Bulletin ID
DLB - 93 - 2
| PublicationDate: 9/1/93 BulletinID: DLB - 93 - 2 Direct Loan Bulletin # 2, September 1993 Dear Colleague: Enclosed is a copy of the Federal Register notice that outlines the school selection criteria for the 1994-95 academic year and provides other specific program information. The notice also serves as an invitation to schools to apply to participate in the Federal Direct Student Loan Program (FDSLP). The application is included with this notice. Schools desiring to participate in the FDSLP must submit applications by mail or fax no later than October 1, 1993. The Department will make the first loans under the FDSLP for periods of instruction beginning July 1, 1994. Again, I urge you to submit your application as soon as possible. Applications postmarked or received by fax after October 1, 1993 will not be accepted. We are all committed to having a quality program operational in a timely manner. With your support and assistance I know we will achieve our goals. David A. Longanecker Assistant Secretary for Postsecondary Education TEXT OF FEDERAL DIRECT STUDENT LOAN PROGRAM APPLICATION NOTICE, PUBLISHED FRIDAY, SEPTEMBER 10, 1993 DEPARTMENT OF EDUCATION FEDERAL DIRECT STUDENT LOAN PROGRAM AGENCY: Department of Education ACTION: Notice SUMMARY: The Secretary of Education issues a notice inviting applications by schools to participate in the Federal Direct Student Loan Program (FDSLP) in the academic year beginning July 1, 1994. EFFECTIVE DATE: This notice is effective upon publication in the FEDERAL REGISTER. DEADLINE DATE FOR REQUEST TO PARTICIPATE IN THE FDSLP: As required by statute, a school must submit its request to participate in the FDSLP by October 1, 1993. FOR FURTHER INFORMATION CONTACT: Lloyd Robertson" U.S. Department of Education, 400 Maryland Avenue, S.W., Washington, DC 20202-5162. Telephone: (202) 708-8242. Individuals who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8 p.m." Eastern time, Monday through Friday. SUPPLEMENTARY INFORMATION: The Student Loan Reform Act of 1993" part of the Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103~6), established a new loan program under title IV, part D of the Higher Education Act of 1965 as amended (HEA). Under this program, known as the Federal Direct Student Loan Program (FDSLP), loan capital is provided directly to student and parent borrowers by the Federal Government rather than through private lenders. This program replaces the direct loan demonstration program that was authorized by the Higher Education Amendments of 1992 (Pub. L.102-325). For the first academic year during which the FDSLP is operational" the year beginning July 1, 1994, the Secretary will select schools to participate in the FDSLP from those schools that have applied to participate in the FDSLP. The Secretary may also select additional schools if necessary to carry out the purposes of Part D. The statute directs the Secretary to exercise his discretion in the selection of schools so that the loans made under the FDSLP will represent 5 percent of the new student loan volume for academic year 1994-1995. The goals for the percentage of new student loan volume in subsequent years of loans made under the FDSLP increase significantly. See Section 455(a)(2) of the HEA. The Secretary anticipates that schools selected to participate in the FDSLP in the 1994-1995 academic year will continue to participate in subsequent years and will not be required to reapply in subsequent years. The Secretary will publish rules regarding the administration and operation of the FDSLP for the 1994-1995 academic year in the FEDERAL REGISTER shortly. The Secretary anticipates that these rules will be based on the final regulations for the direct loan demonstration program published in the FEDERAL REGISTER on July 2, 1993 (58 FR 36088), revised to reflect changes from the Student Loan Reform Act of 1993 and administrative initiatives. These rules will be published after consultation with members of the higher education community. Schools that are selected to participate in the FDSLP but wish to withdraw after publication of the rules will be allowed a reasonable period to do so. I. School Selection The Secretary will exercise the discretion afforded him in the statute in selecting schools for participation in the FDSLP during the 1994- 1995 academic year to ensure as smooth an implementation as possible and to provide a solid base of experience for the increase in FDSLP volume. The Secretary will select, to the extent practicable, schools to participate in the FDSLP that reasonably represent the universe of participants in the Federal Family Education Loan (FFEL) Program, along such factors as type and control of institution, geographic distribution, loan volume, default rates, composition of student body, etc.. A broad spectrum of schools participating in the first year of the program will also provide the robust test of the FDSLP operations and procedures that is necessary for the second and subsequent years when the volume of loans made under the FDSLP will increase significantly. A. Requirements for