Negotiated Rulemaking - Loans Team Package II Betsy Mayotte, ASA Vicki Shipley, NCHER Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Disclaimer This material is for informational purposes only and is not intended to serve as legal advice. Individuals are advised to consult their own legal counsel to determine the issues particular to their own situation and any results that may apply Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Background Guarantor Issues Lender/Servicer Issues What’s Next Resources Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Package 2 Agenda Forbearances Administrative Wage Garnishment Rehabilitation Enrollment Reporting Closed School Discharge Perkins Loans FFEL Repayment Disclosures Minimum Loan Period for Transfer Students Participation Rate Index FFEL/DL Alignment Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Effective Dates  Package II – Generally effective 7/1/2014 – Voluntary early implementation for some provisions – Final Rule November 1, Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Administrative Forbearance  New rules will allow administrative forbearance to a borrower who is delinquent at the beginning of an authorized period of forbearance  (f) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Lender 60-Day Repayment Disclosure Requirements  No longer required to provide “difficulty making payment” disclosure if payment issue has been resolved  Timeframe to send 60 day delinquency notice changed from 5 calendar days to 5 business days  (a)(4) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Military Forbearances  Allows mandatory forbearance for service that is eligible for partial loan repayment under any Department of Defense program – Adds this forbearance for Direct Loans Borrower must request and provide documentation (h) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Post 270-Day Forbearances  Current rules allow verbal forbearances for both programs up to 270 days past due – DL allows after 270 days up to transfer to collections – FFELP only allows written after 270 days past due  New rule will allow limited verbal forbearance under both programs for loans 270 days past due or more where: – No claim has been paid under the FFELP – Loan has not been transferred to DL collections  120-day limit – Can be used multiple times but not consecutively – (d) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Regaining Title IV Eligibility  Borrower gets one opportunity to renew his/her eligibility for title IV assistance.  Making payments under rehab doesn’t trigger – must actually obtain new Title IV funds  “On-time” now within 20 days of due date rather than 15  (b) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Closed School Discharge  Desire to specify an exceptional circumstance and tie timeframes more closely to real life occurrences of schools closing  To qualify for closed school discharge, borrowers must have attended within 120 (rather than 90) days of school closure – Other eligibility rules remain the same – (d) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Closed School Discharge  Exceptional circumstances may include, but are not limited to: – The school’s loss of accreditation; – The school’s discontinuation of the majority of its academic programs; – Action by the State to revoke the school’s license to operate or award academic credentials in the State, or – A finding by a State or Federal government agency that the school violated State or Federal law – (d) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

When is a School Not a School?  For purposes of closed school discharge a school IS: – The school’s main campus and/or – Any location or branch of the main campus  A school is NOT: – A single program – Most but not all of a schools programs – (d) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

FFELP and DL Clean-up  Longest Issue Paper EVER!  Deleted much of origination language from FFEL – added to DL as needed  Inducement language Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Transfer of Credits  For students transferring into clock hour or credit hour schools with no standard terms  Current rules only allow new loan origination – For remainder of program if program is less than academic year in length or – For remainder of academic year but only – If school accepts credits from “old” school  Borrowers will no longer have to worry about the ramifications of transferring to a school that does not accept credit or clock hours from the previous school  Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Perkins Cancellation  Teacher Loan Forgiveness/employment based forgiveness – Borrower who does not complete year for FMLA reasons still gets credit as year worked Must have completed at least half of year  Borrowers who change employment but maintain same cancellation progression category maintains status  (c)(1) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Other Perkins Changes  On-time repayment definition for rehab changed from 15 to 20 days  Perkins loans made prior to 1982 can now be assigned to ED without an SSN  Eliminates debt to income provisions for economic hardship deferment  Aligns graduate fellowship deferment requirements with those of the FFEL and DL Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Questions? Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

