Ending your School’s Participation in the Federal Perkins Loan Program Session 6 Ending your School’s Participation in the Federal Perkins Loan Program Tamy Garofano, Gail McLarnon, and Pat Stephenson l Dec. 2015 U.S. Department of Education 2015 FSA Training Conference for Financial Aid Professionals

Topics Perkins Wind-down Excess Liquid Capital Perkins Liquidation Procedures

Perkins Wind-down The Perkins Loan program provided long-term, low-interest loans to undergraduate and graduate students with demonstrated financial need at roughly 1,500 institutions Consolidated Appropriations Act of 2005 eliminated funding for new Perkins Loan Federal Capital contributions as of the 2005-06 award year Consolidated Appropriations Act of 2010 eliminated funding for reimbursement of cancellations as of the 2008-09 award year

Perkins Wind-down The Obama Administration’s 2016 budget, and prior budgets, proposed to create a reformed and expanded Perkins Loan program as part of its overall effort to improve and strengthen the campus-based programs

Perkins Wind-down The Administration’s Budget Proposal would have: Provided $8.5 billion in new loan volume Reached students at 2,700 additional postsecondary institutions Had the same annually determined fixed-rate interest rate as unsubsidized Stafford loans Used current Perkins Loan limits Congress did not enact the budget proposal

Perkins Wind-down HEA section 461(b)(1) authorized Perkins Loan Program through Sept. 30, 2014 An automatic one-year extension under section 422(a) of the General Education Provisions Act (GEPA) extended the Perkins Loan Program until September 30, 2015 Congress failed to extend the program beyond September 30, 2015 despite several last minute efforts

Perkins Wind-down – Legislation H. R. 3594 sought a one-year extension of the Perkins Loan Program and passed the House of Representatives on September 28th Senate took no action on an extension Senate Resolution 267 and House Resolution 294 continue to support a one-year extension but do not carry the force of law Bipartisan Budget Act of 2015 sets federal spending through the 2016 and 2017 fiscal years but did not extend the Perkins Loan Program

Perkins Wind-Down - Grandfathering Schools may no longer make Perkins Loans except that: If, prior to October 1, 2015, a school made the first disbursement of a Perkins Loan for the 2015-16 award year, the school may make any remaining disbursements of that 2015-16 loan after September 30, 2015 A school may make new Perkins Loans to borrowers who qualify under the “grandfathering” provision

Perkins Wind-down - Grandfathering Narrow “grandfathering” provision Allows schools to make Perkins Loans to certain students for up to five additional years (through September 30, 2020) to enable students who received loans for award year 2014-15 or earlier “to continue or complete courses of study.”

Perkins Wind-down - Grandfathering Loans can be made only if all four conditions are met: 1) The school made at least one loan disbursement to the student on or before June 30, 2015. 2) The student is enrolled at the same institution where the last Perkins Loan disbursement was received.

Perkins Wind-down - Grandfathering 3) The student is enrolled in the same academic program (first four digits of CIP Code) for which the student received his or her last Perkins Loan disbursement (for the 2014-15 award year or earlier). 4) Awarded all Direct Subsidized Loan aid for which the student is eligible.

Perkins Wind-down - Questions Question: If a grandfathered student has reached the aggregate limits for Direct Subsidized Loans, is that student eligible for a Perkins Loan?

Perkins Wind-down - Questions Answer: Yes. A Perkins Loan can be made to an otherwise eligible grandfathered student to meet all or some of the student’s unmet need only after the student has been awarded all Direct Subsidized Loan aid for which the student is eligible.

Perkins Wind-down - Questions Must a student who meets the grandfathering provisions remain continuously enrolled to receive a Perkins Loan?

Perkins Wind-down - Questions Answer: No. An eligible grandfathered student does not have to be continuously enrolled to receive subsequent Perkins Loans as long as all the grandfathering provisions are met.

Perkins Wind-down - Questions Is this student eligible to receive a Perkins Loan as a grandfathered student? She: 1) Applied as a readmit to the same graduate program at the same institution 2) Received a Perkins Loan at this institution prior to the 2014-15 award year 3) Consolidated her Perkins Loan in 2014 so loan is paid in full ($0 balance)

Perkins Wind-down - Questions Yes. This student is eligible to receive a Perkins Loan as a grandfathered student. The student meets all the grandfathering provisions. The student does not have to have a current balance on a Perkins Loan to meet the grandfathering provisions.