participation The Secretary has decided that, to participate in the FDSLP in the 1994-1995 academic year, a school must have a program participation agreement under the FFEL Program. In addition, because a school in the FDSLP must be an eligible institution according to section 435(a) of the HEA and is thus subject to certain provisions relating to cohort default rates, the Secretary has decided that in order for a school to be selected to participate in the FDSLP in the 1994-1995 academic year, that school must have a cohort default rate that is less than 25 percent in one of the two most recent years for which cohort default rates are available. See Section 453(d) of the HEA. Because participation is limited, the Secretary believes that it is not in the best interest of the FDSLP to allow a school to participate if there is a high probability that the school will lose its eligibility to participate in the Federal student loan programs. The Secretary reserves his right to exempt Historically Black Colleges and Universities as defined in section 322(2) of the HEA, tribally controlled community colleges within the meaning of section 2(a)(4) of the Tribally Controlled Community College Assistance Act of 1978, or a Navajo Community College under the Navajo Community College Act from the default rate requirement. B. Other factors considered by the Secretary The Secretary anticipates choosing schools that have demonstrated a strong commitment to direct lending and the capacity to implement and administer the FDSLP. The Secretary will base his decision on whether a school has this capacity on a number of factors such as those given as criteria for a school to originate loans. The Secretary views the FDSLP as the future of student loans. As such, the Secretary intends to make maximum use of available technology in the program. Consistent with this intention, the Secretary anticipates that the majority of schools participating will participate electronically or be willing and capable to do so in the very near future. In order to originate loans a school must participate electronically. Currently, schools participating in the campus-based programs, which include the Federal Perkins Loan Program, the Federal Supplemental Educational Opportunity Grants Program, and the Federal Work-Study Program, must do so electronically. Additionally, the majority of schools participating in the Federal Pell Grant Program also do so electronically. Therefore, the Secretary will give strong consideration to a school that is currently participating in the Department's Electronic Data Exchange program when selecting schools to participate in the FDSLP. II. School Participation A. Participation in the FFEL Program and the FDSLP Generally, a school participating in the FDSLP will make loans (not including loans made under the Federal Perkins Loan Program) to students and parents of students attending that school only through the FDSLP. However, the Secretary has the discretion to allow schools to participate in both the FFEL Program and the FDSLP. Schools permitted to participate in both programs may certify loans under the FFEL Program only to those borrowers that have an outstanding balance on an FFEL Program loan. Students who have no outstanding balance on an FFEL Program loan may receive loans only under the FDSLP. The Secretary anticipates that the percentage of schools in the FDSLP that also participate in the FFEL Program will be small. A school permitted to participate in both the FFEL Program and the FDSLP would be responsible for ensuring that a borrower at that school does not receive loans under a program for which the borrower is not eligible. B. Federal Direct PLUS Loans Some schools have expressed concern that they would be required to conduct the credit check mandated for Federal Direct PLUS loans. Schools will not be responsible for conducting credit checks. Federal Direct PLUS loans will be made through a process similar to the one used in the FFEL Program. The parent will complete a combined application/promissory note and send it to the school. The school will forward this document to the Secretary where the data will be key entered and a credit check performed. Alternatively, a school will enter the data using the software provided by the Secretary, and electronically forward this information to the Secretary. In either case, the Secretary will perform the credit check and notify the school of the results. The Secretary will also notify the parent directly if the credit check indicates an adverse credit history, and advise the parent what options are available, e.g., obtaining an endorser without an adverse credit history. Once the loan is approved, the school may then draw down money and disburse the loan funds in the same manner as it would for other loans made under the FDSLP. For those schools which participate in both the FDSLP and the FFEL Program, a parent of an eligible student may borrow only under the program from which the student borrowed, or would have borrowed, if the student had received a student loan. C. Origination The Student Loan Reform