Negotiated Rulemaking - Loans Team Presented by: Kevin Tharp and Betsy Mayotte Presented to: NCHER Knowledge Symposium Date: November, 2012

Disclaimer This material is for informational purposes only and is not intended to serve as legal or policy advice. Individuals are advised to consult their own council to determine the issues particular to their own situation and any results that may apply. Navigating the Sea of Change 2012 NCHER Knowledge Symposium 2

Background The Politics The Issues Guarantor Issues What’s Next Resources Navigating the Sea of Change 2012 NCHER Knowledge Symposium 3

The Politics Election Year “Pay As You Earn” Implementation 2011 TPD News Current student loan debt crisis buzz Navigating the Sea of Change 2012 NCHER Knowledge Symposium 4

The Issues Changes to Income Contingent Repayment (ICR) Changes to Income- Based (IBR) Repayment FFEL Repayment Disclosures Minimum Loan Period for Transfer Students Participation Rate Index Forbearance Issues Administrative Wage Garnishment Rehabilitation Title IV Enrollment Reporting Perkins Loans Closed School Discharge Total and Permanent Disability Discharge FFEL/DL Alignment Navigating the Sea of Change 2012 NCHER Knowledge Symposium 5

Effective Dates Issues split into two packages 1st package – ICR/IBR/TPD – Effective 7/1/2013 – NPRM this summer, Final Rule this fall 2nd package – Everything else – May allow early implementation – Effective 7/1/2014 – Final Rule January, 2013 » Er…..we’ll have it soon Navigating the Sea of Change 2012 NCHER Knowledge Symposium 6

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 days of school closure – Other eligibility rules remain the same Navigating the Sea of Change 2012 NCHER Knowledge Symposium 7

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 Navigating the Sea of Change 2012 NCHER Knowledge Symposium 8

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 Navigating the Sea of Change 2012 NCHER Knowledge Symposium 9

Lender 60 Day 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 Navigating the Sea of Change 2012 NCHER Knowledge Symposium 10

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 Navigating the Sea of Change 2012 NCHER Knowledge Symposium 11

FFELP and DL Clean-up Longest Issue Paper EVER! Deleted much of origination language from FFEL – added to DL as needed Inducement language Navigating the Sea of Change 2012 NCHER Knowledge Symposium 12

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 Navigating the Sea of Change 2012 NCHER Knowledge Symposium 13

Administrative Forbearance New rules will allow administrative forbearance to be used to clear up remaining delinquency before authorized forbearance. Navigating the Sea of Change 2012 NCHER Knowledge Symposium 14

