May 4, 2010

Common Manual Update

The April version of the Integrated Common Manual is now available on the Common Manual website. A summary of important changes is provided below.

Batch 168: 1190 – Income-Based Repayment (IBR) Schedule

The Final Regulations published Oct. 29, 2009 amended the method for determining if a borrower has a partial financial hardship (PFH). The rules were amended to provide more equitable treatment for borrowers who have large amounts of capitalized interest and for married borrowers who both have student loans and file a joint federal tax return.

Effective for IBR plan requests or renewals processed by the lender on or after July 1, 2010 in calculating the PFH:

• The “annual payment amount” must be based on the greater of the amount due on all eligible loans when the borrower initially entered repayment or when the borrower requests the IBR plan.
• For a married borrower filing taxes jointly, the “annual payment amount” may include all eligible loans of both spouses, adjusted to reflect the individual borrower’s percentage of the couple’s total eligible loan debt, and adjusted to reflect the percentage of the borrower’s outstanding principal balance held by that lender (if the borrower has eligible loans held by multiple lenders).

1191 – Loan Disclosures during Repayment

The Final Regulations published Oct. 29, 2009 clarified three of the disclosures that a lender must provide in regular billing statements, effective for loans with first payments due on or after July 1, 2010:

• The total amount of interest that the borrower has paid on the loan since the last bill or statement.
• The aggregate amount the borrower has paid on the loan, as well as separate aggregate amounts identifying the interest paid, the fees paid, and the amount paid against the principal balance.
• The lender or loan servicer’s address and toll-free phone number for repayment options, payment and billing error purposes.

1192 – Disclosure When Granting a Deferment on Unsubsidized Stafford and PLUS Loans

The Final Regulations published October 29, 2009 clarified the disclosures a lender must provide when granting a deferment on an unsubsidized Stafford or PLUS loan, effective for deferments granted on or after July 1, 2010.

Before or at the time a lender grants a deferment on an unsubsidized Stafford or PLUS loan, a lender must provide general information, including an example, to the borrower to assist the borrower in understanding the impact of the capitalization of interest on the loan principal and the total amount of interest to be paid over the life of the loan. In addition, the lender must notify an unsubsidized Stafford or PLUS borrower of the option to pay the accruing interest or cancel the deferment and continue to make monthly payments on the loan.

1193 – Loan Disclosures During Delinquency

The Final Regulations published Oct. 29, 2009 clarified two of the disclosures a lender must provide when a borrower is 60 days delinquent, effective for loans that become delinquent on or after July 1, 2010:

• As of the date of the notice, the minimum payment the borrower must make to avoid default, including the payment amount needed either to bring the loan current or to pay the loan in full.
• Additional loan repayment advice and assistance for borrowers, including information from nonprofit organizations, advocates and counselors (including the Student Loan Ombudsman of the U.S. Department of Education).

Revised policy also incorporates guidance stating a lender must send this disclosure notice to a borrower within five days of the date the borrower becomes 60 days delinquent, unless the lender has sent a similar notice to that borrower within the preceding 120 days.

Batch 169: 1207 – Total and Permanent Disability Loan Discharge Based on Regular Determinations

The preamble to the proposed rules published July 23, 2009 and the Final Regulations published Oct. 29, 2009 provided new definitions of “total and permanent disability” and “substantial gainful activity,” effective for TPD applications received by the lender on or after July 1, 2010.

The physician’s certification must state that the borrower, co-maker or endorser is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that meets any one of the following criteria:

• Can be expected to result in death.
• Has lasted for a continuous period of not less than 60 months.
• Is expected to last for a continuous period of not less than 60 months.

Substantial gainful activity is defined as a level of work performed for pay or profit that involves doing significant physical or mental activities, or a combination of both. “For profit” is intended to cover self-employed individuals who are not paid by an employer. It does not refer to income from sources other than employment. Non-employment income will not be considered when determining whether a borrower is capable of substantial gainful activity.

Total and permanent disability discharges that are approved will be placed in a three-year monitoring period, during which the loan obligation will be reinstated if the borrower, co-maker or endorser:

• Has annual earnings from employment that exceed 100% of the poverty line for a family of two.
• Receives a new TEACH grant or a new Title IV loan, except for a Federal or Direct Consolidation loan that includes loans that were not discharged.
• Fails to ensure that the full amount of any disbursement of a Title IV loan or TEACH grant received prior to the discharge date that is made during the three-year period following the discharge date is returned to the loan holder or to the Department, as applicable, within 120 days of the disbursement date.

As always, if you have questions about the manual, contact our Policy, Compliance and Training department at 405.234.4432 or PCT@ogslp.org. We're here to help!