995-1996 EnterChapterNo: 10 EnterChapterTitle: Federal Family Education Loan Programs SectionNumber: SectionTitle: Introduction PageNumbers: 1-8 Part B of Title IV of the Higher Education Act of 1965 created the guaranteed student loan programs. The Higher Education Amendments of 1992 (P.L. 102-325) reauthorized the Act and renamed the guaranteed student loan programs the Federal Family Education Loan (FFEL) Program. Individual program names have been changed to Federal Stafford Loans (formerly Guaranteed Student Loans), Federal PLUS loans, and Federal Consolidation Loans. These programs make long-term loans available to students attending institutions of higher education, vocational, technical, business, and trade schools, and some foreign schools. State or private nonprofit guaranty agencies insure FFEL Program loans and are reimbursed by the federal government for all or part of the insurance claims they pay to lenders. The guarantee replaces the security or collateral usually required for a long-term consumer loan. NOTE: Although all guaranty agency programs must meet the federal requirements discussed in this chapter, INDIVIDUAL GUARANTY AGENCIES MAY HAVE ADDITIONAL REQUIREMENTS. You can obtain specific information about a guaranty agency's procedures by contacting that agency. Appendix A of this chapter contains a list of guaranty agencies and their addresses and telephone numbers. Stafford Loans are available to undergraduate and graduate students. Formerly, the Federal Supplemental Loans for Students (SLS) Program provided loans for graduate or professional students and for independent undergraduates; however, the SLS Program has been merged into the unsubsidized Stafford Loan Program. While many of the SLS Program terms and conditions will be available through unsubsidized Stafford Loans, no new SLS loans may be made for a period of enrollment beginning on or after July 1, 1994. See Sections Three and Four of this chapter for more information affecting the elimination of the SLS Program. PLUS loans are for parents of dependent students. Stafford, SLS, Federal Insured Student Loans (FISLs), Federal Perkins Loans, PLUS loans, Health Education Assistance Loans, and Health Professions Student Loans may be consolidated, if the borrower meets certain other conditions (discussed in Section Five). For a spousal (joint) consolidation, the borrower and his or her spouse must meet these conditions. New legislation and changes to FFEL Program regulations, and other points of special interest, are highlighted in the chapter through use of margin notes and graphics. When "Dear Colleague" letters are used to explain changes in the FFEL programs, reference to the appropriate Dear Colleague letter is made in the text. For example, a "Dear Colleague" letter (GEN-94-3, January 1994) provided information about the delivery of federal student financial aid to schools in areas designated as natural disaster areas due to the earthquake in California. SUMMARY OF NEW REQUIREMENTS AND INITIATIVES Two new major pieces of legislation affect the FFEL Program for the 1994-95 academic year and subsequent academic years. The Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66), sometimes known as the Student Loan Reform Act, made significant changes to the FFEL Program, and set requirements for the transition of the FFEL Program to the Federal Direct Student Loan (FDSL) Program. The Higher Education Technical Amendments of 1993 (P.L. 103-208) also made major changes to the FFEL Program by clarifying and expanding provisions of the Higher Education Amendments of 1992. The U.S. Department of Education (the Department) has issued several regulations in the past year so that provisions of these laws can be implemented. In most cases, the publication dates and names of the regulations, published as FEDERAL REGISTER Final Rules, are referenced throughout this chapter of the Handbook. Please note that a "work in progress" symbol is used in the margin to alert you to provisions requiring further regulation. **[To view these graphics please refer to the paper copy of the Handbook.]** THE WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM The Student Loan Reform Act of 1993 established a new loan program, the William D. Ford Federal Direct Loan (Direct Loan) Program. Participation in the program began with the 1994-95 academic year with 5 percent of new Direct Loan and FFEL volume, and increased substantially to 40 percent of new loan volume during the 1995-96 academic year. The percentage of Direct Loan volume will then increase gradually over the next several academic years. A FEDERAL REGISTER notice published on January 4, 1994 outlined the operations and procedures during the first year of the program. A notice published July 1, 1994 explained the repayment options and provisions available under the new program, including a description of the Federal Direct Consolidation Loan Program. A notice