This week, the House of Representatives is scheduled to debate and is expected to easily pass a bill that will make technical corrections to the Higher Education Act and include a one-year suspension of the Competitive Loan Auction Pilot Program for parent PLUS that was scheduled to be implemented on July 1 for the upcoming academic year. The Bill is also expected to include a provision to help rehabilitated borrowers with loans in limbo because guaranty agencies can't find lenders to buy the rehabilitated loans.
In December, NASFAA wrote to then-Secretary of Education Margaret Spellings asking that she use her authority to delay implementation of the auction. NASFAA expressed concerns about proceeding before a thorough examination of the impact of the current economic conditions on the auction process. Among other issues, with fewer lenders expressing an interest in participating in the auction, many states could experience failed auctions, where no bids are made. A Department of Education official responded that ED did not have the legal authority to delay PLUS auctions. On February 23, NASFAA wrote to congressional leaders asking them to pass legislation delaying the auction. Since that time, NASFAA has been diligently working with Congress to ensure this outcome.
On March 3, the Department published a notice in the Federal Register giving details about the auction and inviting lenders to bid. Lenders were asked to submit prequalification information no later than April 1. The auction would have been held on April 15 and winning bids announced for each state on April 24. Since the publication of the notice, scores of lenders have announced that they would not participate in the auction.
The HEA technical corrections bill is also expected to contain a provision benefiting student borrowers. Currently, borrowers in default that make nine on-time, consecutive monthly loan payments can reestablish Title IV eligibility and have the default removed from their credit record. In the past, once borrowers completed their obligations, the guaranty agency would sell the loan to a lender. Funds would be returned to the government, effectively eliminating the default claim. The rehabilitated loan would then be considered a new loan and not in default. But due to the student loan credit crunch, this provision has been inoperative because guarantors could not find lenders willing to purchase those loans.
Approximately 18,000 borrowers a month successfully rehabilitate their loans, but without a lender to buy them, these borrowers are left in a "Catch-22" situation. Although these borrowers corrected their default error, without lenders willing to buy these loans the borrowers can neither reestablish Title IV eligibility nor clear up their stained credit record, making it nearly impossible for them to secure financing for other purchases, such as a car or a home.
Although NASFAA has not seen the legislative language, it is expected to include a provision to correct this situation.
After the House passes the bill as early as Monday, the measure then proceeds to the Senate for approval. The Senate is also expected to quickly pass the bill, clearing it for the White House where President Obama is expected to sign the legislation into law.
Posted 03/30/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.
