As is true with any package of final regulations issued by the Department, there are changes in response to public comments as well as changes made by the Department after reconsidering some of the issues. Some changes will benefit students and schools, while others will not. Many of the provisions that NASFAA believes should have been changed, remain unchanged.
Even though the final regulations are effective next summer, the Secretary of Education is utilizing special authority to allow institutions, lenders, guaranty agencies, and servicers to implement certain provisions prior to July 1 at their discretion. Some of the major provisions that may be implemented before July 1, 2008 are the following.
These final regulations also incorporate certain statutory changes made to the HEA by the College Cost Reduction and Access Act, H.R. 2669. While the Department is normally required to publish a notice of proposed rulemaking and provide the public with an opportunity to comment on proposed regulations prior to issuing final regulations, there are exceptions to those requirements in the HEA.
The Department has determined that it is unnecessary to conduct negotiated rulemaking or notice-and-comment rulemaking on these regulations pertaining to the CCRAA because they "simply modify the Department's regulations to reflect statutory changes made by the CCRAA, and these statutory changes are either already effective or will be effective within a short period of time."
The following analysis describes some areas where the final regulations differ from the NPRM. NASFAA will continue to review the regulations in the coming days to further analyze their effects on schools and students.
If a school decides to provide a preferred lender list, the final rules include several regulations to govern how that list must be implemented and presented to students and parents. Schools are under no obligation to provide any preferred or recommended lender list.
The final rules state that schools may not use a preferred lender list to deny or impede a borrower's choice of lender. Schools will be required to list at least three lenders that are not affiliated with each other. Under the final rules, no lender would be allowed on a school's preferred lender list that had offered the school with any benefits in exchange for being on the list. Schools would also be prohibited from automatically assigning lenders through award packaging to first-time borrowers.
A school's preferred lender list would also need to contain several disclosures, including:
A prominent statement informing borrowers that they are not required to use any of the lenders on the preferred lender list
A new provision in the final rules would change §682.212(h)(2) to require schools to update their preferred lender lists and all of the accompanying information at least annually to ensure that the information is current.
The final rules also reverse an earlier proposed regulation contained in the NPRM that would have required lenders to offer the same borrower benefits to all students at the same school. Commenters suggested that such a regulation exceeds the Secretary's authority and that it could have unintended consequences by eliminating some benefits for certain borrowers at that school. Now loan providers may offer different benefits to different students at a school but the Secretary expects that different benefits made by differing programs, debt levels, state restrictions, etc., will be made clearly known to all borrowers at the school.
Other changes include a technical change in §682.212(h)(3)(iv) that removes a reference to lenders serving as trustees and changes in section 682.212(h)(1)(iii) that clarifies that a preferred lender list must "not include lenders that have offered, or have offered in response to a solicitation by the school."
NASFAA had requested that the Department allow schools that have less than 150 borrowers to have a preferred lender list with fewer than three lenders. The Department did not add any provision exempting smaller schools from these provisions.
Prohibited Inducements
The Department received multiple comments on prohibited inducements. Some of the comments supported the Department's efforts to clarify what it means by prohibited inducements. Many others challenged many of the regulations and reasoning used by the Department in constructing the regulations. The Department held firm on most of the inducement provisions found in the NPRM, but did make some changes in the final regulations.
The change that is most likely to affect many schools is a new prohibition against loan providers or guarantors from conducting in-person, school-required entrance and exit counseling. In response to concerns raised by NASFAA and others, lenders and guaranty agencies can continue their student aid and financial literacy-related outreach activities with schools, students, and parents.
NASFAA, in its NPRM response, recommended specifically that "the regulations be changed to explicitly allow lenders or guaranty agencies to perform entrance and exit counseling with the caveats that a school needs to monitor the counseling to ensure that loan products are not being marketed at that time." These final rules reverse long-standing policy that has allowed such activities.
The NPRM states that lenders would be allowed to provide short-term staffing services to a school to "assist a school with financial aid related functions" on an emergency, non-recurring basis. The final rules have been modified to include a definition of "emergency basis." For purposes of these regulations, this term means a state or federally declared natural disaster or other localized disasters and emergencies identified by the Secretary.