published December 22, 1994 superseded the July 1 provisions regarding income-contingent repayment for the first year of the program. Finally, a notice published December 1, 1994 provides program guidance for the second and subsequent years of the program (1995-96 and beyond). Because the Direct Loan Program is separate from the FFEL Program, separate materials have been prepared for schools participating in the program, and no further discussion of Direct Loans will be provided here. If your school would like more information about the Direct Loan Program, you may write to: U.S. Department of Education Office of Postsecondary Education ROB-3 Direct Loan Task Force, Room 4025 600 Independence Ave. S.W. ROB-3, Room 4025 Washington, D.C. 20202-5162 RECENT FFEL PROGRAM CHANGES Other FFEL Program changes to note include the following: SECTION ONE: ELIGIBILITY - The provisions that enable a parent with an adverse credit history to secure an endorser without an adverse credit history in order to qualify for a PLUS Loan were published as an FFELP Final Rule on November 29, 1994. Definition of adverse credit history was provided in a final regulation published June 28, 1994. Please refer to pages 10-11 and 10-12. - The Department has developed regulations for programs of 600 clock hours or less; these provisions were published April 29, 1994 as an Interim Final Rule governing both Student Assistance General Provisions and the FFEL Program. Please refer to pages 10-13 and 10-14. SECTION TWO: FEDERAL STAFFORD LOANS - To account for the effect of a variable interest rate on a student's outstanding debt, which must be repaid within the maximum repayment period, a lender may either make adjustments in each borrower's monthly payment amount or must grant a mandatory administrative forbearance as described on pages 10-23 and 10-62 of the Handbook, and in the June 29, 1994 FFELP Final Rule (effective July 1, 1995). The length of time for which a forbearance can be granted under this provision has been increased to three years under a standard or graduated repayment schedule, and to five years under an income-sensitive repayment schedule. Please refer to page 10-62 of Section Six, "Comparing Loan Programs". - Changes have been made to the definition of economic hardship deferment as a result of the provisions stated in the FFELP Final Rule published November 29, 1994 and the Improving America's Schools Act (IASA) enacted October 20, 1994. Details are provided on pages 10-35 to 10-36 after the margin note "Deferments for new borrowers with loans disbursed on or after July 1, 1993". The definition is also found on pages 10-72 to 10-73 of Section Six, "Comparing Loan Programs". This new definition of economic hardship becomes effective July 1, 1995. - New timeframes have been established for determination of student withdrawal dates. The revised section 668.22 can be found in the November 29, 1994 General Provisions and FFELP Final Rule (effective date July 1, 1995). 34 CFR 668.22(j), "Refund dates," refers to students who have officially withdrawn, have dropped out, or have failed to return from an approved or unapproved leave of absence. The November 29, 1994 FFELP Final Rule (a different regulation than the one above) references the General Provisions section; it states that a school must follow the procedures in 34 CFR 668.22 to determine student withdrawal and refund dates, and to report withdrawal dates to lenders. Its effective date is also July 1, 1995. - Finally, please note that the FFELP Final Rule published November 29, 1994 ensures reasonable comparability between FFEL Program and Direct Loan Program regulatory provisions. SECTION FIVE: LOAN REFINANCING AND CONSOLIDATION - On June 29, 1994, the Department issued a regulation providing detailed guidance to lenders concerning standard, graduated, or income-sensitive repayment of loans. Please refer to page 10-29 of Section Two, and page 10-53. SECTION SIX: COMPARING LOAN PROGRAMS - Provisions have been added that lenders must grant mandatory forbearance to borrowers eligible for forgiveness of a loan under the Federal Stafford Loan Forgiveness Demonstration Program (if that program is funded), and to borrowers eligible for partial repayment of a loan under the Student Loan Repayment Programs administered by the Department of Defense. Mandatory administrative forbearance must be granted to borrowers or endorsers residing in a geographical area which has been designated a state or federal disaster area. It must also be granted to borrowers or endorsers subject to exceptional circumstances, such as a local or national emergency or a military mobilization. Forbearances described in the previous two paragraphs are also listed on pages 10-61 and 10-62. The new provisions described above are effective July 1, 1995. - Consistent with the Bankruptcy Reform Act of 1994 enacted October 22, 1994, a borrower whose FFEL loan was previously discharged in