Issue 1: Increased Loan Limits [Section 428(b)(1)(A)]
Recommendations:
(a) Increase annual loan limits for undergraduates to the following levels:
|
Year
|
Subsidized Loan Limit
|
Unsubsidized Loan Limit
|
Total Subsidized and Unsubsidized
Loan Eligibility
|
|
2003
|
$7,000
|
$7,000
|
$14,000
|
|
2006
|
$7,500
|
$7,500
|
$15,000
|
|
2009
|
$8,000
|
$8,000
|
$16,000
|
(b) Option 1: Increase graduate/professional borrower annual loan limits; increase
Unsubsidized Loan Limit to 150% of Subsidized Loan Limit.
|
Year
|
Subsidized Loan Limit
|
Unsubsidized Loan Limit
|
Total Subsidized and Unsubsidized
Loan Eligibility
|
|
2003
|
$10,000
|
$15,000
|
$25,000
|
|
2006
|
$11,000
|
$16,500
|
$27,500
|
|
2009
|
$12,000
|
$18,000
|
$30,000
|
Option 2: Increase graduate/professional borrower annual loan limits; increase Unsubsidized
Loan Limit to Cost of Attendance.
(c) There would be only one loan limit for undergraduate borrowers rather than the current first-year, second-year, and third- and fourth-year limits.
(d) Schools would have the authority to implement lower loan limits for undergraduate and graduate students. At the school's discretion such lower limits could be devised in three ways; school-wide, class level, and academic program. A statutory provision would be placed into the law prohibiting any judicial review of a school's decision to have lower limits than the federal maximums.
(e) New loan limits apply to first academic year after the date of enactment of the newly reauthorized Higher Education Act.
Rationale: The Reauthorization Task Force believes one of the highest priorities for this HEA reauthorization, after providing for adequate grant assistance, is to raise loan limits. Reauthorization Task Force members and NASFAA staff wrestled with the question of whether or not to increase loan limits and, if so, how high. The Task Force believes it has developed a balanced approach to student loans. We believe loan limits should be increased. We reject the notion advanced by some that there is no need to raise loan limits because there is little evidence that students need increased limits.
The last time loan limits were raise for first-year students Ronald Reagan was president (1986). The last time loan limits were raised for all other students the George Bush, the father, was president (1992). Loan limits were not raised during the HEA reauthorization in 1998. We regret this fact since we warned that without an increase in the federal limits borrowers would increasingly turn to private label loans. That was a prediction that has come true.
We need to raise loan limits now, to not only “catch up” for past lack of loan limit increases, but also to raise loan limits in the future to anticipate the need to increase such limits. Consequently, we are recommending subsidized loan limits for undergraduates that are the same no matter what year the borrower is in their academic career instead of the current three limits. All the proposed loan limits are straight-line inflation increases from the last time loan limits were raised in 1992. Such estimates use the Consumer Price Index (CPI) inflation index rather than the higher education index (HEPI) since the CPI is the federal standard and HEPI is less recognized by the federal government. If we had used HEPI our proposed loan limits would have been considerably higher.
The Task Force wants your advice on raising loan limits for graduate/professional borrowers; it offers two options. The first would increase Unsubsidized Loan Limits for these borrowers to 150% of the Subsidized Loan Limit see above chart. The second option would increase Unsubsidized Loan Limits for these borrowers to their Cost of Attendance (COA). One argument favoring the limitation of 150% is that some borrowers would still have to borrow alternative loans. If we go to COA, then fewer alternative loans would be available in the marketplace and should the need for these alternative financing mechanisms be needed in the future, then they would not be in place for borrowers who need them. The arguments for allowing Unsubsidized Loans to be capped at no greater than COA include; first, graduate students are usually in a better position to repay such loans and that they will borrow regardless of a cap at 150%; second Unsubsidized Loan should go to COA so that such borrowers do not incur the higher cost alternative loans; and, third, under the Task Force proposal schools could set a lower limit than COA for Unsubsidized Loans such as the proposed 150%.”
