Negotiators representing different sectors of the higher education community completed what was supposed to be the final round of negotiated rulemaking (negreg) on student loan issues last week. But their failure to reach consensus has resulted in a fourth meeting scheduled for April 14-15, where they will attempt to find agreement on several outstanding issues. Negotiators reached tentative agreement on multiple items that will be beneficial to students. Unfortunately, negotiators were unable to reach agreement on five issues that will be addressed in April.
Those five issues are discussed in a separate article published last week. Current outstanding issues include:
- Counting payments made before July 1, 2009, toward the 25 years of repayment required for loan forgiveness in the income-based repayment (IBR) plan (also called retroactive payments);
- The calculation of special allowance payments (SAP) made to loan holders on loans in IBR;
- The definition of a not-for-profit lender;
- The definition of qualified employment for public service loan forgiveness;
- The definition of public interest law services; and
- The definition of directly employed.
Summaries of changes and discussions from the third round of negreg on student loan issues follow.
Income Based Repayment
IBR: Disclosure Requirements
Mirroring disclosure requirements in the income contingent repayment (ICR) plan, the proposed draft regulations would require student loan providers to inform borrowers about the income based repayment (IBR) option in their disclosure statements. In response to a request from some nonfederal negotiators, the proposed draft regulations would not require lenders to provide that information to parent PLUS borrowers since they are ineligible for IBR.
IBR: Repayment of a Loan
Total loan payments are limited to no more than 15 percent of the amount by which the borrower's AGI exceeds 150 percent of the poverty line income applicable to the borrower’s family size. The proposed draft regulations codify a statute in the CCRAA that stipulates that for married borrowers filing separately, AGI includes only the borrower’s income. Poverty line income refers to income categorized by state and family size in the "Poverty Guidelines" published annually by the U.S. Department of Health and Human Services. For borrowers not living in a state as defined by the guidelines, loan holders should use the state of their last known address to determine the applicable poverty line income. Six months before borrowers are scheduled to enter repayment, the proposed draft regulations would require holders to offer them their choice of applicable payment plans, including IBR. Borrowers would need to turn in all required verification documentation within the time period specified by the loan holder to qualify for IBR. Otherwise the holder may assign the borrower to a standard repayment schedule.
It is possible for a borrower to have a monthly repayment amount in IBR that does not cover accruing interest. In those instances the Secretary will pay the interest on any subsidized Stafford loans or on any subsidized loans that make up a consolidation loan for up to three consecutive years from the date the borrower begins repayment in IBR on each loan in IBR.
Loan holders would be required to limit the monthly payment amount to the proportion of the borrower's total aggregate loan amount held by a particular holder. Under the proposed draft regulations borrowers would be required to request IBR from each holder if they have loans with multiple loan holders.
IBR: Loan Forgiveness
Borrowers may only elect IBR if they qualify for a partial economic hardship. The repayment period for a borrower under IBR may be greater than 10 years, but not more than 25 years, not including periods of deferment (except that periods when a borrower has an economic hardship count towards the repayment period) or forbearance. Payments made on or after July 1, 2009, in the standard, income sensitive, graduated, or extended repayment plans also count towards the 25-year repayment period needed for loan forgiveness.
Under the proposed draft regulations, borrowers will receive a cancellation on any remaining principle and accrued interest on their eligible loans after 25 years if the borrower has participated in the IBR program at any time during that period. Loan holders must notify borrowers that no additional payments are required within 60 days after the holder determines that the borrower qualifies for forgiveness.
Some nonfederal negotiators want the Department to consider payments made prior to July 1, 2009, as eligible payments for loan forgiveness, but the Department was unwilling to amend the proposed regulations to meet that request.
The proposed draft regulations now allow a loan holder to grant up to a 60 day administrative forbearance to allow it time to collect and process documentation to evaluate a borrower’s eligibility for loan forgiveness. Lenders must inform borrowers that payments are no longer required pending approval for forgiveness from the guaranty agency. Lender negotiators proposed an additional administrative forbearance that could be granted in instances where borrowers fall delinquent when changing to a new repayment plan, which was accepted by the Department.
During the previous round of negotiations, nonfederal negotiators asked the Department to consider a calculated monthly payment amount of $0 as a qualifying payment that counts toward loan forgiveness. The Department originally objected to the idea, but reversed itself and will now allow a calculated $0 monthly payment to count as a payment towards the repayment period required for loan forgiveness. Negotiators agreed to make IBR payment amounts that are less than $5 round down to $0 and for calculated payments between $5 and $10 to round up to $10. For any calculated payment amount greater than $10, borrowers would be given a $5 payment tolerance where any payment within $5 of the calculated monthly payment will be count as a full payment.
IBR: Verification and Documentation
The proposed draft regulations will require borrowers to give loan holders written consent to verify their AGI with the Internal Revenue Service (IRS). Borrowers must also certify their family size on an annual basis. If a borrower fails to certify his or her family size, loan holders will be able to assume a family size of one for that year.
IBR: Exit Counseling
The proposed draft regulations also require that information about IBR be included during exit counseling. A nonfederal negotiator also asked that regulatory language be added that requires borrowers to be notified of other partial or full loan forgiveness programs, and a notice that tells them which forgiveness programs are only available in the Direct Loan program. Lender negotiators also asked that borrowers be informed of other benefits available to the borrowers in the FFEL program. The Department said it would take it under consideration.
