May 29, 2008
Upcoming Regulatory Changes - Part 2
In the Online News April edition, OGSLP featured provisions from the Higher Education Reconciliation Act (HERA) and College Cost Reduction and Access Act (CCRAA). To help school and lender customers continue preparing for the upcoming regulatory transitions, we’re highlighting items from the November 1, 2007 Loan Provisions Final Rules that have an effective or trigger date of July 1, 2008.
Early Implementation Provisions
Lender Processing of Deferment
For borrowers whose first loan was disbursed on or after July 1, 1993, lenders may now grant a deferment based on information from another loan holder or NSLDS. Additionally, lenders may now grant a military service or armed forces deferment request based on eligibility documentation received from either the borrower or the borrower's representative. The borrower's representative can be a member of the borrower's family or another reliable source. See OGSLP’s December 13, 2007 Online Newsletter for more information.
Frequency of Capitalization for Consolidation Loans
The Final Rules specify that accrued interest on a consolidation loan during a period of authorized in-school deferment may only be capitalized at the expiration of the deferment. Currently, accrued interest on Federal Consolidation loans may be capitalized once each quarter and is also permitted when repayment begins or resumes. See OGSLP’s January 17, 2008 Online Newsletter for more information.
Stafford/Grad PLUS Loan Entrance Counseling and Stafford Loan Exit Counseling
Schools must ensure that Grad PLUS borrowers receive entrance counseling before the release of the first disbursement unless the student has previously received a FFELP or Direct Grad PLUS loan.
The counseling requirements vary depending upon whether the student has previously received a FFELP or Direct Stafford loan and whether the loan was subsidized or unsubsidized. See OGSLP’s March 27, 2008 Online Newsletter for more information.
False Certification Due to Identity Theft
A lender shall suspend consumer reporting agency reporting for up to 120 days after receiving a valid identity theft report - as defined in the Fair Credit Reporting Act (FCRA) - or notification from the consumer reporting agency that a report of identity theft has been made while the lender determines the enforceability of a loan. A lender may grant an administrative forbearance of up to 120 days if it receives a valid identity theft report while the lender investigates the loan’s enforceability.
After discharge due to identity theft, a lender must notify the consumer reporting agencies to delete any information about the loan from the borrower’s credit record. See OGSLP’s March 27, 2008 Online Newsletter for more information.
Death Claim Documentation
The new provision allows for the use of an accurate and complete photocopy of the original or certified copy of the borrower’s death certificate when granting loan discharge based on a borrower’s death (or a student’s death and death certificate, in the case of a PLUS loan). See OGSLP’s April 24, 2008 Online Newsletter for more information.
Other Provisions with a July 1, 2008 Effective Date
Late Disbursements
Amended provisions allow schools to make late disbursements of federal student aid authorized under Title IV of the Higher Education Act of 1965 (HEA), as amended. As a result of these changes, the Department of Education (ED) will discontinue the process outlined in Dear Colleague Letter GEN-05-13, by which a school may request approval to make a late disbursement beyond the regulatory late disbursement period. Late disbursements beyond the regulatory late disbursement period have commonly been referred to as "late" late disbursements. See ED’s May 20, 2008 Electronic Announcement for more information.
Total and Permanent Disability
The effective date of the borrower’s disability will be the date on which the physician completes and certifies the Total and Permanent Disability (TPD) discharge application. At the Secretary’s initial determination, the borrower’s loans are put in a conditional period for up to three years from the date the physician certifies the borrower’s TPD discharge application. The lender must request that a TPD application be completed and submitted within 90 days of the physician’s certification on the application.
If all criteria are met, the balance of the loan is discharged at the end of the conditional period. Any payments received after the date the physician certified the TPD application are returned.
Lender Certification of E-signed Master Promissory Notes (MPN)
If required to submit a certification, the lender or guarantor must provide:
- A description of steps the borrower took to execute the promissory note (e.g., a flowchart);
- Screen prints of the borrower’s progression through the e-sign process;
- A description of the security measures (such as field edits) used to ensure data integrity;
- A description of measures taken to ensure that promissory note information has not been altered since execution;
- Documentation of the lender’s authentication and e-sign process; and
Master Promissory Note (MPN) Retention Records
A new standard requires that the holder of an original e-signed MPN must retain the MPN for at least three years after all loans on the MPN are satisfied.
Maximum Length of Loan Period
The 12-month maximum loan period, previously in regulation, will be eliminated. This will allow FFELP schools to certify, guaranty agencies to guarantee, and Direct Lending schools to originate loans with loan periods longer than 12 months.
Prohibited Inducements
If a lender has offered, directly or indirectly, any points, premiums, payments or other inducements, except for those expressly permitted, to any school or other party to secure applications for FFELP loans or to secure FFELP loan volume, the lender is subject to ED sanctions.
Additional information about these provisions can be found in OGSLP’s Impact Summary for November 1, 2007 Loan Provisions Final Rules.