The final rules also change the definition of a lender in §682.200(b) and §682.401(e)(2) to allow the Secretary to announce other permissible lender services in the future through a public announcement such as a notice published in the Federal Register. These regulations have been further modified to include as a permissible activity loan forgiveness programs for public services and other targeted purposes approved by the Secretary as long as the benefits are not marketed to secure loan applications or guarantees. This change will safeguard many state-mandated or state-approved loan forgiveness or other benefits used by states to implement public policy goals.
The final rules explicitly prohibit a lender from soliciting school employees to serve on its advisory board and paying any costs related to that service.
Section 682.401(e)(2)(iv) has also been modified to require that guaranty agency-sponsored meals, refreshment, and receptions be "reasonable in cost." By reasonable in costs the Department hopes that guaranty agencies will adhere to the "prudent person test" under which "the cost per person for the sponsored event does not exceed the cost that would be incurred by a prudent person under the circumstances at the time the decision was made to incur the cost."
Other changes that effect guarantors and lenders were also made in the final rules.
Total and Permanent Disability
After reviewing comments, the Department has revised §§674.61(b)(3)(i), 682.402(c)(3)(i), and 685.213(c)(2) to change the start date of the three-year conditional discharge from the date the Secretary makes an initial determination to the date the physician certifies the discharge. This is a victory for borrowers who will not have to rely on extra government processing in order to begin their three-year conditional discharge period.
The Department also changes §§674.61(b)(4), 682.402(c)(4), and 685.213(d) to allow the Secretary to require additional medical evidence of a borrower's total and permanent disability as well as an additional review by an independent physician at the Department's expense.
Sections 674.61(b)(5)(iii), 682.402(c)(4)(iii), and 685.213(d)(3)(ii) have also been changed in accordance with a request from NASFAA to codify the practice of returning any payments to a borrower that were made after the date a physician certified the borrower's application once the final discharge has been issued.
Finally, after internal review at the Department, a change has been made to §674.61(b)(2) of the Perkins Loan Program regulations to provide a more detailed description that must be provided to a borrower after an institution receives a discharge application.
The regulations state that an application must contain a certification by a physician that the borrower is totally and permanently disabled as defined. The borrower must submit the application to the institution within 90 days of the date the physician certifies the application.
After receiving the borrower's completed application, the institution must suspend collection activity on the loan and inform the borrower that the institution will review the application and assign the loan to the Secretary for an eligibility determination if the institution determines that the certification supports the conclusion that the borrower is totally and permanently disabled.
The institution will resume collection on the loan if the institution determines that the certification does not support the conclusion that the borrower is not totally and permanently disabled.
To remain eligible for the final discharge, the borrower must not receive annual earnings from employment that exceed 100 percent of the poverty line for a family of two, not receive a new loan under the Perkins, FFEL, or Direct Loan programs, except for a FFEL or Direct Consolidation Loan that does not include any loans on which the borrower is seeking a discharge, and must ensure that the full amount of any Title IV loan disbursement made to the borrower on or after the date the physician completed and certified the application is returned to the holder within 120 days of the disbursement date.
The institution must assign the loan to the Secretary and notify the borrower that the loan has been assigned to the Secretary for determination of eligibility for a total and permanent disability discharge and that no payments are due on the loan.
NSLDS Reporting
The Department received many comments asking them not to change the timeframe in which guarantors must report certain student enrollment dates to the current loan holder from 60 days to 30 days. Months with 31 days would not be accommodated under these provisions. Consequently, the Department has decided to change the regulatory time frame from 30 days to 35 days.
Certification of Electronic Signatures on MPNs Assigned to the Department
Many commenters voiced concern about requiring Perkins Loan schools and lenders that use electronic MPNs to maintain an affidavit or certification on how the institution maintains its electronic MPNs and requiring institutions to retain disbursement records, electronic authentication and signature records, and repayment records for three years from the date the loan is satisfied. Still, the Department held firm and did not change any provisions from the NPRM.
