Federal and nonfederal negotiators reached consensus yesterday after resolving all outstanding issues within a single day. Consensus on the student loan issues appeared to be in jeopardy after the last round of negotiations when this fourth and final round was scheduled. All outstanding issues were resolved.
"While the non-federal negotiators did not get the Department to agree with every item we proposed, the Department’s negotiating team did make significant compromises and concessions on many of its draft rules that they first proposed," said Larry Zaglaniczny, NASFAA Director of Congressional Relations who also served as a negotiator on the committee. "It’s good to reach consensus with the Department on regulations that will help students and be workable for schools... especially after failing to reach consensus during last year's negotiations."
The Department will next provide complete proposed draft regulations, along with a draft preamble, to all nonfederal negotiators. After collecting comments from the nonfederal negotiators, the Department will release a notice of proposed rulemaking (NPRM) for public comment before releasing final rules before November 1. NASFAA will provide a comprehensive summary of the negreg provisions.
The following outstanding issues were resolved yesterday.
Retroactive Payments in IBR
Some nonfederal negotiators wanted the Department to consider payments made prior to July 1, 2009, as eligible payments for loan forgiveness under the income-based repayment (IBR) plan. Payments made on or after July 1, 2009, in the income sensitive, graduated, or extended repayment plans count toward the 25-year repayment period needed for loan forgiveness. Payments made under the standard repayment plan also count toward the 25-year repayment period. The proposed draft regulations also stipulate that periods of economic hardship deferment will also count toward the 25-year repayment period needed for forgiveness. But the Department had been unwilling to change the proposed regulations to include retroactive payments made prior to July 1, 2009 as counting toward the 25-year repayments needed for forgiveness.
In an effort to reach agreement, the Department compromised its stance by accepting a suggestion made by the student negotiator that would allow payments made in the income contingent repayment plan (ICR) prior to July 1, 2009 to count toward the 25-years worth of repayments needed for forgiveness. According to the Department, allowing ICR payments would not require any budgetary offsets because borrowers in ICR are already included in loan forgiveness projections. This compromise was accepted as part of the consensus reached on the entire package of draft proposed regulations.
Calculation of Special Allowance Payments Under Income Based Repayment
During the previous round of negreg, lender negotiators objected to the Department's interpretation of the special allowance payments (SAP) calculation for loans in the IBR plan. The CCRAA modified this calculation. Lenders believe that they should receive a yield on both principal and interest, but the Department's interpretation does not apply SAP to accrued interest. The result is that in some cases lenders would receive little or no SAP from the Department and could ultimately result in lenders owing money to the Department.
In response to lender negotiators’ concerns, the Department made changes to the calculation of SAP with respect to accrued, unpaid interest on IBR loans. The new language allows an exception for unpaid accrued interest, which would make the applicable interest rate zero.
Definitions of Directly Employed, Public Interest Law Services, and Qualified Employment for Public Service Loan Forgiveness
During previous rounds of negreg, several nonfederal negotiators objected to the idea that the definition of qualified employment for public service loan forgiveness included the words "directly employed." Removing that verbiage would help workers who perform public service work, but are under contracts with local communities, qualify for loan forgiveness. The Department conceded on this issue and removed the word "directly."
Nonfederal negotiators also objected to the Department's definition of public interest law services, calling it too limiting in nature. The Department provided a new provision in the regulations to include borrowers who are not directly employed by the government, but for an organization that is subsidized through a government contract.
The new definition would include individuals working for "public service organizations," which would be defined as: "a government organization or agency, a public child or family service agency, or a nonprofit organization that provides the following services: emergency management, military service, public safety, law enforcement, public interest law services, public child care, public service for individuals with disabilities and the elderly, public health, public education, public library services, school library or other school-based services."
Still, nonfederal negotiators were concerned that the definitions were not comprehensive enough to cover all teachers and suggested that the definition found in Teacher Loan Forgiveness be used in this regulatory language. But the Department opposed adding a section specifically for teachers because generally the Department doesn't design regulations that specifically address certain groups unless those groups are already specified by statute.
"You're asking us to provide a special rule for them when Congress didn't," said a federal negotiator.
The Department did provide new proposed draft regulatory language that would seem to cover teachers. Full-time work would now be defined as full-time work in one or more jobs where the borrower works an annual average of 30 hours per week for a contractual or employment period of at least nine months. Vacation or leave time provided by the employer would not be considered in determining the annual average hours worked. Nonfederal and federal negotiators reached agreement on this issue.
Definition of Not-For-Profit Lender
The latest proposed draft regulatory language is almost identical to the version released in February with a few exceptions. A new provision would require not-for-profit lenders to submit their annual IRS Form 990s to the Department as part of their annual certification process. The regulations seek to ensure that a not-for-profit lender is neither influenced nor controlled by a for-profit entity and to prevent any for-profit entity from benefiting from larger loan subsidies given to nonprofits by the CCRAA. School negotiators expressed gratitude to the Department and lender negotiators for working on these provisions outside of the negreg process to come to a compromise that ensures guarantees against any abuse of the intent of the regulations.
Additional Resources & Media Coverage
By Justin Draeger
NASFAA Assistant Director of Communications
Posted 04/15/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