Guarantor Issues Loan Rehabilitation Each of the required loan rehabilitation payments is to be “reasonable and affordable” (R & A) and agreed upon. Guaranty agency must determine a borrower’s reasonable and affordable payment amount based on supported financial information. 15 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Loan Rehabilitation If the borrower objects to the monthly payment amount determined by the guaranty agency, you must recalculate the payment amount based on the IBR rules to determine the borrower’s new R & A payment amount, with a minimum payment of $ Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Loan Rehabilitation New ED-approved form for gathering financial information for the IBR calculation if the borrower objects to the R & A offer. Form now includes consideration for family size and situations of non-contributing spouse to the household income. Borrower must provide documentation to support the request. 17 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Loan Rehabilitation Guaranty agency is to provide the borrower with a written rehabilitation agreement within 15 business days of its determination of the borrower’s reasonable and affordable payment amount. 18 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Loan Rehabilitation The Rehabilitation 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. 19 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Loan Rehabilitation – An explanation of any other terms and conditions required for the borrower’s 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 which may not exceed 18.5% of P & I. 20 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Loan Rehabilitation The guaranty agency 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. 21 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Loan Rehabilitation - AWG If the guaranty agency is using administrative wage garnishment (AWG) and voluntary payments to allow the borrower to rehabilitate the loan, the guaranty agency must suspend collection by AWG after the fifth payment unless otherwise directed by the borrower. 22 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Loan Rehabilitation - AWG Adjustments can be made to the voluntary payment amount but should be agreed to and reflected in the written rehabilitation agreement. A borrower may obtain the benefit of suspending wage garnishment only once while attempting to rehabilitate a defaulted loan. 23 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Loan Rehabilitation - AWG If the borrower attempts to rehabilitate again, AWG would remain in place during the entire loan rehabilitation period. If AWG resumes, the AWG hearing and notice requirements would not apply. The guaranty agency would be required to notify the borrower of the resumption of the AWG process. 24 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Administrative Wage Garnishment Provides that only an authorized official of the guaranty agency may determine that an individual AWG order is to be issued. The guarantor may not delegate to any third party the decision to issue the order of withholding. Requires the agency to record the official’s determination for each order it issues. 25 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Administrative Wage Garnishment Continues to require a guaranty agency to send a 30-day notice to the borrower before initiating garnishment proceedings and requires additional information to be included in the notice. 26 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Administrative Wage Garnishment The 30-day notice must describe: – 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. 27 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Administrative Wage Garnishment Continues to require a guaranty agency to offer the borrower an opportunity for a hearing, but expands the reasons for which the borrower may object. 28 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Administrative Wage Garnishment A borrower can object concerning the: – Existence of the debt. – The amount of the debt – Enforceability of the debt. (New) – Amount of collection cost exceeds the permissible amount – Financial hardship caused due to the amount or at the withholding rate proposed in the notice. 29 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Administrative Wage Garnishment If the borrower’s objection is due to financial hardship based on the AWG amount or withholding rate the agency proposed in the notice, the borrower must prove the claim by providing credible documentation that the amount of wages proposed in the notice would leave the borrower unable to meet basic living expenses of the borrower, the borrower’s spouse, or the borrower’s dependents. 30 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Administrative Wage Garnishment If the borrower’s objection to the rate or amount proposed in the AWG notice is upheld in part, the garnishment may be ordered at a lesser rate or amount to allow the borrower to meet proven basic living expenses. If this financial hardship determination is made after a garnishment order is already in effect, the guaranty agency must notify the borrower’s employer of any change in the AWG order. 31 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Administrative Wage Garnishment Provides that if the borrower’s written request for a hearing is received on or before the 30th day (changed from 15 days) following the date of the AWG notice, the guaranty agency may not issue a withholding order until the borrower has been provided the requested hearing and a decision has been rendered. The hearing must be scheduled so that a decision can be rendered within 60 days. 32 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Administrative Wage Garnishment Clarifies that under no circumstances may the hearing official be under the supervision or control of the head of the guaranty agency, “or of a third-party servicer or collection contractor employed by the agency.” 33 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Administrative Wage Garnishment Requires the guaranty agency to ensure that all oral communications — except for logistical issues relating to the hearing — with any representative of the guaranty agency or with the borrower are made within the hearing of the other party, and that copies of any written communication with either party are promptly provided to the other party. 34 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Administrative Wage Garnishment Clarifies that when an employer is served for the first time with an AWG order for a borrower, the employer must deduct from the borrower’s disposable pay and pay to the guaranty agency an amount that does not exceed the smallest of: – Amount specified in the AWG order. – 15% of the borrower’s disposable pay (as permitted by section 488A(a)(1) of the HEA). 35 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Administrative Wage Garnishment Permits a borrower, at any time, to raise an objection to the amount or rate of withholding on the ground of financial hardship. However, the guaranty agency does not have to consider the objection or provide a hearing until at least six months after the most recent AWG order was issued. 36 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Regaining Title IV Eligibility Borrower gets one opportunity to renew his/her eligibility for title IV assistance. Making monthly payments under an agreement to rehabilitate a defaulted loan doesn't mean that he/she has used up the one opportunity, unless the borrower received additional title IV assistance. 37 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Regaining Title IV Eligibility Definition of “on-time” changed from agreed upon payments within 15 days of the scheduled due date to within 20 days of the scheduled due date. 38 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Participation Rate Index Changes ceiling from to.0625 Effective for October 1, 2011 cohort fiscal years. Navigating the Sea of Change 2012 NCHER Knowledge Symposium 39

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 New rule eliminates requirement new school accepts old school’s credits Navigating the Sea of Change 2012 NCHER Knowledge Symposium 40

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 Navigating the Sea of Change 2012 NCHER Knowledge Symposium 41

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 Navigating the Sea of Change 2012 NCHER Knowledge Symposium 42

Resources Negotiated Rulemaking & Pending Regulatory Changes Additional Resources/References can be obtained by accessing the NCHER Negotiated Rulemaking web-link: Neg Reg pages 43 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Negotiated Rulemaking & Pending Regulatory Changes Thank You 44 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

Questions and Discussion