Even though we are proposing increased loan limits we are proposing a complementary policy that would allow schools to implement whatever lower loan limits they chose school-wide, class level, or academic program. A school could decide to have a school wide limit that was lower than the federal limit. A school could decide to have a lower loan limit for its first-year students. A school could decide to have a lower loan limit for liberal arts major and a higher one for its engineering students. It would be up to the school to decide to have a lower limit and what that limit should be. This new authority would be in addition to the current authority found in Section 428(a)(2)(F), which permits schools to refuse to certify (or to reduce the amount of) a student's loan on a case-by-case basis. Finally, the decision by a school to have a lower limit would be statutorily protected from review by any court.
If loan limits are not raised in this reauthorization, then the next reauthorization will take place 2009 or 2010 which is an unconscientiously long period of time not to increase loan limits compared to when loan limits were last increased in 1986 for freshman and 1992 for everyone else.
Issue 2: Increased Aggregate Loan Limits [Section 428(b)(1)(B)]
Recommendation: Change aggregate loan limits to reflect the change in annual loan limits to $35,000 for dependent undergraduate students. Changing to $37,500 in 2006. Changing to $40,000 in 2009. Independent undergraduates would have an aggregate loan limit of $70,000 (only $35,000 of this amount may be in subsidized loans). Changing to $75,000 in 2006. Changing to $80,000 in 2009. Graduate/professional borrowers would have an aggregate limit of $125,000 of which $85,000 is subsidized loans . Changing in 2006 to $137,500. Changing in 2009 to $150,000.
Rationale: This is a simple additive process derived from the proposed annual loan limits.
Issue 3: Repayment Plans [Section 428(b)(1)(E)&(9), Section 455(d)&(e)]
Recommendation: Modify loan repayment plans to reflect best of the current FFEL/DL loan repayment options e.g. graduated, extended, and income-contingent repayment.
(a) Keep the 10-year standard repayment plan.
(b) Modify graduated repayment plans so that the maximum repayment period is 15 years; maintain the requirements that no installment may be less than the interest that accrues between payments; and modify the current three times rule.
(c) Modify the extended repayment plans so that any borrower is eligible; that fixed annual or graduated repayment amounts are possible and use the Direct Loan repayment schedule.
(d) Extend the Direct Loan Program's Income Contingent Repayment plan to FFELP at the option of the lender; drop the FFELP Income-sensitive Repayment plan; and eliminate requirement that after 25 years any cancelled remaining balance is not taxable income.
(e) Allow borrowers flexibility to change repayment plans yearly.
(f) Mandate every five years that holder contact borrower to ascertain whether the borrower wishes to change repayment plans to a shorter time period to reduce their total loan repayment amount.
(g) After 15 years the responsibility for paying loan subsidies shifts from the federal government to the borrower.
Rationale: With the Task Force recommending increases in annual and aggregate loan limits, it was decided that the loan repayment options needed to be carefully examined so that borrowers can tailor a repayment plan that meets their personal and financial needs. The Task Force's recommendations for change, in large part, take the best of the current FFELP and Direct Loan repayment plans. It is the intent of the Task Force that borrowers have the same repayment plans no matter whether their Stafford loans are FFELP or Direct Loan. For many borrowers the standard 10-year repayment plan will continue to be the best repayment plan in terms of not extending payments with a consequent increase in total loan debt. Our recommendations continue and merge the best features in the graduated, extended, and income-contingent repayment plans. Borrowers annually will have the option to change plans. The Task Force recommends ending the federal government's responsibility for payment of the loan's subsidies after 15 years and transfer payment of those subsidies to the borrower; this will reduce the cost of the loan programs and ends a subsidy many years after the borrower leaves school. Most borrowers will never have to make the loan subsidy payments. The Task Force also believes those borrowers in longer-term repayment programs should be contacted every five years to determine if they wish to continue in their current loan repayment plan or if they want to switch to another plan that will lower their total loan debt.
Issue 4: Interest Rates [Section 427A(l), Section 427A(k), Section 455(b)(7), & Section 455(b)(6)]
Recommendation: a) On July 1, 2006 lower maximum cap on interest rates from 8.25 to 6.8% for subsidized and unsubsidized loans. Continue variable interest rate, rather than fixed rate. Lower PLUS maximum cap to 7.5% on that date.
b) Provide a refundable tax credit on student loan interest paid to a limit of $X,XXX per year for the life of the loan.
