By Deborah Whitis, Manager of Loan
Originations, Brazos Higher Education Service Corporation
The Department of Education published their final rules on Student
Loan issues and General Provision on November 1, 2007. These regulations
have an implementation date of 07/1/08 but the Secretary has provided
that these rules can be implemented on or after 11/01/07 at the discretion
of Schools, Lenders, Guarantee Agencies and Servicers.
If you are like me, you are feeling a little overwhelmed by the copious
amount of information regarding all the new regulations. Below is a
list of sites you may find helpful in understanding the plethora of
information published on these new provisions.
In addition to the above, there are many sites that succinctly summarize
the information, but I thought I’d provide some information that
I found to be rather helpful. You can find it at www.hesc.com.
Select the link to “College Administrators” and then “Highlights
of Student Loan and General Provision Final Rules” from the toolbar
on the right side of the page.
- Student Loan Issues Final Rules
The following loan provisions may be
implemented on or after November 1, 2007:
Simplification of Deferment Process - §682.210
Accurate and Complete Copy of a Death Certificate - §682.402(b)
- Allows lenders to grant deferments for graduate fellowship,
rehabilitation training, unemployment and economic hardship based
on information from another lender or the department (via NSLDS)
that supports eligibility for the deferment for the same reason
and the same time period.
- A borrower’s representative (i.e. a member of the borrower’s
family, or another reliable source) may now apply for a Military
Service deferment or an Armed Forces Deferment on the borrower’s
Loan Counseling for Grad/Professional student PLUS Loan borrowers-
- Discharge due to death may now be based on an accurate and complete
photocopy of the original or certified copy of the borrower’s
death certificate. (Previously, only original copies could be
Regulations will now require schools to conduct entrance and exit
counseling for Grad/Professional student PLUS borrowers
Frequency of Capitalization - § 682.202(b)(5)
- Entrance Counseling is now required for Grad/Professional student
PLUS borrowers prior to the release of the first disbursement.
If the student already has a Stafford loan, the school has the
option to minimize the entrance counseling requirements.
- During the entrance counseling, a school must notify the Grad/Professional
student PLUS loan applicant of their eligibility for a Stafford
loan, along with a comparison of the terms and conditions of the
- During the exit counseling, if the borrower has a combination
of Stafford and Grad/Professional PLUS loans, the school must
provide average anticipated monthly repayment amount information
based on the combination of the different loan types the borrower
Loan Discharge for False Certification as a Result of Identity
Theft - §682.208, 682.211, 682.300, 682.302 & 682.411
- For Consolidation loans, a lender may capitalize unpaid interest
as frequently as every quarter, except that a lender may only
capitalize unpaid interest that accrues during an in-school deferment
at the expiration of the deferment.
THE FOLLOWING LOAN PROVISIONS WILL GO
INTO EFFECT AS OF JULY 1, 2008:
- Upon receipt of a valid identity theft report or notification
from a credit bureau, a lender will be able to: 1) suspend credit
bureau reporting on a loan for 120 days while investigating the
claim; and 2) grant a 120-day administrative forbearance to a
borrower upon the lenders receipt of a valid identity theft report.
- If a lender determines that the loan is unenforceable, it can
no longer collect interest and special allowance payments on the
- Allows lenders a three-year period to file for insurance in
the event the adjudication standard is met after the 120-day suspension.
Total and Permanent (T&P) Disability Discharge - §682.402
The procedures were modified to assist borrowers with the lengthy
discharge application procedures.
Record Requirements for Electronically Signed Master Promissory
Notes (MPN’s) - §682.414
- Requires the borrower submit a discharge application to the
holder within 90 days of the date the physician certifies the
borrower’s condition ( the Secretary reserves the right
to require additional medical evidence , as well an additional
review of the borrower’s condition by an independent physician
at the Secretary’s expense).
- Defines the date of the disability as the date the physician
certifies the discharge application.
- The three year conditional discharge period to discharge the
loan begins on the date the physician certifies the discharge
application (vs. the date the Secretary determines that the borrower
is totally and permanently disabled).