Perkins Wind-down - Questions If an institution has awarded a student a Perkins Loan for the 2015-16 award year and made the first disbursement prior to October 1, 2015, can the institution increase the Perkins Loan award after October 1, 2015 and make the additional disbursement(s)?

Perkins Wind-down - Questions Answer: Yes. The institution can increase the amount of a 2015-16 loan where at least one disbursement was made prior to October 1, 2015 and disburse the increased amount on or after October 1, 2015. However, a school may not create a new loan unless the student meets the grandfathering criteria.

Perkins Wind-down - Questions Will the Department return (to the institution) any share of collections on a Perkins Loan that was assigned to the Department by the institution?

Perkins Wind-down - Questions Answer: No. Consistent with longstanding policy, institutions relinquish all their rights and share in any Perkins Loan that is assigned to the Department. Therefore, none of the funds collected by the Department on an accepted assignment will be returned to the institution that assigned the loan to the Department.

Perkins Wind-down - Questions The Perkins MPN expired on September 30, 2015. Will the Department issue an updated version of the MPN with a new expiration date for grandfathered borrowers?

Perkins Wind-down - Questions Answer: Yes. The new expiration date is September 30, 2018. Note: This MPN would be used for new loans made to grandfathered students and for schools that require a new MPN every year.

Perkins Wind-down - Questions Question: Are students who received their first Perkins Loan when they were enrolled in an “undeclared,” “undecided,” or general education major eligible for the grandfathering provision when they enroll in a major/program that has a different CIP code?

Perkins Wind-down - Questions Answer: Yes, an otherwise eligible Perkins Loan recipient who was enrolled in a undeclared, undecided, or general education major in a Title IV eligible program would be eligible to receive a Perkins Loan in subsequent years as a “grandfathered student” when the student has a specific declared major. Of course, once the student is enrolled in the specific academic program, that program becomes the one the student must continue to be enrolled in to receive subsequent Perkins Loans as a grandfathered student.

Perkins Wind-down – IFAP Notifications Wind-down of the Perkins Loan Program (EA published October 2, 2015) Perkins Wind-down Questions and Answers (EA published June 5, 2015) (DCL GEN-15-03, published January 30, 2015)

Excess Liquid Capital Excess Liquid Capital (ELC) DCL GEN-15-19 Interactive Worksheets Calculate Excess Cash using ELC Formula Calculate Federal/School Shares using Proportional Share Formula Return Federal Funds by December 31, 2015

ELC Formula

ELC - Proportional Shares Formula

What is Perkins Liquidation? It is discontinuing participation in the program, liquidating the portfolio, liquidating the cash (Fund), and closing the program at the school: Turn over loans to the Department – Assignment Account for all loans Ascertain any liabilities as a result, e.g., purchased loans Apportion remaining fund – distributional shares of remaining cash asset

When or Why Should a School Liquidate? A school must liquidate its Perkins Loan portfolio and program fund, when it: Voluntarily withdraws from the Perkins Loan Program Has had its eligibility to participate in the Perkins Loan Program terminated by the Department Has not been approved by the Department for continued participation in the Perkins Loan Program during the school's recertification process or Is closing

When or Why Should a School Liquidate? A school is urged to liquidate its Perkins Loan Portfolio and program fund if it is no longer advancing Perkins Loan funds to students. For those schools not actively advancing loans to students but collecting on outstanding Perkins loans, they will be required to continue to return ELC each year until they choose to discontinue their participation by following the process of program liquidation.

The Process of Liquidation and Closeout The Department implemented changes in an effort to streamline and reduce burden on schools. Using the eCampus-Based (eCB) System, schools are guided through the liquidation and closeout process The Department’s new Perkins Loan Assignment System (PLAS) allows schools to submit their assignments electronically, further reducing the amount of time it takes to process assignments

The Process of Liquidation The eCB Automated Perkins Liquidation Process The Grants & Campus-Based Division (GCBD) of Federal Student Aid (FSA) implemented the automated Perkins liquidation process in August 2015 The intent of this process is to streamline the Perkins Loan liquidation process for schools that are liquidating their Perkins Loan portfolio and to provide an accessible tracking system for both schools and FSA to view and follow through the eventual closeout of the school’s Federal Perkins Loan portfolio

What are the steps? Notify Assign Update Closeout Return Submit the Department of Intent to Liquidate. Assign all Outstanding Loans to the Department. Update NSLDS and Ensure All Loan Records are Properly Reported to the Department. Closeout Audit Report. Return the Federal Share of Remaining Fund. Submit Final FISAP Data.

