Publication Date: June 12, 2008
| Author: |
Vince Sampson, Deputy Assistant Secretary |
| |
Office of Postsecondary Education |
Summary: Effect of FFEL Borrower Benefits on the Eligibility of Loans
to be Sold to the Department
The purpose of this announcement is to clarify the effect on FFEL borrower
benefit programs of the Department's offer to purchase certain FFEL loans.
In a May 21, 2008, letter
to FFEL lenders, the Secretary announced that the Department would
offer to purchase certain FFEL Program loans, as well as participation
interests in certain FFEL Program loans, consistent with provisions of
the recently enacted Ensuring Continued Access to Student Loans Act (Pub.
L. 110-227), made for the 2008-09 academic year. Since publication of
that letter there has been uncertainty within the lender and postsecondary
education communities regarding the impact such loan purchases would have
on certain benefits that, in the past, have been offered by FFEL lenders
to student and parent borrowers.
Some borrower benefit programs offered by FFEL lenders do not impact
the eligibility of a loan to be sold to the Department. Conversely, there
are some borrower benefit programs that, if offered, would impact this
eligibility.
The principle under which the following guidance is based is that the
Department will not, except as provided below, assume a commitment made
to a borrower by another entity. Thus loans with such commitments cannot
be included in the purchase program.
Payment of Upfront Fees -
Since the one percent borrower origination fee and the one percent default
fee, that are in effect for loans made on or after July 1, 2008, would
have been paid prior to the sale of the loan, the payment by FFEL lenders
of all or part of these two upfront fees does not impact the eligibility
of a loan to be sold to the Department. Thus, FFEL lenders (or any other
entity) may, if they choose, continue to pay these fees on the borrower's
behalf without impacting the possible sale of the loan to the Department.
Interest Rate Reductions for Electronic Payments -
The Department has determined that it likely will, for any 2008-09 loan
that it purchases, offer the borrower a reduction of one-quarter of one
percent in the loan's interest rate if the borrower elects to have his
or her monthly payments paid automatically through an electronic debit
process. Thus, a FFEL lender offering a borrower an interest rate reduction
of one-quarter of one percent under the same conditions would not be jeopardizing
the eligibility of the loan to be sold to the Department or the borrower's
right to such an interest rate reduction.
Other Borrower Benefits -
Most other borrower benefit programs provide their benefits later in
the loan's lifecycle, after the loan may have been purchased by the Department.
Unlike the electronic repayment interest rate reduction discussed above,
these benefits are not likely to be offered by the Department upon purchase
of the loan. Thus, the Federal Register Notice referred to in the
Secretary's May 21 letter will likely provide that one of the eligibility
requirements for a loan to be purchased by the Department, or placed in
a participation agreement as described in the Secretary's letter, will
be that the loan carry no committed or implied borrower benefit other
than the two benefit programs noted above or those which are expressly
provided for in the statute or in the promissory note.
It is important to note in the context of these loan purchase initiatives
that the guidance provided in this announcement does not mean that FFEL
lenders must offer loans with terms and conditions identical to those
offered by the Secretary in the Direct Loan Program. Nor does it mean
that the Secretary will offer benefits ordinarily provided to Direct Loan
borrowers on a FFEL loan that it purchased from a FFEL lender.
Further details on loan purchases will be provided in the Federal
Register. It is possible, but unlikely, that the Federal Register
notice will further limit the purchase of loans on the basis of the benefits
offered to borrowers.
Posted 06/13/08 to www.NASFAA.org. Please submit Web Site questions or comments to Web@NASFAA.org