- Allows borrowers who inadvertently borrowed a federal loan,
(after being certified as totally and permanently disabled) to
return the loan funds so that the borrower will retain the option
to apply for the T&P disability discharge.
- Any payments made after the date that the physician certified
the borrower’s application will be sent to the person who
made the payment after the final discharge is issued.
Maximum Length of Loan Period - §682.401& 682.603
- The holder of a FFEL loan will be required to retain an original
of an electronically signed FFEL Program MPN for 3 years, after
all loans on the MPN are satisfied (previously, no timeframe for
retention was established for electronically signed MPN’s).
The maximum 12- month loan period for loan guarantee and annual loan
limits is eliminated. However, schools are still expected to monitor
annual loan limit progression by the school’s academic year.
Prohibited Inducements - §682.200, 682.209, 682.401 &
- This will allow schools to certify a single loan for students
in shorter non-term or nonstandard term programs. It will also
provide greater flexibility in rescheduling disbursements for
students who drop out and return within the permitted 180-day
Clarifies the regulations on improper inducements and strengthens
the Department’s authority to enforce the rules related to improper
Preferred Lender Lists (PLL) - §682.212 & 682.401
- Prohibits lenders from soliciting school employees to serve
on a lender’s advisory board and paying costs related to
- Allows lenders to provide schools, school-affiliated organizations,
and borrowers items of nominal value that constitute a form of
generalized marketing or are interceded to create good will.
- Prohibits lenders and guarantors from conducting in-person,
school-required entrance and exit counseling.
- Permits lenders to provide short-term staffing to a school
on an emergency basis (State or Federally-declared national disaster,
and other localized disasters and emergencies identified by the
- Revises the definition of lender by allowing the Secretary
to make future changes of the term “prohibited inducements”
through a public announcement.
Schools are under no obligation to provide a preferred lender list.
However, if they opt to use preferred lenders, they must follow these
- Schools will be required to list at least three lenders that
are not affiliated with each other.
- Prohibits the use of a preferred lender list to deny or otherwise
impede the borrower’s choice of lender.
- Schools using a PLL must provide numerous disclosures, including:
1) the method and criteria used by the school to select those
lenders; 2) comparative information about the interest rates and
other benefits offered by those lenders, and 3) a prominent statement
informing borrowers that they are not required to use any of the
lenders on the preferred lender list. Also, the school is required
to update the PLL and all of the accompanying information at least
annually to ensure that the information is current.
- Prohibits lenders to be listed on a school’s PLL if the
lender had offered the school any benefits in exchange for being
on the list.
- Prohibits schools from assigning, through award packaging or
other methods, a lender to first-time borrowers.
- Prohibits schools from delaying certification of a borrower’s
loan eligibility to a lender because that particular lender is
not on the school’s PLL.
- CCRAA Changes
The loan issues final rules package also incorporates
certain statutory changes made to the HEA by the CCRAA. The Department
has determined that it is unnecessary to conduct negotiated rulemaking
or notice-and-comment rulemaking on these regulations pertaining to
the CCRAA because they “simply modify the Department’s
regulations to reflect statutory changes made by the CCRAA, and these
statutory changes are either already effective or will be effective
within a short period of time.
The following rules codify the following CCRAA changes:
Effective as of October 1, 2007
Deferments - §682.210
Economic Hardship Deferment
- Extends the military deferment to all Title IV borrowers regardless
of when their loans were disbursed.
- Eliminates the 3-year limit on the military deferment.
- Adds a 180-day period of deferment following the borrower’s
- Authorizes a 13-month deferment following the conclusion of
their military service for certain members of the Armed Forces
who were enrolled in a program of instruction at an eligible institution
at the time, or within 6 months prior to the time the borrower
was called to active duty.
Reduces Special Allowance Rates Paid to Lenders - §682.302
- Revises the definition of “economic hardship” to
allow a borrower to qualify for this deferment if they earn 150
percent of the poverty line applicable to the borrower’s
Lender Fees - §682.305
- Applies to loans first disbursed on or after October 1, 2007.
Establishes different rates paid to eligible not-for-profit lenders,
and other lenders.