bankruptcy is no longer required to reaffirm his or her loan obligation. Similarly, the Department no longer requires borrowers to reaffirm a debt previously cancelled due to a determination of permanent and total disability. An explanation of changes in reaffirmation procedures is provided on page 10-63 of the Handbook. - The Department published a Final Rule dated April 29, 1994 which clarified the eligibility criteria and application procedures for a closed school or false certification discharge. Please refer to page 10-64 of the Handbook. - For the purposes of consolidating a defaulted loan, the number of payments to make under a "satisfactory repayment arrangement" have been reduced from six to three (effective July 1, 1995). For clarification of what constitutes a "reasonable and affordable payment" for reinstatement of SFA eligibility or for loan rehabilitation, please refer to the section on "Loan Rehabilitation" on pages 10-68 and 10-69 of the Handbook. Guidance on loan rehabilitation and on reinstatement of SFA eligibility was provided in an FFELP Final Rule published June 28, 1994. SECTION EIGHT: PAYMENT TO THE STUDENT - New timeframes regarding the disbursement of FFEL loans by EFT or by master check are given on pages 10-95 and 10-96 of the Handbook. Regulatory guidance was provided in a Student Assistance General Provisions and FFELP Final Rule published December 1, 1994 (effective date July 1, 1995). New rules regarding timeframes for second and subsequent disbursements were provided in the same December 1 regulation cited above. For these disbursements, a school may pay directly, or credit the account of, an enrolled student no earlier than ten days before the first day of the enrollment period (semester, term, or other period of enrollment for which the disbursement is to be made). These procedures are explained on page 10-96. SECTION NINE: DEFAULT REDUCTION MEASURES - Effective since October 1, 1994, before a final cohort default rate for a school is calculated, each guaranty agency that has insured loans for current or former students for a school must give that school a reasonable opportunity to review and correct errors in the information it provided to the guaranty agency. Please refer to page 10-102. Guidance concerning timeframes for appeal are provided in the November 29, 1994 General Provisions regulation. - It is now possible for institutions to file default rate appeals based on allegations of improper loan servicing and collection. The ability to make such an appeal was contained in the Student Assistance General Provisions Interim Final Rule published on April 29, 1994, effective July 18, 1994. Comprehensive regulatory guidance was published as a Student Assistance General Provisions Final Rule dated November 29, 1994. More information on this type of appeal is provided on pages 10-112 and 10-113. SECTION ELEVEN: ADDITIONAL REQUIREMENTS AND RESPONSIBILITIES OF SCHOOLS - New refund policy timeframes are provided on page 10-130. As stated in the November 29, 1994 FFELP Final Rule, a school may now make a refund to a lender within 60 days after the student's withdrawal date has been determined under 34 CFR 668.22. (The timeframe had previously been reduced from 60 days to 30 days.) The revised section 668.22 can be found in the November 29, 1994 General Provisions and FFELP Final Rule (a different regulation than the one referred to above). 34 CFR 668.22 (j), "Refund dates", refers to students who have officially withdrawn, have dropped out, or have failed to return from an approved or unapproved leave of absence. The November 29, 1994 FFELP Final Rule references the General Provisions section; it states that a school must follow the procedures in 34 CFR 668.22 to determine student withdrawal and refund dates, and to report withdrawal dates to lenders. Both of the regulations referred to above have an effective date of July 1, 1995. GENERAL TOPIC SUMMARY OF EACH SECTION Section One of this chapter covers borrower eligibility criteria of particular interest to students with FFEL Program loans; more detail on general eligibility requirements is provided in Chapter Two of the Handbook. Sections Two through Five cover the FFELP provisions, including a short section (Section Five) on loan consolidation and refinancing. Section Six concentrates on elements common to all FFEL programs, and includes some program differences. Section Seven takes you step-by-step through the loan application process. Section Eight covers payment of loan proceeds. Section Nine focuses on default reduction measures, especially those requirements that are mandatory for schools with default rates above a given level. Section Ten covers the requirements of loan counseling and offers suggestions about how loan information might be presented to students. Finally, Section Eleven covers those responsibilities and requirements of schools that have not been addressed in previous sections. |