Notify To Begin, Submit Intent to Liquidate via eCB School’s notify the Department of their intent to discontinue participation in the program Note: While a school may indicate it wishes to discontinue its participation in Perkins during its annual submission of the FISAP by checking the “yes” box in Part II, Section B, it must notify the Department of its intent to begin the process via the Perkins Liquidation and Closeout process via eCB.

Assign – The Process Schools must assign all remaining loans with outstanding balances to the Department. The school should review its outstanding loans to determine that they have been maintained and administered properly so they can be assigned to the Department. All loans that a school assigns to the Department are assigned without recompense. The Department will not reimburse the school’s program Fund for the loans, and all rights, authorities and privileges associated with the loan are transferred to the United States.

Assign – The Process Reconciliation or Recon File We suggest schools request a reconciliation report from NSLDS to ensure its records are consistent with the NSLDS data, and to reconcile any discrepancies and update NSLDS accordingly. Schools can request a Recon file online – www.nsldsfap.ed.gov Ultimately, FSA will need to verify that all loans have been updated and none remain open with the school following the assignment process.

Assign – The Process Notify borrowers that their Perkins Loans are being assigned to the Department. Borrowers should be given at least 30-day notice, but loans should be submitted to the Department not later than 45 days from the date the school submitted their intent to liquidate to the Department.

Visit www.efpls.com for more information. Assign – The Process How are loans assigned to the Department? Manually using paper assignment form or Electronically using the Department’s new Perkins Loan Assignment System (PLAS) For ease and efficiency, the Department prefers schools utilize the automated assignment process versus paper. This web-based option allows schools to send multiple loans in a batch process or one by one through an online, web-based form. Visit www.efpls.com for more information.

Assign – The Process Schools can learn more about the assignment process in FSA Conference Session # 7.

Acceptance Loans Accepted-Official Notification of Acceptance When manual paper assignments are accepted, the institution will receive a mailed document identified as "Perkins Load Database Report” This report provides borrower identification information, school identification information, and outstanding principal, interest and fees accepted for assignment by the Department This is the official acceptance notice and should be retained in the school's records Acceptance notices (Perkins Load Database Reports) are sent to the school’s address provided in the school’s program participation agreement. The institution should ensure that its mail distribution staff becomes familiar with these notices and the offices to which they should be distributed

Acceptance Con’t Schools that use PLAS for electronic submission can access information about accepted and rejected assignments through PLAS. These reports can be viewed on-line or printed from PLAS.

Rejection Loans Rejected The Department will provide the school with the reason(s) for rejection; if the school can resolve the issue(s) it may resubmit the debt for assignment For most problems, this process may enable a school to correct the deficiencies and resubmit the rejected loans The Department will work with the school to assist in resolving issues Again, schools that use PLAS for electronic submission can access information about accepted and rejected assignments through PLAS. These reports can be viewed on-line or printed from PLAS.

Purchase Loans All accounts deemed unenforceable by the Department will be rejected for assignment and returned to the school for purchase. Once a loan has been purchased, the Department transfers all rights, title, and interest of the United States in the loan to the school for its own account

How does a school purchase loans? Section 674.50(g) of the Federal Perkins Loan Program regulations require that the school reimburse its program Fund for the entire portion of the outstanding balance plus any accrued interest on a loan the Department determines is unenforceable.

Assignments Complete? Update NSLDS Schools are required to report new loans or update data on existing loans to the National Student Loan Data System (NSLDS). It is a school’s responsibility to ensure its required reporting to NSLDS (which includes Perkins Loan account detail) is completed on time and accurately. For Purposes of Liquidation – Schools must ensure that its loans are properly accounted for and updated in NSLDS NSLDS must reflect that all borrower loan accounts for a liquidating school are fully retired, accepted for assignment by the Department, or purchased by the school

Update NSLDS Schools that utilize a third-party servicer for billing, collecting, and reporting should communicate these requirements to its servicer.