Direct Loan Public Service Loan Forgiveness
The Direct Loan Public Service Loan Forgiveness program grants loan forgiveness to borrowers who make 120 qualifying payments on an eligible loan while directly employed full time in a public service job. Borrowers have to make the qualifying payments on or after October 1, 2007. In response to requests from some nonfederal negotiators, the proposed draft regulations add Direct PLUS loans as an eligible loan along with Direct Stafford and Consolidation loans.
The Department also amended the definition of qualified employment by adding a "full-time AmeriCorps position" to the list. An AmeriCorps position means "a volunteer position approved by the Corporation for National and Community Service under Section 123 of the National and Community Service Act of 1990." Because some borrowers serving in AmeriCorps use their Segal AmeriCorps Education Award to make lump sum payments on their student loans, the proposed draft regulations provide how such payments will be counted as qualifying full monthly payments.
Full-time National Guard duty - outside of duty related to training or attendance at a service school - is also now considered as qualifying employment for loan forgiveness.
In response from nonfederal negotiators, the Department also changed the definition of full-time employment. Now full-time employment means "working in qualifying employment in one or more jobs for an average of at least 30 hours per week or the number of hours the employer considers full-time, whichever is greater, not including vacation or leave time provided by the employer."
This definition differs from the previous definition that limited the definition of full-time work to a minimum of 36 hours per week. Nonfederal negotiators had called the minimum 36 hour requirement for full time work arbitrary, especially since the traditional 9:00 to 5:00 work week, minus lunch, comes to 35 hours per week. Individuals with flexible schedules, where some weeks they would work over 36 hours and some weeks less than 36 hours, would also have been penalized by the Department's original definition. Other nonfederal negotiators pointed out that some borrowers might work multiple part-time jobs that would also preclude them from qualifying under the initial proposal.
While the changes address many of those concerns, some nonfederal negotiators were unsure whether these changes would encompass all of the borrowers that the law intended to cover. Most concerns focused on teachers who may only work nine months out of the year and negotiators again suggested that the Department adopt a definition similar to the one found in the Teacher Loan Forgiveness provisions that allow states to define full-time employment.
Unfortunately the Department did not change the regulations to help many public defenders and other workers who perform public service work, but are under contract with local communities. The current proposed draft regulations require borrowers to be directly employed in a full-time service job. That would exclude lawyers, health care professionals, and others who are performing public service work, but employed as an independent contractor or by a contractor funded by a local or state government. Some nonfederal negotiators also took issue with the Department’s definition of public interest law, calling it to limiting in nature. Both of these issues are scheduled to be discussed at the next round of negreg.
Economic Hardship Deferment
The Department had already confirmed its intent to retain the current debt-to-income ratio pathway (also known as 20/220) for borrowers to qualify for an economic hardship deferment in both the FFEL and Direct Loan programs. But the Department added a qualifier last week. The 20/220 pathway will only stay in effect through June 30, 2009, because of an estimated $1.1 billion price tag over ten years for keeping the program. Many in higher education - mostly from the medical field - had expressed concern before negreg that students would no longer qualify for an economic hardship deferment during the period between when the debt-to-income ratio provisions were eliminated by the CCRAA and the implementation of the new income-based repayment plan in July 2009.
"Prior to the CCRAA, a medical resident could qualify for the economic hardship deferment if he or she was employed full-time and his or her federal education debt burden was equal to or greater than 20 percent of his or her monthly income, and his or her income minus the education debt burden was less than 220 percent of the greater of the minimum wage rate or the federal poverty line for a family of two ('20/220 pathway')," explained an American Medical Association letter to the Department.
The Department expects the new IBR plan - which is effective July 1, 2009, to blunt the adverse effects this could have on students and pointed out that the pathway would still be available until June 30, 2009.
Further, 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."
The proposed draft regulations would also include other individuals if, at the time the borrower certifies his or her family size,, those individuals lived with the borrower and received 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.
The proposed draft regulations also clarify that the poverty line income is determined in accordance with the Department of Health and Human Services guidelines. If a borrower is not a resident of a state as defined in the DHHS poverty guidelines, the borrower’s poverty line income is the income used for the 48 contiguous states.
Definition of a Not-For-Profit Lender
After several caucuses, negotiators came to a standstill on this issue and agreed to have a follow up meeting in April. The Department feels that it needs additional time to learn more about nonprofit governance, operations, and funding before issuing updated proposed draft regulations.
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 latest proposed draft regulations allow a "post-active duty student deferment" to be granted based on request from borrowers or their representatives, which would make it consistent with HEROES language. A post-active duty student deferment begins at the conclusion of a borrower’s active duty and initial grace period. If a borrower returns to at least half time enrollment status during the deferment period, the post-active duty deferment expires. Borrowers must be on active duty for at least 30 days, which is consistent with other regulations.
The Department also introduced new proposed draft regulations that would mandate forbearance for borrowers in the National Guard who are called to active State or national duty who need a period of suspension between the end of their grace period or in-school deferment and the start of their military active duty service deferment. The new regulations were in response to a request from nonfederal negotiators. Borrowers in the National Guard are not currently eligible for the 3-year extension of grace or military deferment provided in other provisions since their service is state related.
Resources
By Justin Draeger
NASFAA Assistant Director for Communications
Jennifer Martin, NASFAA Assistant Director for Professional Assessment, Training, and Regulatory Assistance, also contributed to this article
Posted 03/10/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