Rationale: The president earlier this year signed a bill that requires on July 1, 2006 that the interest rate on Stafford Loans is set at 6.8%. No longer would interest rates be variable as is now. The Task Force's recommendation would lower the cap on the maximum interest rate from the current 8.25% for Stafford loans to 6.8%. Lowering the PLUS maximum interest rate cap to 7.5% on that date. The Task Force believes borrowers should have the best interest rate available and that a variable rate is the best option presently rather than a fixed 6.8% interest rate that goes into effect in 2006.
The Task Force is seeking the membership's guidance on how much and under what conditions should borrowers have a tax credit to reduce interest payments. Such a tax credit would be refundable and is, obviously, more valuable than the current tax deduction. We are also considering the option that such a tax credit could be sent directly to the holder of the loan to help reduce the borrower's loan debt.
Issue 5: Loan Subsidies [Section 427A(g), Section 455(b) and Various Other Subsections]
Recommendation: a) All borrower subsidies are continued, including but not limited to, the grace and in-school periods.
b) Loan subsidies for lenders and guaranty agencies are reduced to prevent a windfall from higher loan limits and extended repayment plans
Rationale: The Task Force believes the loan subsidies borrowers receive are important benefits and should remain in place, except per our recommendation in “Issue 3(g).”
The Task Force further recognizes that its recommendations for increases in loan limits and modification of loan repayment options so that longer payment periods could be more attractive to borrowers results, if the current subsidies remain in place for the lending community, in larger payments to those lending partners. Our recommendation to reduce such subsidies should not be construed as a wish to destabilize the industry or remove a fair profit from their participation in the federal loan programs. However, we recognize that a number of the changes we propose would lead to an increased profitability of student loan with little additional work performed by the industry. We propose that NASFAA work with interested parties to develop a new payment or reimbursement system. We do not intend that the industry due to changes in loan limits or repayment terms result in an unjustified, windfall profit. We further recognize a restructuring of these subsidies would help pay the cost of the some of the changes we seek.
Issue 6: Borrower benefits [Section 428(b)(1)(M), (7), (c)(3), 428H(e) 455(f), & various other sections]
Recommendation: a) Deferments, forbearance, cancellation and other such student benefits are maintained as in current law. However the Task Force recommends merging the best of such benefits between the FFEL and Perkins Loan Programs so that such benefits in each program mirror the benefits of the other program.
b) Eliminate the student origination fee. Transfer payment of the insurance premium from the student to the federal government.
c) Provide for a percentage amount of loan forgiveness based on a BLS income standard.
Rationale: The Task Force recommends that various student benefits continue and that the benefits should be equalized between those offered in the Stafford loan and Perkins loan programs.
The origination fee should be eliminated and if there is a need for an insurance premium that should be paid by the federal government rather than by students. It is appropriate that the federal government make such a payment to support and finance guaranty agencies. NASFAA firmly suggests that the origination fee was intended to be temporary when it was imposed on student borrowers in the early 1980s, and it has continued far too long to the detriment of student borrowers. While a federal budget convenience, NASFAA suggests the origination fee and insurance premium in both programs is a major handicap for student borrowers denying them all the loans funds they qualify for and are necessary to finance their education. As students graduate with increasingly higher student loan debt, NASFAA believes that elimination of the origination fee for all federal student loans is in the best interests of students.
The Task Force is especially interested in gaining your views about a new proposal that would tie loan forgiveness for individuals who do not make large salaries and may be at risk of default. Currently, teachers are eligible for loan forgiveness and there is great pressure to extend loan forgiveness to other professions. The Task Force wonders if it may be more desirable to tie a percentage annual loan forgiveness amount by the income of the borrower rather than their occupation; occupations that would be made eligible for loan forgiveness solely due to the power of a politician to get such forgiveness written into the law.