Update NSLDS Report and Update Assigned and Acceptance After the assignment process, schools must: Report each Perkins Loan that was accepted by the Department as “AE” (transferred) to NSLDS Schools must use the code AE to transfer or assign a loan to the Department after acceptance When reporting loans as AE or transferred, the date of the loan status field (Field Code #262) must match the loan certification date used on the assignment form (Certification, Section B, Item 12)

Update NSLDS Report Purchased After the program Fund is reimbursed for any defaulted and/or non-defaulted unassignable loans that a school has purchased, the school must report these loans to NSLDS as: UC (Non-defaulted Loan Purchased by School) or UD (Defaulted Loan Purchased by School) These status codes would be reported in the Loan Status field (Field Code #263).

Update NSLDS Once reporting/updating of loans are successful, the school or its servicer must stop reporting the loan to NSLDS.

FSA Receives Verification FSA monitors each school’s progress in completing the Perkins Loan assignment process and reporting Perkins Loan records to NSLDS. Once complete, the Federal – Institutional shares are calculated against the remaining Federal Perkins Revolving Fund.

Distributional Share Calculation - Law The final capital distribution from an institution’s Perkins revolving fund must be made in accordance with Sec. 466(c) of the HEA. It requires an institution to return the Federal share of an institution’s Perkins revolving fund to the Department. The Federal share of an institution’s revolving fund must be calculated using the “proportional shares" formula (previously the “over time” formula) that follows on the next slide.

Proportional Share Calculation The Formula Final Capital Distribution = X Cash on Hand Insert where: FCC = Federal Capital Contribution added to the fund by ED over period of time, and where ICC = Institutional Capital Contribution added by the school over period of time. To calculate the net FCC and net ICC, repayments of Fund capital to the federal government and to the school (over period of time) are subtracted from the FCC and ICC. Note: The source of this cumulative data is eCB via the FISAP. (net FCC) (net FCC + net ICC)

Perkins Closeout Audit When an institution ends its participation in Perkins, the institution is responsible for returning any unspent funds (34 CFR section 668.14(b)(25)). The institution must perform the following end-of-participation procedures: Notify the Department (34 CFR section 668.26(b)(1)) Inform the Department of how the institution will provide for the collection of any outstanding loans made under the program (34 CFR section 668.26(b)(4)) Purchase any outstanding loans left in its Perkins portfolio or assign them to the Department (34 CFR sections 674.8(d), 674.17(a)(2), and 674.45(d)(2)) and Maintain program and fiscal records of all Perkins funds since the most recent FISAP was submitted, and reconcile this information at least monthly (34 CFR section 674.19(d))

Perkins Closeout Audit Public and Private Non-Profit Schools Proprietary - For-profit Schools A-133 Audit Close Out Audit

Perkins Closeout Audit Timing The closeout audit report should be submitted to the Department within 90 days of the end of the school’s participation in the program. A school’s participation is considered to have ended once all outstanding loans in its portfolio have been fully retired, assigned and accepted by the Department, or purchased. However, please note: an institution may select an end of participation date that will coincide with the institution’s submission of its regular annual audit so that this requirement can be met during the institution’s normal audit process.

Submit Final Perkins Data A school must continue to file its FISAP annually until it can report all final activity. “Final” activity consists of assigning any remaining loans with outstanding balances to the Department or reimbursing the Fund for the purpose of purchasing any loans that are not accepted by the Department, and repayment of Fund capital. Schools now submit final Perkins data via the Perkins Closeout process within eCB. Again, schools can learn more about the process in FSA Conference Session # 7. NEW

Official Liquidation Completion Letter After the close-out audit is received and reviewed, FSA validates that the Perkins Liquidation is complete and an email message is sent from the eCB system (CBFOB@ed.gov) to the school that the Department’s official Perkins Liquidation Letter of Completion is posted to the school’s eCB Self-Service page under Acknowledgements.

Timeframes - How long does it take? It depends on the following: Size of the outstanding portfolio to assign Resources at the school If any reconciliation is required between school records, FISAP, and NSLDS data and When the school begins the process With the streamlined processes in place, it should not take a school more than 180 days to liquidate and close out its Perkins portfolio and Fund.

Timeframes - How long does it take? Assignment Process Notify Borrowers Gather & Complete Paperwork – 30 Days & then Submit Assignments 60 Days Audit Process Engage Audit (45 days after Program Ends). – Audit Report Submission- 90 Days NSLDS Updated, Return Federal Share, Submit Final FISAP Data – 30 Days

Questions?