Negotiators Wrap Up Second Week of Deliberating Over Proposed Changes to Student Loan Regulations

Negotiators concluded week two of the student loan negotiated rulemaking process Thursday, with tentative agreement on six issues and pending discussion, recommendations and internal discussion set to take place between now and the committee’s final meeting in March.

In the second of three week-long meetings, the student loan committee is negotiating 25 student loan regulatory issues that will ultimately result in a package of proposed rules to be published for public comment before promulgation of final rules.

School Enrollment Status Reporting Requirements  

The Department has proposed regulatory language to reduce the window of time schools have to submit updated enrollment reporting to ED from 30 days to 15 days after the date the school discovers that a student has withdrawn, failed to enroll or changed their address. If the school plans to submit its next updated enrollment report to the Secretary within the next 60 days, it does not have to meet this requirement.  

ED said making the reporting window smaller would help ensure more timely reporting.  At a minimum a school would only have to report every 60 days, but the hope is that schools would report more frequently and keep NSLDS more up to date.  

ED’s proposed changes would also update FFEL and Direct Loan school enrollment status reporting provisions to reflect current terminology and procedures, and add comparable enrollment reporting provisions to the Perkins Loan regulations.

Current regulations require that schools, upon receipt of a student status confirmation report from the Secretary or guaranty agency, update and return the report to confirm that borrowers are still entitled to in-school status and deferments. ED has proposed changing the term “student status confirmation report” to “enrollment report” and stipulating that this regulation applies only to enrollment reports received by the Secretary, removing guaranty agencies from this responsibility.

ED is planning a number of enhancements to NSLDS. Schools will submit information, including graduation, about Pell Grant recipients regardless of loan receipt and Perkins loan recipients. The NSLDS changes will expand access by lenders and servicers. ED said it plans to provide more relevant guidance in a Dear Colleague Letter later this month.  

Other data that will be reported include location at time of disbursement (that is, main campus or a location of the institution), although schools will be able to designate a single point for all reporting.  Schools will also report term and permanent home address. ED said it is working to collect more graduation data, by adding a new field that will collect credential level of students at time of graduation.

Forbearance for Post-270 day Defaulted Loan Borrowers Prior to Lender Claim Payment or Transfer to ED Default Collections 

The Department of Education is proposing regulatory language to allow defaulted borrowers to make an oral affirmation of debt to receive forbearance or deferment to eliminate the default. The change would apply to a borrower who has passed into default after 270 days of delinquency, if the guaranty agency has not yet submitted a default claim to the guaranty agency.

Under the current FFEL regulations, the terms of the agreement in this circumstance require the borrower to sign a new agreement to repay the debt. Defaulted borrowers in the Direct Loan program are not required to sign a new repayment agreement or otherwise reaffirm the debt when forbearance is granted under the same circumstances.

ED is proposing that the regulatory language require “ a new signed repayment agreement to repay the debt or other written affirmation of the borrower’s obligation to repay the debt signed by the borrower.” These proposed changes clarify the current FFEL regulatory provision and add the same requirement to the Direct Loan forbearance regulations.

Negotiators representing consumers recommend that ED provide some guidance in the preamble on what oral affirmation should entail to ensure that the borrower understands what reaffirmation means.

Total and Permanent Disability Discharge: Post-Discharge Monitoring of Employment Earnings

The negotiating committee worked to improve rules affecting borrowers whose loans have been discharged due to total and permanent disability. ED raised this issue in an effort to reduce the number of disabled borrowers whose loans are reinstated due to a monitoring error or failure to provide proper documentation.

ED proposed regulatory language to modify Perkins, FFEL and Direct Loan regulations to conduct post-discharge income monitoring on a calendar-year basis, beginning with the first complete calendar year after the Department grants a total and permanent disability discharge.  

Because the 3-year post-discharge monitoring period currently begins on the discharge date, in most cases ED has to obtain employment earnings information for two partial calendar years at the beginning and end of the 3-year period, which is hard to obtain. Borrowers have not filed income tax returns for a calendar year that isn’t over; social security earnings statements only provide income information on a calendar-year basis; and other documentation of employment earnings that a borrower could provide for a partial calendar year may be inconclusive. 

ED’s proposed changes also seek to synch more closely the monitoring period for earned income with the monitoring period for receipt of new loans. Either earning above a certain level or receipt of a new student loan during the monitoring period negates the discharge.

Federal and non-federal negotiators generally agreed that the proposed changes would help relieve some of the burden for borrowers, though ED is still working through some of the technical details and operational questions raised by negotiators.

Total and Permanent Disability Discharge: Single Application Process 

ED responded to criticism it received last year that its total and permanent disability (TPD) discharge application process is unduly burdensome for borrowers by proposing a streamlined TPD discharge process, by which a borrower would submit one TPD discharge application directly to the Department. The Department would then determine from its records whether the borrower has other Title IV loans, and notify those loan holders of the pending application for discharge.