Exceptional Performer Status - §682.415
- Increases the loan origination fee a lender must pay to the
Secretary from 0.50 to 1.0 percent of the principal amount of
the loan for loans first disbursed on or after October 1, 2007.
Undergraduate Subsidized Stafford Loan Interest Rates - §682.202
- As of October 1, 2007, the “exceptional performer”
status for lenders and guaranty agencies was eliminated.
The following schedule shows the annual decreases in interest rates
(for loans first disbursed on July 1, 2008)
- 6.0% for loans first disbursed between 7/1/08 - 6/30/09
- 5.6% for loans first disbursed between 7/1/09 - 6/30/10
- 4.5% for loans first disbursed between 7/1/10 – 6/30/11
- 3.4% for loans first disbursed between 7/1/11 – 6/30/12
- General Provisions Final Rules
General Definitions - §668.2(b)
The effective date is July 1, 2008. However,
the Secretary of Education provides all Title IV participants with
the option to implement these regulations as of 11/1/07.
Payment Periods - §668.4, 668.22, 668.164, 682.200, &
- Adds definition of first professional degree as a degree received
after completing the academic requirements to begin practice in
a profession and a skill level beyond that required for a bachelor’s
degree. A professional license is also normally required.
- Consolidates the definitions for full time student, graduate
or professional student, half time student, three quarter time student
and undergraduate student by moving these definitions from each
individual Title IV regulatory section into the General Provisions
regulatory section (§668).
Treatment of Loan Funds For a Student Who Does Not Begin Attendance
- §668.21& 682.604
- Aligns disbursements, with a few exceptions, for all Title IV
grant and loan programs on a payment period basis.
- Modifies the timing of second disbursements for credit-hour non-standard
term programs with terms that are not substantially equal in length.
The timing of the second disbursement is changed from the later
of the calendar mid-point or the time at which the student successfully
completes half the coursework, to the successful completion of half
the weeks of instructional time and the time at which the student
successfully completes half the coursework.
- Modifies the 180-day rule for students transferring programs
within the same institution. These students may remain in the same
payment period as long as the student is continuously enrolled,
the coursework is similar between programs, the credits from the
payment period the student is transferring out of must be accepted
toward the new program, the payment periods are substantially equal
in length of weeks of instructional time and hours, and there are
little or no changes in the institutional charges associated with
the payment period for the student.
Cash Management - §668.164 & 668.165
- Consolidates all requirements addressing the treatment of Title
IV funds (except Federal Work Study) when a student does not begin
attendance in a payment period or period of enrollment to §668.21.
- Instructs schools to return all loan funds disbursed for that
period that were credited to the student’s school account
along with any funds paid by or on behalf of the student for that
period. The school would not be responsible for returning loan funds
that are disbursed directly to the student by the lender for a study-abroad
program or for a student enrolled in a foreign school. A final demand
letter must be issued to students for these funds.
- Requires schools to return funds within 30 days after learning
that the student will not begin or has not begun the period of enrollment.
Loan Cancellation Notices for EFT Disbursements - §668.165
- Extends the late disbursement time frame from 120 to 180 days.
Eliminates the institution’s ability to appeal any late disbursement
request after the 180 day period expires.
- Establishes timeframes for returning Title IV, program funds
that an institution attempts to disburse directly to a student or
parent, but the student or parent does not receive or negotiate
- Increases the maximum amount of minor prior year charges that
may be paid with current-year funds from $100 - $200 if this payment
will not prevent the student from paying current educational costs.
The exception that allowed an institution to pay for more prior-year
charges under certain circumstances has been removed.
- Modifies the provisions for an institution issuing a check to
a student and adds new provisions expanding the use of electronic
funds transfers (EFTs) to bank accounts that underlie stored value
cards and other transaction devices.
- Requires institutions to notify borrowers of their option to
cancel an EFT disbursement. School must either obtain affirmative
confirmation (either in electronic form or paper) from a student
prior to disbursing a loan or notify a student no earlier than 30
days before, but no later than seven days after crediting a student’s
account with loan proceeds, and give students 30 days to cancel
all or a portion of a loan.