Issue 7: Student Loan Terms and Conditions [Section 427A(j), 428(b)(1)(H), 438(c)(2), 455(a)(1), & 455(g)]
Recommendation: Equalize FFEL and DL student terms and conditions. Write into law mandatory student benefits such as on-time repayment and automatic, electronic payment, etc.
Rationale: Provisions of the Higher Education Act are contradictory. A provision of law governing the Direct Loan Program, Section 455(a)(1), requires that “Unless otherwise specified in this part, loans made to borrowers under this part shall have the same terms, conditions, and benefits, and be available in the same amounts, as loans made to borrowers under sections 428, 428B and 428H of this title.” While this is straightforward language mandating, unless otherwise specified, that Direct Loan borrowers have the same terms, conditions, and benefits as FFELP borrowers, contradictory law is evident in other HEA provisions. For example, Section 438(c)(2) authorizes lenders to charge an origination fee “not to exceed 3.0% of the principal amount of the loan...” Section 428(b)(1)(H) allows guaranty agencies to collect “a single insurance premium equal to not more than 1.0% of the principal amount of the loan...” A further example, Section 427A(j) permits a lender to charge a borrower an “interest rate less than the rate which is applicable under this part.” The meaning of Section 455(a)(1) is contradicted by Sections 438(c)(2), 428(b)(1)(H), and 427A(j) which allow lenders, or other parties to the lending process, to offer benefits to FFELP borrowers that are not available to Direct Loan borrowers since such Direct Loan borrower benefits are not authorized by statute. Direct Loan borrowers have an advantage over FFELP borrowers since they can consolidate their loans while in school.
The Task Force believes it is time to equalize the terms and conditions of student loans so that all borrowers no matter what loan delivery system (FFELP or Direct Loans) have the same loan terms and conditions and, at the same time, the Task Force wishes to continue popular student FFELP benefits, but make them available to all borrowers regardless of loan delivery system school choices or by inequities among student benefit offerings by the lending community, e.g. lenders, guaranty agencies, secondary markets, et. al.
Consequently, no longer would there be disparities in student loan benefit terms and conditions. Every student would pay the same interest rate, same origination fee (if it is not eliminated per NASFAA's recommendation), the same insurance premium (if it continues to be paid by the student and not the federal government per NASFAA's recommendation) and the Task Force suggest there is not a need in either FFELP or Direct Loans for an in-school consolidation benefit and so would eliminate it from the DL program. The Task Force suggests that inequities in the treatment of borrowers need to be eliminated in the current loan program. This recommendation would do so treating all borrowers alike. At the same time, the Task Force recognizes that a number of the FFELP borrower benefits are creative and help reduce student debt. The Task Force recommends that these benefits, such as the benefit for on-time repayment or the benefit for automatic loan repayment deduction from a borrowers checking account, should be made available to all borrowers regardless of the source of their loans. Consequently, the Task Force recommends writing such benefits into the law so all borrowers may take advantage of the above named benefits and any others that NASFAA staff may identify and agreed to by the Task Force.
Issue 8: Illegal Inducements [Section 428(b)(3), 428A(a)(1)(B), & 435(d)(5)
Recommendation: Develop new statutory language requiring annual disclosure to ED of date, amount, purpose, recipient name, and type of every single payment, gift or gratuity above $50 for all such expenditures by lending entity (lender guaranty agency, and their agents, subsidiaries, etc.) at a postsecondary institution, employee or relation of same, or institution agent, subsidiary, etc. Such disclosures must be made publicly available, including posting on web. Criminal penalties jail time and fines apply for not reporting or misreporting such disclosures; penalties apply both for corporate and employee violations.
Rationale: The Task Force spent considerable time debating this issue. It appears that a small number of participants in the FFEL program are crossing the line and violating the illegal inducement section of the HEA. Regrettably, a small number of schools may be encouraging such behavior, especially higher ranking administrators who may not have the developed sense of ethics that their financial aid administrator has. The Department of Education seemingly has been reluctant to enforce the law. This may be due to the fact that the only penalty available to the Secretary is making the offending lending entity ineligible to participate any longer in FFELP.