Loan Counseling for Graduate or Professional Student PLUS Loan Borrowers
Most comments were supportive of regulatory changes that would require entrance counseling for graduate or professional PLUS Loan borrowers, however would allow that the counseling could be abbreviated if the borrower had received a previous Stafford Loan. As proposed, the regulations would also require an institution to provide anticipated monthly repayment amounts to borrowers that have both Stafford and PLUS Loans based on the different types of loans the borrower has received. Finally, the proposed regulations would require institutions to inform PLUS Loan borrowers of their possible eligibility for a Stafford loan and to highlight the differences between the two programs.
The Department did rearrange some of the regulatory language, but made no significant changes to the regulations as drafted in the NPRM.
Maximum Length of Loan Period
The proposed regulations would allow institutions to certify a single loan for students in non-term or nonstandard term programs in excess of 12 months. Schools would still use the definition of an academic year as defined in 34 CFR 668.3, but would no longer need to worry about exceeding a 12-month period. This would allow schools greater flexibility in rescheduling disbursements for students who drop out of school but then return within the 180-day leave of absence period. Commenters were in unanimous support of this provision and the Department made no changes to the regulations proposed in the NPRM.
Mandatory Assignment of Defaulted Perkins Loans
A large number of comments on the proposed regulations challenged the Department's authority to mandate assignment of defaulted Perkins Loans. The final rules makes changes to §§674.8 and 674.50 by altering the Program Participation Agreement to require - at the request of the Secretary - assignment of Perkins Loans in default if the outstanding principal balance is more than $100, the loan has been in default for more than seven years, and no payment has been received in the last 12 months. The regulations would allow Perkins Loan assignment without the borrower's Social Security Number.
NASFAA had argued that mandatory assignment should only occur when the following conditions are met:
- The principal loan balance must be $1,000 or greater,
- Loan may only be assigned after ten years in repayment status, excluding deferment and forbearance periods, and
- No payments have been received for two years (which is consistent with write-off criteria for small balances).
NASFAA also recommended that the proceeds collected by the Secretary (minus an amount not to exceed 30 percent) be repaid to the originating school's fund within 30 days of collection by the Secretary. NASFAA believes the Department should not require assignment of a loan for which a court judgment has been rendered in favor of the school.
Despite outcries from numerous commenters - including NASFAA - in opposition to these specific regulations, the Department made no changes in the final regulations.
Reasonable Collection Costs
The final rules make no changes to the proposed provisions to limit the amount of collection costs that can be assessed to students on defaulted Perkins Loans to 30 percent of the total principal, interest, and late charges on first collection efforts, and 40 percent on second collection efforts or in cases of litigation.
Child or Family Service Cancellation
Commenters were generally supportive of these provisions, which codify a 2005 Dear Colleague Letter (DCL). The DCL clarified the Department's long-standing policy that the Family Service Loan Cancellation only applies to borrowers employed in full-time, non-supervisory roles in child or family service agencies that directly and exclusively provide services to high-risk children. The Department made no changes to the NPRM provisions.
Frequency of Capitalization
All of the comments received by the Department supported the proposed regulations stipulating that capitalization on consolidation loans during any period of deferment would occur only at the end of an authorized in-school deferment or at the time of loan default. This change would bring consolidation loan capitalization in line with the Stafford and PLUS Loan programs. The Department offered no changes in the final rules from the NPRM.
Loan Discharge for False Certification as a Result of Identity Theft
The final rules add a clarifying provision stating that a loan discharge due to identity theft can only be granted if a state or federal judge conclusively determines that a FFEL or Direct Loan was falsely certified due to the crime of identity theft and can identify the perpetrator of the crime.
These regulations allow a lender to suspend credit bureau reporting on a loan for 120 days while a lender investigates claims of identity theft, allow a lender to grant a 120-day administrative forbearance while it investigates claims of identity theft, and if the loan becomes unenforceable, prohibits lenders from collecting interest or special allowance payments from the Department. Lenders that submit a verdict conclusively proving identity theft within three years after it began its investigation it will be fully reimbursed by the Department.
By Justin Draeger, NASFAA Assistant Director for Communications, and Larry Zaglaniczny
NASFAA Director for Congressional Relations
Posted 11/01/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