Total and Permanent Disability Discharge: Borrower Notification of Denial

The Department has proposed changes to regulations that would provide borrowers with more detailed information in their total and permanent disability (TPD) denial letters, including the reason for the denial, an explanation that payment must resume and how the borrower can request re-evaluation for discharge within a specified period or subsequently submit a second application with new information. Negotiators had requested that additional information be included in the letters, including how to correct any deficiency in payments and informing the borrower of forbearance options. These additions did not make it into the ED’s proposed language. However, ED will consider adding language for consideration in the next round of negotiations to address a number of points raised by negotiators to make the process more useful to borrowers.

Negotiators also requested guidance concerning forbearance options during the 12-month period the borrower has to request re-evaluation.  ED noted that it did not want to put borrowers in a situation where payments were unsustainable if more information relevant to the discharge would be submitted. Other questions related to information sharing between loan servicers and guaranty agencies trying to assist borrowers, which is sometimes thwarted by perceptions of privacy issues.

Satisfactory Repayment Arrangements on Defaulted Title IV Loans for Borrowers who also Rehabilitate the Loan

Borrowers who wish to rehabilitate a defaulted loan must make nine consecutive on-time voluntary payments; this option may be used only once for any given defaulted loan. Students in default who wish to re-establish Title IV eligibility may do so by making six consecutive monthly payments under a satisfactory repayment arrangement; this option may be used only once by any given borrower. 

ED has found inconsistent interpretation within the financial aid community about the simultaneous nature of these two options. In the course of making loan rehabilitation payments, a borrower could also satisfy the six consecutive on-time monthly payments necessary to regain eligibility for Title IV aid, but the borrower might not understand that he or she is using both one-time options simultaneously.

As such, ED has proposed regulatory language to amend the definition of “Satisfactory repayment arrangement” in the Perkins, FFEL, and Direct Loan programs. The revised definition specifies that a borrower who makes 6 monthly qualifying rehabilitation payments without receiving additional Title IV aid and then re-defaults, does not lose the option to regain Title IV eligibility by making satisfactory repayment arrangements.

Title IV Closed School Loan Discharge

The Department proposed expanding the window in which borrowers can receive a closed school loan discharge if the borrower’s school completely closes from 90 days to 120 days. Currently, if the borrower withdraws within 90 days of the school’s closure they qualify for a discharge. Public comment suggested that the 90-day window may be insufficient because there may be indications of a school’s pending closure that may prompt a student to withdraw more than 90 days prior to the school’s identified closure date. ED is also proposing that exceptional circumstances include the school’s loss of accreditation that results in school closure, the school’s discontinuation of the majority of its programs, or state action to revoke the school’s license to operate or award academic credentials in the state. Negotiators questioned whether the Department’s proposed change provides enough leeway for exceptional circumstances that may fall outside the 120-day window. ED said it will seek more information about the issue.

The Repeal of Unnecessary FFEL Program Regulations and Modification to Direct Loan Program Regulations 

Because the Department of Education submitted its proposed changes on both the repeal of unnecessary FFEL program regulations and modification to Direct Loan program regulations in packets exceeding 300 and 100 pages respectively, negotiators requested more time to review the issue papers.

In the repeal of unnecessary FFEL program regulations, ED said proposed changes consist mostly of the removal of language regarding making, dispensing and reporting new loans, since the FFEL program no longer produces new loans. Negotiators will convene via conference call on March 1 from 1-3 p.m. to discuss the proposed changes as well as any additional issue paper topics negotiators wish to address.

ED said the modification to Direct Loan program regulations would also make mostly technical changes to bring  subregulatory guidance from the FSA Handbook into the regulations to clarify that a school can send written material by e-mail to an e-mail address provided by the student borrower to satisfy the exit counseling completion requirement for students who withdraw from a school without the school’s prior knowledge or if the student fails to complete the exit counseling as required. Another modification would allow for a student’s completion of electronic interactive exit counseling offered by the Secretary to satisfy the exit counseling requirements. 

Negotiators will discuss those changes via teleconference on March 5, from 1-3 p.m.

Federal and non-federal negotiators reached tentative agreement on the following issues: 

  • Deadline for FFEL lender 60-day delinquent borrower repayment disclosure
  • Minimum Loan Period for Transfer Students in Non-Term and Certain Non-Standard Term Programs
  • Participation Rate Index Appeal for Single Cohort Default Rate Loss of Eligibility to Participate in the Direct Loan Program
  • Federal Perkins Loan Graduate Fellowship Deferment Eligibility
  • Social Security Number Requirement for Assignment of Federal Perkins Loans to the Department of Education
  • Federal Perkins Loan Cancellation Rate Progression Across Cancellation Categories 
  • Federal Perkins Loan Economic Hardship Deferment Debt-to-Income Ratio Provision