April 10, 2009
The National Council of Higher Education Loan Programs (NCHELP) provided the following information received from the U.S. Department of Education (ED) to clarify several provisions found in the Higher Education Opportunity Act (HEOA) and the College Cost Reduction and Access Act (CCRAA).
ED’s interpretation of the HEOA statutory change regarding the loan-specific deferment eligibility is that loan-specific deferment eligibility applies only to the new PLUS loan enrollment and the less-than-half-time post-enrollment periods for PLUS loans. The HEOA refers to the other deferment types, including unemployment, economic hardship, rehabilitation training, graduate fellowship and active duty or qualifying National Guard duty. These deferment types continue to be borrower-specific.
ED also states that it is acceptable for lenders to use NSLDS to determine eligibility for PLUS loan deferment. However, the parent PLUS loan borrower needs to initiate the request for deferment or post-enrollment deferment based on the dependent student.
In the HEOA Servicemembers Civil Relief Act (SCRA) provision, ED advises that endorsers are only eligible for the 6 percent interest rate limitation if they qualify as an eligible service member under the SCRA. Endorsers who don’t qualify can be billed at the applicable statutory interest rate. If the borrower’s or endorser’s military orders are open-ended, administrators can track the individual's eligibility on the Defense Manpower Data Center Web site.
The HEOA extended the length of the cohort default rate calculation from the current two-year period to a three-year period and increased the ceilings for most benefits and sanctions beginning with the FFY 2009 rates. ED’s transition plan for providing cohort default rate calculations beginning with the FY 2009 rates follows.
Based on ED’s clarification of the “no accrual of interest” benefit for active duty service members, a borrower may consolidate his or her Federal Family Education Loan Program (FFELP) loans first disbursed on or after October 1, 2008 (including Federal Consolidation Loans that repaid FFELP or Direct Loan Program loans first disbursed on or after October 1, 2008) into the Direct Loan Program to take advantage of the no accrual of interest benefit for active duty service members. No interest will be charged on the portion of the borrower’s Direct Consolidation Loan that repaid FFELP or Direct Loan Program loans first disbursed on or after October 1, 2008 during periods of qualifying active duty military service (for up to 60 months).
This HEOA provision limits a FFELP and Direct Loan borrower to loan rehabilitation only one time per defaulted loan. Initial guidance from ED suggested that a borrower had to have been in a rehabilitation program prior to the HEOA effective date of August 14, 2008 to rehabilitate any loans that had been previously rehabilitated and subsequently defaulted.
Guidance in the December 2008 HEOA DCL appeared to limit the restriction to borrowers who rehabilitate defaulted loans on or after August 14, 2008 and subsequently default on those loans. The student loan industry questioned the guidance and NCHELP received confirmation from ED regarding the impact to borrowers. Per ED, this new restriction impacts only borrowers who rehabilitate defaulted loans on or after August 14, 2008. A borrower’s loans included in any rehabilitation on or after August 14, 2008 are not eligible to be included in a future rehabilitation. The triggering event is the borrower’s attempt to rehabilitate a second or subsequent time for loans that were rehabilitated on or after August 14, 2008. Borrower loans included in any rehabilitation on or after August 14, 2008 are not eligible to be included in future rehabilitations. This restriction aligns the FFELP and Direct Loan Program with the Perkins Loan program, which has operated under this restriction since 1998.
The CCRAA provision for economic hardship deferment eliminated the 20/220 debt-to-income borrower eligibility criterion. The preamble to the October 23, 2008 final rules clarifies that lenders are permitted to grant an economic hardship deferment based on the 20/220 debt-to-income criterion to an eligible borrower who requests a deferment after July 1, 2009 for a deferment period that began prior to July 1, 2009 and is for a period not to exceed 12 months from the pre-July 1, 2009 start date. No additional economic hardship deferment periods may be granted based on the 20/220 debt-to-income criterion at the conclusion of that deferment period or for any deferment request on or after July 1, 2009 for a deferment period that begins on or after that date [page 632535].
According to clarification from ED regarding borrowers who are called to duty during their grace period, borrowers “will receive their full grace period on a loan before the 13-month post-active duty student deferment period would begin.” ED interprets this to mean that any periods of grace used by a borrower before active duty service are not counted toward the subsequent full six-month grace period that a borrower will receive when the borrower is demobilized. For example, if a borrower is activated to military duty after using three months of his or her six-month grace period, if the borrower does not return to school after being demobilized, the borrower will receive his or her six-month grace period followed by the 13 months of post-active duty student deferment.
For more information about the HEOA or CCRAA provisions or regulatory guidance, visit OGSLP’s Legislation Web page or contact OGSLP’s Policy, Compliance, and Training department at 405.234.4432 or pct@ogslp.org. We’re here to help!