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News from NASFAA
NASFAA Submits Second Set of Fed.Up Issues to House Subcommittee
NASFAA sent a second set of "Fed.Up" to House 21st Century Competitiveness Subcommittee Chairman Howard P. "Buck" McKeon (R-CA) this week. The first set of recommendations on ways to reduce regulatory burden and improve the federal student aid programs was delivered on July 17. Also available on-line is NASFAA's transmittal letter to Chairman McKeon. The Subcommittee graciously accepted these additional comments after its July 20 deadline so that NASFAA could submit comments resulting from the Reauthorization Listening Sessions and other discussions during last month's Conference in Nashville.
General
ISSUE: Notices and authorizations sent to borrowers electronically require the recipient to confirm receipt of the notice and maintain a copy of the confirmation. [CFR 668.165(a)(3)(ii)]
RECOMMENDATION: Modify receipt requirement for notices/authorization sent electronically.
RATIONALE: Institutions are under no obligation to confirm receipt of—or maintain records of—letters delivered by the United States Postal Service. Requiring more documentation of the electronic process than the paper process thwarts efforts to achieve efficiencies in this area.
ISSUE: Requirement for a supervisor-signed certification of FWS hours worked. [CFR 675.19(b)(2)(i)]
RECOMMENDATION: Permit the use of electronic time systems as alternatives to paper time records.
RATIONALE: The regulations require that the student’s supervisor sign the time record. This requires a paper record that does not permit institutions to use electronic time systems that are in general use in the workplace. Institutions that have been permitted to use electronic systems for this purpose (under the Experimental Sites authority) report that their reporting accuracy has increased, therefore, schools should be able to use paper or electronic systems.
Perkins
ISSUE: Institutions determine whether students with loans from multiple institutions are eligible for multiple monthly payment coordination. [CFR 674.33(b)(2)]
RECOMMENDATION: Require students to initiate the request for this minimum monthly payment coordination.
RATIONALE: It can be very difficult for institutions to know when and how to coordinate with other institutions unless notified by the borrower. The current language in the promissory note implies that this will happen without the borrower’s intervention. As a practical matter, the schools involved won’t know that the borrower is eligible or desires this option unless the borrower informs the institutions.
ISSUE: Regulations require schools to give students a copy of the promissory note at the exit interview. [CFR 674.42(a)(4)(ii)]
RECOMMENDATION: Offer institutions the option of providing another copy of the promissory note to all borrowers during the exit interview or only providing another copy of the promissory note to a borrower when the borrower makes such a request.
RATIONALE: In addition to extensive information in other forms, institutions are currently required to provide copies of the promissory note to students at various points in the process: one when the note is signed and one at the exit interview. We believe the benefit of this is questionable and recommend offering the student the opportunity to request a copy at the exit interview. This recommendation does not diminish the substance of the information that borrowers would receive, which includes outstanding balance, payment requirements, and a borrower’s rights and responsibilities.
ISSUE: Mandatory late charges. [CFR 674.43(b)(2); HEA 464(b)(1)(H)]
RECOMMENDATION: Make assessment of late charges optional.
RATIONALE: Given the current limitations on what expenses institutions can charge to the Perkins fund, the regulations should not dictate any minimum amounts that schools must assess for late payments. The regulations establish the maximum amount at 20% of the installment payment amount, but we question whether the Federal interest is served by dictating any minimum amounts. Institutions are in the best position to determine whether the assessment of a late charge is prudent.
ISSUE: Litigation is required if the borrower owes more than $200 and meets certain other conditions. [CFR 674.46(a)(2)]
RECOMMENDATION: Permit (but do not require) litigation.
RATIONALE: Since institutions of higher education are required to deposit capital into the Perkins Loan fund, they are motivated to locate borrowers and collect loan funds, as well as to initiate litigation when appropriate. We do not believe that litigation should be mandated. Given the $200 threshold, it may cost the institution more to litigate than to write-off the loan. Institutions should be given the discretion to determine whether litigation is cost effective and appropriate as a collection tool.
ISSUE: Statute and regulations permit rehabilitation on virtually any loan. [34 CFR 674.39(a); HEA 464(h)]
RECOMMENDATION: Prohibit rehabilitation on loans on which a judgment has been rendered.
RATIONALE: It is our understanding that legally, a judgment replaces the original promissory note as the enforceable debt instrument and thus should not be considered a loan. The regulation requires schools, which have already expended considerable effort and cost to obtain a court judgment against a borrower, to then ask the court to vacate that judgment if the borrower makes 12 consecutive monthly payments. Vacating the judgment would not only result in additional court and legal fees; it also may be viewed unfavorably by judges, thus prejudicing the outcome of future cases. Further, we fear that vacating the judgment may jeopardize future collection efforts if the borrower subsequently defaults on the rehabilitated loan.
ISSUE: Institutions are permitted to write-off Perkins Loans of less than $5. [CFR 674.47(h)]
RECOMMENDATION: Increase maximum loan write-off amount from $5 to $25.
RATIONALE: Current regulations permit institutions to assign loan accounts over $25 to the Department and to write-off loans of less than $5, but accounts between those amounts are not provided for. Given that the current assignment process requires significant documentation, we do not recommend assigning loans in the $5-25 category, but rather believe that schools should be permitted to write them off.
ISSUE: Apparent conflict between regulations related to credit bureau reporting. [CFR 674.16(i)(1) {credit bureau reporting}, 674.43(f) {billing}, and 674.45(a)(i) {collection}]
RECOMMENDATION: Require credit bureau reporting of delinquent loans only "if the school has not already done so."
RATIONALE: Schools are required to report loans to at least one national credit bureau at the time of disbursement and to continue reporting until the loan is paid in full. Schools are also required to take certain collection/billing actions prior to reporting a borrower’s delinquency to the credit bureau. Obviously, if schools have complied with the original credit bureau reporting requirement, they cannot also postpone reporting the delinquency until after taking the collection/billing actions. The suggested change eliminates the tension between the various regulatory sections.
ISSUE: Paper-based assignment process. [34 CFR 674.50(c)-(g)]
RECOMMENDATION: Have the Department develop and implement an electronic process for assigning defaulted Perkins Loans.
RATIONALE: Perkins Loan schools are seeking a streamlined electronic process for loan assignment, similar to the electronic FFELP assignment process. This change would make the assignment process for Perkins Loans more efficient for all parties.
Posted August 22, 2001, NASFAA Web Site www.nasfaa.org
Copyright 2001, National Association of Student Financial Aid Administrators
Redistribution to nonmember institutions is prohibited
Submit questions or comments to ask@nasfaa.org
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