Act of 1993 requires that a school originating loans in the FDSLP in the 1994-1995 academic year: 1) Have signed a participation agreement with the Secretary for participation in the FDSLP; 2) Desire to originate loans; 3) Have made loans in the Federal Perkins Loan Program and not have exceeded the applicable maximum default rate under section 462(g) of the HEA for the most recent fiscal year for which data are available; 4) Not be on the reimbursement system of payment for any of the programs under subpart 1 or 3 of part A, part C, or part E of title IV of the HEA; 5) Not be overdue on program or financial reports or audits required under title IV of the HEA; 6) Not be subject to a proposed or final emergency action, or a proposed or final limitation, suspension, or termination action under section 428(b)(1)(T), 432(h), or 487(c) of the HEA; 7) Not, in the opinion of the Secretary, have significant deficiencies identified by a State postsecondary review entity under subpart 1 of part H of title IV of the HEA; 8) Not, in the opinion of the Secretary, have had severe performance deficiencies for any of the programs under this title, including such deficiencies demonstrated by audits or program reviews submitted or conducted during the 5 calendar years immediately preceding the date of application; and 9) Provide an assurance that the institution has no delinquent outstanding debts to the Federal Government, unless (a) those debts are being repaid under or in accordance with a repayment arrangement satisfactory to the Federal Government; or (b) the Secretary determines that the existence or amount of the debts has not been finally determined by the cognizant Federal agency. See Section 453(c) of the HEA. D. Alternate originator If a school that participates in the FDSLP does not originate loans, it will use the services of an alternate originator that has contracted with the Secretary for that purpose. An alternate originator in the FDSLP will perform the functions that are necessary in the FDSLP that in the FFEL Program are performed by guaranty agencies and lenders. E. Consortia A consortium of schools in the FDSLP would interact with the Secretary in the same manner as other schools, except that the communication between the Secretary and the schools in the consortia is consolidated and channeled through a single point. Each school in a consortium will be required to sign the FDSLP participation agreement with the Secretary and be responsible for the information supplied through the consortium. If a consortium wishes to originate loans, each school in the consortium must be eligible to originate. Application Procedures The Secretary has developed an application for a school to use to apply to participate in the FDSLP. A copy of the application is included as Appendix A with this notice. A place is provided for an applying school to indicate whether it desires to originate loans under the FDSLP. In addition, an applying school must indicate how it anticipates participating in the FDSLP, (i.e., mainframe, PC, or paper). If a school desires to participate in both the FFEL Program and FDSLP, it must include an estimate of the percentage of new loan volume that will be made under the FDSLP. In addition, such a school must provide a written statement that explains why the school wishes to participate in both the FFEL Program and the FDSLP and how the school anticipates managing the FFEL Program and the FDSLP simultaneously. If a school is applying as part of a consortium, it must indicate the exact names of all schools in the consortium. In order to be considered for participation in the 1994-1995 academic year, a school must complete the application and submit it to the Secretary by October 1,1993. Applications postmarked after October 1, 1993 will not be accepted. A school may fax its application to the Secretary at (202) 401-3424 or (202) 205-0786. If a school does fax its application, it must do so not later than October 1, 1993. Waiver of Rulemaking It is the practice of the Secretary to offer interested parties the opportunity to comment on proposed regulations. However, the Omnibus Budget Reconciliation Act of 1993, enacted August 10, 1993 (Reconciliation Act), requires that the Secretary publish a notice in lieu of regulations for the first year of the FDSLP and exempts the contents of the notice from the rulemaking requirements of section 431 of the General Education Provisions Act. The Reconciliation Act also requires that the Secretary establish a date not later than October 1, 1993, as the closing date for receiving applications from institutions of higher education desiring to participate in the first year of the program. While the Secretary has consulted with members of the higher education community in the development of this notice, the statutory timeframe for the program does not permit the solicitation of further public comment. Therefore, the Secretary finds that such a solicitation would be impracticable and contrary to the public interest under 5 U.S.C. 553(b)(B). Dated: September 8, 1993 Richard W. Riley, Secretary of Education. |