First Things First Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Guarantor Specific Issues  Regaining Title IV Eligibility  Loan Rehabilitation  Loan Rehabilitation-AWG  Administrative Wage Garnishment Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Loan Rehabilitation  All loan rehab payments must be “reasonable and affordable” (R & A) and agreed upon by loan holder and borrower. – Cannot be balance based  § (b) § (f) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Loan Rehabilitation  *Guaranty agency must determine a borrower’s initial reasonable and affordable payment amount based on the “15% formula”. – IBR formula used but NOT an IBR payment – 15% of AGI – 150% of poverty level/12 – New 7/1/2014 IBR rules will not apply here – No other IBR rules apply  § (b) § (f) – *Red denotes changed or new from Proposed Rule Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Loan Rehabilitation  If borrower objects to 15% formula payment, payment Financial Disclosure for Reasonable and Affordable payment form must be collected and payment determined  Borrower can then choose which payment they prefer  Payment can be as low as $5  § (b)(1)(iii) (A)  § (f)(1)(i)(A) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Loan Rehabilitation  New ED-approved form for gathering financial information if 15% formula payment amount is rejected by the borrower.  Form includes consideration for family size and specific expenses.  Borrower may be asked to provide documentation to support the request Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Loan Rehabilitation  Rehab agreement due to borrower within 15 days of payment determination  Rehab Agreement must include: – Borrower’s reasonable and affordable payment amount. – A prominent statement that the borrower may object orally or in writing to the R & A payment amount. – Method and timeframe for raising such an objection… Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Loan Rehabilitation – An explanation of any other terms and conditions required for loan to be rehabilitated – The effects / benefits of having a loan rehabilitated. – Amount of collection cost to be added to the unpaid principal when the loan is sold May not exceed 18.5%  § (b)(1)(v)   § (f)(1)(iii) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Additional Restrictions Prohibited Guarantors and ED may not impose additional requirements for borrowers to rehabilitate. Requiring updated contact information not considered an additional requirement so is allowed Requiring a signed rehabilitation agreement is allowed § (b)(1)(v) and § (f)91)(iii) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Loan Rehabilitation  GA must limit contact with the borrower whose loan is being rehabilitated to: – Collection activities that are required by law or regulation. – Communications that support the rehabilitation.  § (b)(1)(x) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Loan Rehabilitation - AWG  Administrative Wage Garnishment must be suspended after 5 voluntary payments – Unless otherwise instructed by borrower – Does not supersede other suspension requirements – Benefit can only be used once – GA must notify if AWG resumes, but hearing and notice requirements do not apply.  Adjustments can be made to the voluntary payment amount – should be agreed to and reflected in the written rehabilitation agreement.  § (a)(3)  § (f)912)(i) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Administrative Wage Garnishment  30-day notice still required prior to initiating garnishment proceedings. Must include – Nature and amount of the debt. – Intention to collect the debt through deductions from disposable pay. – An explanation of the borrower’s rights. – Deadlines by which the borrower must exercise those rights. – Consequences of failure to exercise those rights in a timely manner.  § (b)(9)(i)(H) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Administrative Wage Garnishment  GA must still offer borrower reasons to object to AWG. Reasons include: – Existence of the debt. – The amount of the debt – Enforceability of the debt. (New for 2014) – Amount of collection cost exceeds the permissible amount – Financial hardship caused due to the amount or at the withholding rate proposed in the notice.  § (b)(9)(i)(E)(1) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Administrative Wage Garnishment  Borrower’s objection due to financial hardship due to amount of AWG: – Borrower must provide proof of income and expenses – GA must lower if required by hearing official – Borrowers financials are in sync with “collection financial standards” set by IRS – Lowered order in effect for six months – GA may increase, but must notify borrower and give opportunity to object – Borrower may object to amount at any time, but GA is not required to consider until six months after prior order issued  § (b)(9)(i) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Administrative Wage Garnishment  Borrower will have 30 days from AWG notice to submit written request for hearing – If received timely, GA may not issue withholding order until hearing completed and decision rendered – Must be completed within 60 days Can be extended if borrower raises objection not previously raised – If not received timely, withholding order must be issued Hearing and decision must still be completed within 60 days – Withholding order must be suspended if hearing not completed on 61st day – even if extension granted  § (b)(9)(i)(J) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Administrative Wage Garnishment Miscellaneous Bits  Hearing official may not be under the supervision/control of the head of the guaranty agency, “or of a third-party servicer or collection contractor employed by the agency.”  All oral communications — except for hearing logistical issues — with any representative of the guaranty agency or with the borrower are made within the hearing of the other party – Copies of any written communication with either party are promptly provided to the other party.  § (b)(9)(i)(I) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Administrative Wage Garnishment  Employer in receipt of AWG order must withhold smaller of: – Amount specified in the AWG order. – 15% of the borrower’s disposable pay (as permitted by section 488A(a)(1) of the HEA) – Cumulative amount of all orders not to exceed 25%  Federal loans receive priority over other orders other than family support.  § (b)(9)(i)(K) Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Negotiated Rulemaking & Pending Regulatory Changes  Additional resources/references can be obtained by accessing the NCHER Negotiated Rulemaking web-link:   Neg Reg pages  /hearulemaking/2011/index.html /hearulemaking/2011/index.html Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

Questions and Discussion