The Task Force looked at various options to modify current law; it concluded that the law could not be rewritten in a comprehensive fashion to cover all of the circumstances that give rise to such illegal inducements. The Task Force suggests that a new provision mandating disclosure of all spending over $50 made by a lending entity be reported to the Secretary who is then required to make such reports widely available including making them available on the web. Penalties for violation of these disclosure provisions would apply. It is our hope that this disclosure provision will reduce the incidents of illegal inducements since everyone would have access to the information. Knowing this the competitive pressure on lending entities to cross the line would be reduced since even their competitors would have access to their spending reports. The Task Force believes disclosure is a positive step, perhaps, not as an extreme step as the alternatives. For example the Inspector General at the Department of Health and Human Services recently issued guidance in the area of inducements by pharmaceutical companies in marketing their drugs to doctors and pharmacies. The HHS Inspector General's guidance is explicit in signaling that marketing violations will be prosecuted under federal bribery and anti-fraud laws. The Task Force suggests that a disclosure provisions is a more effective step than writing into law more explicit requirements that might be evaded, that might not be used by ED, or could be more burdensome or Draconian. Disclosure is a necessary step to curb abuse and at the same time preserve competition and provide services to schools. A school and its staff should not be influenced by what a lender will 'give' them in determining which lender or loan program to promote to their students.
Issue 9: Loan Consolidation [Section 428C, 455(g) & various other sections]
Recommendation: Continue loan consolidation program, but return to first principles. Allow consolidation for borrowers with multiple loans to have a single holder. Allow consolidation to prevent borrower defaults. Change interest rate from a fixed rate to a variable one to conform to recommendation that all interest rates are variable capped at a maximum rate of 6.8%. Clarify single holder rule. Consider consolidation loans to carry a higher interest rate.
Rationale: The Task Force believes that loan consolidation is an appropriate option so that borrowers with multiple loans may consolidate with one holder and that such loans are a useful tool to keep a borrower from entering into default. Consequently, we propose maintaining loan consolidation as an option for borrowers; continuing consolidation for borrowers with loans from multiple holders; conforming all interest rates; modifying the single holder rule to clarify the relationship of a Perkins loan in consolidation, and having borrowers pay an add-on for the ability to consolidate and to reduce subsidy costs. What the Task Force is very concerned with is the many times abusive and misleading recent marketing of consolidation loans; loans that increase total student repayment debt.
As a result of this framework, the Task Force recommends returning loan consolidation to first principles; the understanding of the uses of consolidation when the program was first adopted by the Congress, e.g., to help ease the confusion and paperwork of have multiple holders and to prevent default. The Task Force suggests too many borrowers are being seduced by sophisticated marketing of loan consolidation options without realizing the consequences of such an action e.g. higher total loan debt and the loss of eligibility for some loan benefits. The Task Force is also concerned with questions of generational equity, e.g. some students consolidate to receive a lower interest rate—a rate, determined by the economy, that is not available to another borrower. For example, a borrower may consolidate their loan today and receive a historically low interest rate. The borrower's sister or brother five years from now because of the state of the economy then might have to pay a considerably higher rate. That is a generational inequity. The Task Force suggests that convenience loan refinancing should be prohibited. Nowhere in setting up the loan consolidation program years ago did Congress contemplate using the system as a means of refinance.
Controversy is rampant over the single holder rule. Our recommendation would maintain the rule and clarify the position of a Perkins loan in consolidation, e.g. Perkins loan can be consolidated, but are not considered to be held by another holder in order to get around the single holder rule. Many knowledgeable observers suggest elimination of the single holder rule would grossly distort and destabilize, perhaps, cripple the student loan market. This, they say, would occur when the lender who estimates and depends on a certain revenue stream coming from a loan in order to stay competitive, indeed, stay in the student loan business, would not be able to do so if a loan can be consolidated by any competitor with the marketing savvy or high pressure tactics to “steal” that loan away.
The Task Force proposes that the interest rate for consolidation loans tracks the interest rate for Stafford loans. The Task Force recommends all loans, including consolidation loans, have a variable interest with Stafford loans capped at a maximum interest rate of 6.8%. We are asking for advice as to whether or not a premium a modest basis point increase should be applied to consolidation loans to help reduce the consolidation loan subsidy that might be better used to offset costs to gain other benefits, such as increased loan limits or elimination of the origination fee, in the zero sum budget game that will be played in this HEA reauthorization.
