Dear Colleague Letter GEN-08-08, released yesterday afternoon, provides a summary of the recently enacted Ensuring Continued Access to Student Loans Act (ECASLA) and the actions the Department is taking to help ensure that postsecondary students and their parents have access to federal student loans. While many of the details in the DCL have appeared in previous Department communications, the letter offered new guidance on lender of last resort (LLR) provisions and extenuating circumstances for PLUS loans.
Lender of Last Resort Provisions
The DCL outlines specific steps schools would need to take in order to qualify for institution-wide LLR designation. Prior to ECASLA, Stafford loan borrowers would only qualify for LLR on a borrower-by-borrower basis. Through June 30, 2009, ECASLA allows Stafford and PLUS borrowers at an entire institution to qualify for LLR loans as long as the school meets minimum requirements set by the Secretary.
The Department will require schools and guarantors to take the following steps to qualify for institution-wide LLR designation.
- Schools will need to determine the number of student and parent borrowers who are unable to secure a traditional FFELP loan. If that number is equal to or greater than 80 percent, all borrowers at the school may receive LLR loans.
- Schools must also show that they have made at least three attempts to find participating lenders who will make conventional FFEL loans, beyond those lenders who had previously provided FFEL loans to the institution's students. Schools may rely on guarantors for help with this process.
- Guaranty agencies will then determine whether the school should qualify for institution-wide LLR designation and will pass that determination on to the Department. Two earlier Dear Colleague Letters (GEN-08-03, FP-08-03 and GEN-08-05, FP-08-05) provide guidance to guaranty agencies and responses to specific questions about implementation of the LLR program.
- The Department will also try to find a lender willing to make loans to the institution before approval. Even if a school can document that 80 percent of its borrowers are unable to secure a traditional FFELP loan, the Department may withhold approval until it, too, has searched for a lender willing to make loans to borrowers at the school.
LLR Guidance Causes Concern
NASFAA has several concerns about the LLR provisions outlined in the DCL. This new guidance makes the institution-wide designation so complicated that schools that are having difficulty finding lenders may revert back to a borrower-by-borrower basis for determining eligibility for lender of last resort, leaving students in no better place than before ECASLA.
In a forthcoming letter to Secretary Spellings, NASFAA President and CEO Dr. Phil Day will outline at least three ways the Department could make the institution-wide LLR designation easier for schools and students. Day will call for:
- Lowering the minimum threshold of borrowers unable to obtain a traditional FFELP loan from 80 percent.
- Mandating that schools be notified, within five business days of completing the institution-wide LLR process, of their approval status and that funds be made available to borrowers within 10 business days.
- Clearer guidance on the type of documentation required for schools to prove that a minimum number of borrowers have been unable to obtain a traditional FFELP loan.
Other Guidance Outlined in the DCL
The DCL also gives guidance on:
- New annual and aggregate loan limits, with an accompanying chart.
- Providing liquidity to lenders by purchasing FFELP Stafford and PLUS loans or by entering into forward agreements to purchase FFELP loans.
- Extenuating circumstances for PLUS loan eligibility. Lenders are encouraged in the DCL to reexamine the eligibility of applicants who may have been denied previously to determine whether these extenuating circumstances exist.
- Introducing a grace period for parent PLUS borrowers until six months after the dependent student on whose behalf the loan was taken ceases to be enrolled at least a half-time basis.
ECASLA also made significant changes to the ACG and SMART Grant programs, but those changes will not be effective until January 1, 2009. The Department may revisit those provisions and provide additional guidance on how those changes should be implemented in "the very near future," according to the DCL.
Additional Resources
Additional Media Coverage
Lenders Say Department's Threshold for 'Last Resort' Relief Is Too High (The Chronicle of Higher Education)
By Justin Draeger
NASFAA Associate Director for Communications
Posted 06/20/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
