The proposed draft regulations define an eligible not-for-profit loan holder for the purpose of requesting the higher special allowance payments from the Department. The regulations stipulate that a not-for-profit lender cannot be a school acting as a lender or an eligible trustee. The not-for-profit lender must have been designated - according to section 435(d) of the HEA - and acting as such on September 27, 2007.
The goal of the proposed draft regulations is to ensure that no for-profit entity attempts to exert control over a not-for-profit to take advantage of the increased subsidy rate for not-for-profit lenders.
"Our single biggest issue is trying to determine all of the diverse ways a for-profit could exert control over a not-for-profit," said the Department’s lead negotiator.
A for-profit will be considered as controlling a not-for-profit in any of the following conditions:
A for-profit entity is a member or shareholder of a not-for-profit entity resulting in enough power to exert control over the not-for-profit
Employees (or family members of employees) of a for-profit that make up a majority of a not-for-profit’s board of trustees, audit committee, executive committee, or compensation committee
Any other situation whereby a for-profit approves decisions for the not-for-profit regarding it audits, investments, hiring, retention, and compensation of officials
Lender negotiators caucused with Department negotiators on the second day of negreg to discuss many of the nuances of the proposed draft regulations that could affect a non-profit’s ability to raise capital through bond issues.
For example, not-for-profit loan holders issue bonds to raise capital. Bond issuances require oversight before the bonds go to market to protect bond holders and maintain the financial integrity of the bonds. That oversight is often done by a for-profit entity, which is charged with assessing the risk and assigning uses to the capital raised by the bonds. In that instance the for-profit entity may be exerting some control over the not-for-profit - at least in the way it uses its bond funds - but isn’t exerting the type of control the Department is trying to prohibit.
Lender negotiators agreed to provide their own proposed draft regulations that address the concerns from the Department and others to ensure that not-for-profits operate independent of any for-profit entities, but still allow a not-for-profit to continue operating normally.
Economic Hardship Deferment
The proposed draft regulations attempt to define "family size" in respect to the economic hardship deferment as required by the CCRAA. The proposed amendments are straightforward. The definition of family size suggested by the Department mirrors the definition currently used in Title IV need analysis. Under the proposed draft regulations, family size means "a number that is determined by counting the borrower, the borrower’s spouse, and the borrower’s children if the children receive more than half their support from the borrower."
A borrower’s family size includes other individuals if, at the time the borrower elects the income-based repayment plan, the other individuals live with the borrower and receive more than half their support from the borrower, which can come in the form of money, gifts, loans, housing, food, clothes, car, medical and dental care, or payment of college costs.
Much of the discussion focused on how the holder of a loan would verify a borrower’s family size, since the exemptions listed on a federal income tax return may not be an accurate reflection of the filer’s situation. The Department’s position is that validation of family size should mirror the verification process; loan holders should require applicants for a deferment to complete a worksheet certifying their family size. Negotiators reached tentative consensus on this issue.
HEROES Waivers and Benefits for Active Duty Military Borrowers
The federal student loan program regulations do not reflect the HEROES waivers and there are currently no rules that apply these benefits to borrowers who qualify for multiple military benefits. The Department had originally intended to use negreg to draft regulations that coordinate all of these separate benefits so that borrowers have the best options available to them.
The proposed draft regulations do not incorporate the waivers authorized by HEROES. Given that the Department has published a notice in the Federal Register extending the HEROES waivers for five years, the Department feels it has time to see what happens with the HEA reauthorization before changing codifying HEROES waivers, since additional benefits and changes are likely to be enacted.
The proposed draft regulations contain conforming and clarifying changes. The draft regulations state that borrowers in active duty service on or after Oct. 1, 2007, are entitled to 180 days of deferment after each period of service. Additionally, borrowers in active duty military service on or after Oct. 1, 2007, need not pay principal for up to 13 months after their service if they served as a member of the National Guard, or other reserve component of the Armed Forces, if they were enrolled at least half-time in an eligible institution within six months of being called to active duty.
Under the proposed regulations, if a borrower qualifies for both the 180-day post-mobilization deferment and the 13-month active duty deferments, both deferments would be applied concurrently.
The proposed regulations also state that active State duty for National Guard members includes instances of activation by a state Governor and paid by state funds. If activated by a Governor and paid for by federal funds, the Governor would need to receive approval of the U.S. President or the Secretary of Defense to be eligible. Active duty would not include full-time, permanent employees of the National Guard unless the borrower is reassigned to active duty service by a state.
Nonfederal negotiators offered several technical suggestions to ensure that the draft regulations conform across all loan programs. Nonfederal negotiators also questioned the Department on exactly which borrowers would benefit from these provisions in which circumstances. The Department will take those suggestions and update the draft regulations prior to the next round of negreg.
Next Steps
The Department, as well as some nonfederal negotiators, will be reworking some of the proposed draft regulations. Two conference calls are also scheduled to give negotiators to view and discuss some of the new regulation before the final round of negotiations scheduled for March 4-6.
NASFAA will continue to provide updates on any new regulatory language given to negotiators prior to the next round of negreg. NASFAA encourages members to review the negreg summaries and proposed draft regulations and send comments to negreg@nasfaa.org.
By Justin Draeger, NASFAA Assistant Director for Communications, and Jennifer Martin, NASFAA Assistant Director for Professional Assessment, Training, and Regulatory Assistance
Posted 02/07/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