The Task Force further believes that its recommendations for changes in repayment plans and options, if adopted, will go a long way in providing borrowers with attractive, sensitive, and fair terms that will obviate the need for the high level of loan consolidation activities over the last several years. The Task Force's loan consolidation recommendations are intended to bring some common sense, promote consumer protections and awareness, maintain some semblance of FFELP industry stability, and reduce unnecessary increases in loan debt.
Issue 10: School as Lender [Section 435(d)(2)(D)]
Recommendation:
Option one: Maintain authority for schools to act as lender for graduate programs and Lender of Last Resort for undergraduates if necessary. Mandate that proceeds from interest and special allowance while the school is a holder of loan be returned to need-based student aid programs and that premiums from sale of loan are returned to school general operating fund.
Option two: Eliminate the school as lender program and phase out eligibility over two years for those schools currently participating.
Option three: Expand school as lender program to include undergraduate programs and provide eligibility for all Title IV eligible institutions. Require all interest, special allowances, and premiums from loans sold to be applied toward need-based student aid programs on the campus after a 5% administrative cost allowance.
Rationale: The Task Force is very interested to know what the membership thinks about these three options. Option one is the status quo option which continues the current statutory provisions. Option two would discontinue the program, currently available only for graduate students and phase-out the current schools that act as lenders. Option three extends the school as lender program for undergraduate borrowing as well as graduate student borrowing from their school.
Those who argue in favor of options one and three suggest that at a minimum those schools who currently are lenders for their graduate students should continue to be eligible to do so or that the option should be extended to undergraduate borrowing too. Schools should be able to act as lenders and any profits or financial gains should be plowed back into student aid programs on campus.
Those who argue against options one and three and favor option two argue that schools should not be lenders. Schools that act as lenders have an obvious conflict of interest when it comes to counseling students against unneeded borrowing since the school profits from increased borrowing. Schools should do what they do best and lenders do what they do best and not confuse the two roles. Some suggest that state legislatures may encourage schools as lenders in order to reduce state support for student aid and for schools. Some believe that schools as lenders would destabilize the current loan system. They suggest that the lenders only would provide schools with the capital to make loans to schools that are in the best position to do so. As a result capital may not be available to other less fortunate schools creating a loan access problem.
Again, the Task Force is eager to know what your opinions are on these three options, but you can suggest others that you think of or suggest modifications of your favorite one.
Issue 11: Loan Certification [New HEA Section]
Recommendation: Allow schools the ability to certify loans at least 30-days after the student's last date of enrollment.
Rationale: This recommendation should give adequate flexibility to schools to deal with this certification concern benefiting students.
Issue 12: Loan Disbursement [Section 428G(a)(3), (b)(1) & 428(b)(1)(a), 435new section]
Recommendation: Eliminate the 30-day delay for first-time students, multiple disbursements for single term loans, and loan proration.
Rationale: All three practices create undue hardships for students and should be eliminated. The first two provisions recently expired and efforts to renew the authority of aid administrators continue unabated. NASFAA believes loan proration is administratively complex and is mandated by the law, in several cases, inappropriately. NASFAA believes current law carries proration too far and loan proration as a policy is better utilized for this limited class of students and programs. Other current prorations would be eliminated. The final year of a program of study of one year or more will not be subject to proration, even if the final period of enrollment is less than an academic year.
Issue 13: Borrower Rights and Protections [New HEA Section]
Recommendation: Lenders, guaranty agencies, secondary markets, credit bureaus and/or servicers should be prohibited from releasing and/or selling student information for any purpose not related to the processing and servicing of student loans.
Rationale: Strong language needs to be part of the statute to prevent the use of student information for anything other than the disbursement and collection of student loans.
Rationale: Some borrowers are receiving certain reduction benefits for their loans in exchange for permission to a lending entity to release or sell, for example, their E-mail address to parties outside the student loan processes. The Task Force recommends prohibiting this invasion of privacy in the guise of providing some minor benefit. Student information should only be used in the processing and servicing of student loans and should not be used to fatten a corporation's bottom line profit.
