Student Loan Negotiated Rulemaking Issues Could Bring More Consistency to Federal Loan Programs

The thoughts and ideas of individuals representing students, financial aid administrators, servicers, guaranty agencies, debt collectors, consumer advocates, lenders and accrediting agencies on a number of student loan regulatory issues came together in one agenda for negotiation on Thursday.

The student loan negotiated rulemaking committee approved for consideration 25 student loan regulatory issues, allowing the Department of Education (ED) to draft proposed rule language that will form the basis of negotiation during the second week-long session next month and a final session in March. The ultimate result will be a package of proposed rules to be published for public comment before promulgation of final rules.

Thursday’s discussion focused largely on bringing consistency to regulatory language across federal loan programs, regarding issues such as eligibility, criteria, payment standards, reporting requirements and metric standards. 

School Enrollment Status Reporting Requirements 

Regulations currently require schools to submit enrollment status reports to confirm that borrowers are still entitled to in-school status and deferments. ED is planning to shift this reporting to NSLDS, and to make other enhancements to NSLDS. Schools will submit information, including graduation, about Pell Grant recipients regardless of loan receipt and Perkins loan recipients.  ED received requests from schools and servicers for enrollment information to improve Perkins loan servicing.

ED stated that graduation data is very important to ED for helping to assess the success of its programs. Asked whether this data could eventually lead to ED calculating disaggregated graduation rates now required to be disclosed by schools, ED noted it would first need to assess the accuracy and adequacy of the submitted data.

The NSLDS changes will expand access by lenders and servicers. 

Other data that will be reported include location at time of disbursement (that is, main campus or a location of the institution) to help ED direct rosters correcting, although schools will be able to designate a single point for all reporting.  Schools will also report term and permanent home address. ED will also take steps to ensure that servicers are able to use the most relevant student enrollment information rather than just the most recently reported information. For example, in the event a student withdraws from one school and is attending another school, the servicer should use the enrollment status at the new school, rather than the withdrawal at the prior school, even if the withdrawal information is received after the new school’s enrollment report, so that the borrower’s in-school status or deferment can be continued.

ED also assured negotiators that it will expand methods for submitting or uploading data.

Some negotiators questioned why ED should have to rely on reporting from schools that a student is still enrolled in order to maintain the student’s loan eligibility. Rather, some suggested requiring only that schools report when a student is no longer enrolled. ED said it would consider this proposal.

NSLDS will also allow students more responsibility in updating their contact and address information, and school location through the 8-digit OPEID.

ED said is also working to collect more graduation data, by adding a new field that will collect credential level of students at time of graduation. ED said it will publish a Dear Colleague Letter and subsequent webinars on the changes.

Federal Perkins Loan Cancellation Rate Progression Across Cancellation Categories

Perkins cancellation rates are progressive, with a percentage of the principal balance of the borrower’s loan cancelled for each year of eligible service. The cancellation rates are generally 15 percent for the first and second years of service, 20 percent for the third and fourth years of service, and 30 percent for the fifth year of service. ED currently requires that a borrower switching from one cancellation category to another start over at the first-year cancellation rate, rather than continue on the progression from their previous category. This longstanding policy, however, is not explicitly addressed in the statute or regulations.

ED is asking negotiators whether this policy should be changed to allow Perkins borrowers moving from one cancellation category to another – such as teaching to nursing - to have their loan cancellation percentage rates continue to progress, rather than start over at the lowest cancellation rate.

Some negotiators expressed a belief that the current policy is unfair to students and is counter to the purpose of the cancellation concept. Others pointed out that because of the recent lack of Congressional appropriations to reimburse schools for Perkins Loan cancellations, school are facing diminished funds to make loans to future students. Thus a benefit for prior borrowers is pitted against the needs of future borrowers.

Federal Perkins Loan Graduate Fellowship Deferment Eligibility

ED is considering applying FFEL criteria for graduate fellowship deferment regulations to Perkins to improve consistent borrower treatment across the three Title IV loan programs. Currently, Perkins regulations simply state that to qualify for a graduate fellowship deferment a borrower “must provide the institution certification that the borrower has been accepted for or is engaged in full-time study in the institution's graduate fellowship program.”

Under the FFEL program regulations, an eligible graduate fellowship program is a program that: 

  • Provides sufficient financial support to allow for full-time study for at least six months; 
  • Requires a written statement from each applicant explaining the applicant's objectives before the award of that financial support; 
  • Requires a graduate fellow to submit periodic reports, projects, or evidence of the fellow's progress; and 
  • In the case of a course of study at a foreign university, accepts the course of study for completion of the fellowship program. 

The FFEL regulations also require a statement signed by an official of the program certifying: 

  • That the borrower holds at least a baccalaureate degree conferred by an institution of higher education; 
  • That the borrower has been accepted or recommended by an institution of higher education for acceptance on a full-time basis into an eligible graduate fellowship program; and 
  • The borrower's anticipated completion date in the program.

Negotiators generally agreed that these changes should be made.

Other Issues Addressed Thursday

  • Federal Perkins Loan Program: Break in Cancellation Service Due to a Condition Covered Under the Family and Medical Leave Act - ED is considering changes to the conditions that would allow a partial year of service s to qualify a borrower for cancellation of a Perkins Loan, to bring Perkins in line with other loan regulations and provide more consistency for borrowers. Currently, a partial year of service may qualify towards teacher cancellation if the borrower did not complete the second half of the academic year because of illness or pregnancy, and the employer considers the borrower to have fulfilled his or her teacher contract for the year. Teacher cancellation is the only category to which an exception to the full year of service requirement applies. The change would replace the current Perkins with the Direct Loan/FFEL exception, which follows the more expansive conditions covered under the Family and Medical Leave Act (FMLA. ED is also seeking negotiator opinion on expanding the partial year provision to the other cancellation categories for Perkins Loans. 
  • FFEL Program Administrative Wage Garnishment (AWG) Hearings for Defaulted Borrowers – ED is considering regulations regarding Administrative Wage Garnishment  (AWG) hearings requested by FFEL borrowers that are subject to AWG. The proposal would require Guaranty Agencies to consider whether a borrower would undergo financial hardship as a result of AWG.  ED has sub-regulatory guidance on the matter, but negotiators requested at the beginning of this week that the Department consider adding the language to FFEL regulations, as it already exists on the Direct Loan side. ED and Guaranty Agencies in the FFEL program are authorized to garnish up to 15 percent of a defaulted borrower’s disposable income, unless the individual consents to a greater percentage. The borrower is provided with an opportunity for a hearing on the existence or amount of the debt or the terms of the repayment schedule. 
  • Social Security Number (SSN) Requirement for Assignment of Federal Perkins Loans to the Department of Education - ED is considering relaxing the SSN requirement for Perkins Loans assignments. ED has worked over the last few years to streamline the Perkins liquidation process to facilitate required liquidations and encourage voluntary liquidations, but is unable to complete full liquidation of some schools’ Perkins Loan portfolios due to the absence of SSN information. Schools participating in the Perkins Loan program are required to liquidate their Perkins Loan portfolios and assign all of their outstanding loans to ED if they close, undergo changes of ownership, voluntarily leave the Perkins Loan program, or are terminated from the program. In the early years of the Perkins Loan Program, schools were not required by ED to obtain SSNs from borrowers when awarding and servicing Perkins Loans. As a result, schools often do not have SSNs for older loans in their Perkins portfolios that were made during this period and that have proven over time to be uncollectible. 
  • Federal Perkins Loan Economic Hardship Deferment Debt-to-Income Ratio Provision – ED is looking to correct the retention of an economic hardship deferment category in the Perkins Loan program. ED previously eliminated debt-to-income economic hardship deferment category for a borrower who is working less than full-time from the Direct Loan and FFEL regulations due to changes in the law, but inadvertently retained this category in the Perkins regulations, thus creating a disparity between the economic hardship deferment eligibility criteria in the Perkins program and the eligibility criteria in the Direct Loan and FFEL programs. This proposal is more in the nature of a technical correction but ED wanted to inform negotiators of the issue.
  • Standard On-Time Rehabilitation Payments in the Federal Perkins Loan Program – ED is considering a proposal by non-federal negotiators to apply the standard for on-time rehabilitation payment used in the FFEL and Direct Loan programs to the Perkins Loan program. In the FFEL and Direct Loan programs, a qualifying payment made under a loan rehabilitation agreement must be received “within 20 days of the due date” for payment. In the Perkins program, there is no uniform standard for when a payment made under rehabilitation must be received; the institution currently determines what constitutes “on time,” resulting in confusion for students with loans from multiple institutions and difficulty for collection agencies.