Issue 14: Borrower Rights and Protections Disclosures [New HEA Section]
Recommendation: Require lenders, holders and loan servicers to provide individual borrowers and potential borrowers full disclosure on borrower benefits. The language of these marketing and disclosure pieces must be clear and easy to understand. In additions to outlining student rights and responsibilities, all potential repayment options and benefits must be provided, including statistics on how many borrowers actually benefit from each option and benefit.
Rationale: Borrowers many times do not understand the type and scope of benefits available to them. They may believe that they are entering into a repayment program that will provide them flexibility but in the long run costs them more money and is more restrictive than another option.
Issue 15: Consumer Information and Education [New HEA Section]
Recommendation: Direct the Secretary to develop and distribute consumer information to student loan borrowers and potential student borrowers concerning debt management and student loan related information. Lenders, guarantors, servicers and secondary markets will be responsible for the distribution of this material.
Rationale: The Secretary has the ability to design materials that address the needs of the student borrower. In addition, schools may not have the resources available to develop and deliver the comprehensive materials required by the Secretary or needed by the student. It seems more practical for the Secretary and the Department to be responsible for this issue.
Likewise, the points of time at which the borrower needs these materials are generally beyond the scope of control of the school. These points generally involve the borrower and the lender and include, but may not be limited to: time the loan is requested, time the borrower enters repayment, times when the borrower is experiencing difficulties in meeting his/her payment obligations, and times when the borrower may be seeking new repayment terms and possible consolidation. It is at these points in time that the borrower needs 'just-in-time' counseling on what options are available. Something the schools have no control over.
Issue 16: Disbursements [Section 428G]
Recommendation: Schools should be allowed the ability to request uneven disbursements during a loan period. This should be allowed for undergraduate and graduate level loans.
Rationale: Students often have significantly greater expenses in some terms than in others. With even disbursements they are often unable to meet their expenses in some terms, yet have excess funds in others.
Issue 17: Loan Counseling [Section 422(h)(8)(a)(ii) & 485(b)]
Recommendation: Require lenders or guaranty agencies to perform all statutory loan-counseling activities, unless the school elected to perform these duties in whole or in part.
Rationale: Statutory entrance and exit counseling the Task Force recommends be performed as a mandate by the HEA. Schools would be able to select what lender or agency or combination of to perform these counseling activities. Schools could provide such services themselves either in whole or in part.
Issue 18: Loan Forgiveness [Section 422(h)(8)(A)(i), 428J, 428K, 460, 465, ]
Recommendation: The loan forgiveness provisions for subsidized Stafford loans should be the same as those provided in the Perkins Loan Program and vice versa.
Rationale: Loan forgiveness provisions in the Perkins and Stafford loan programs should be the same to provide borrower equity in loan terms and conditions.
Issue 19: Master Promissory Note (MPN) [Section 432(m)(1)(D)]
Recommendation: Direct the Secretary to review and revise the Master Promissory Note (MPN) provisions to allow two-year colleges and proprietary institutions the ability to use the multi year feature provisions of the MPN.
Rationale: Not allowing these schools the ability to use the continuation provisions is disruptive to the student's borrowing and slows the student's access to education.
Issue 20: Over Award Provisions [Section 428(G)(d)(2), 443(b)(4)]
Recommendation: The over award provisions need to be consistent across all Title IV programs.
Rationale: The suggested amendment would allow an over award tolerance of $500 in the FFEL and Direct Loan Program.
Given the many circumstances under which an over award may be created, and the fact that modest over awards are permitted in other Title IV programs, NASFAA recommends that similar treatment be permitted in the loan programs. NASFAA believes that a $500 over award is low enough to prevent the borrower from incurring unreasonable excess debt, but sufficient to avert costly and inconvenient administrative burdens for students and schools.
[Return to main article on NASFAA's Reauthorization Task Force Preliminary Recommendations]
Posted October 15, 2002 on www.NASFAA.org, Web Site of the
National Association of Student Financial Aid Administrators
Copyright 2002. NASFAA
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