Major Provisions Affecting Student Loans

[LynnInMN]

http://www.ogslp.org/news/archives/pdf/rec...ate12-28-05.pdf

 

Major Provisions Affecting Student Loans in

the Higher Education Reconciliation Act of 2005 (Title VIII of the Deficit

Reduction Act of 2005 (S. 1932))

Loan Program Reauthorized

 

Loan Limits

 

• First- year Stafford limit increases from $2,625 to $3,500

• Second- year Stafford limit increases from $3,500 to $4,500

• Unsubsidized Stafford limit for graduate and professional students increases

from $10,000 to $12,000

• Increases annual limit for coursework necessary to enroll in a graduate program

or to obtain a professional credential as an elementary or secondary school

teacher from $5,000 to $7,000

• Undergraduate and graduate aggregate limits are unchanged

• Loan limit increases take effect July 1, 2007

• Authorizes PLUS loans to graduate and professional students

Interest Rates

• Maintains the scheduled July 1, 2006 change to a fixed interest rate for Stafford

and PLUS Loans

• Increases the PLUS fixed interest rate from 7.9% to 8.5%

• Maintains current fixed interest rate for consolidation loans

 

Consolidation Loans

 

• Retains the single holder rule

• Eliminates spousal consolidation

• Eliminates in-school consolidation

• Eliminates reconsolidation in both FFELP and DL, except that a FFELP

borrower whose delinquent loan has been submitted to a guaranty agency for

default aversion is eligible for a DL Consolidation loan for the purpose of

obtaining an income contingent repayment plan

• Provides that a FFELP borrower may consolidate in the Direct Loan Program

only if a FFELP lender denies the borrower’s application for a consolidation loan

or denies the borrower’s application for a consolidation loan with income

sensitive repayment terms. Additionally, directs the Secretary to consolidate

loans of defaulted borrowers

• Provides that, unless otherwise specifically provided, the terms of DL

consolidation loans must be the same as FFELP consolidation loans

 

Loan Fees

 

• Creates parallel fee structures for FFELP and DL

• Phases the 3% maximum origination fee on FFELP Stafford loans down to 0%

by July 1, 2010:

• Lowers to 2% for loans first disbursed on or after 7/1/06

• Lowers to 1.5% for loans first disbursed on or after 7/1/07

• Lowers to 1% for loans first disbursed on or after 7/1/08

• Lowers to 0.5% for loans first disbursed on or after 7/1/09

• For FFELP loans guaranteed on or after July 1, 2006, requires the collection,

and the deposit into a guaranty agency’s Federal Fund of a federal default fee of

1% of principal, which “fee shall be collected either by deduction from the

proceeds of the loan or by payment from other non-federal sources

• Phases the 4% origination fee on DL Stafford loans down to 1% by July 1,

2010:

• Lowers to 3% for loans first disbursed on or after 7/1/06

• Lowers to 2.5% for loans first disbursed on or after 7/1/07

• Lowers to 2.0% for loans first disbursed on or after 7/1/08

• Lowers to 1.5% for loans first disbursed on or after 7/1/09

• Authorizes the Secretary to reduce the origination fee on DL loans in order to

encourage on-time repayment, but only if the Secretary determines the reduction

is cost neutral and in the best interest of the Federal Government

 

Risk Sharing

 

• Reduces lender insurance from 98% to 97% for loans for which the first

disbursement is made on or after July 1, 2006

• No change to guarantor reinsurance

• For loans disbursed on or after July 1, 2006, insurance and reinsurance on

exempt claims is set at 100%. Exempt claims are claims on loans where the

borrower provided false or erroneous information that caused the borrower to be

ineligible for federal benefits

 

Exceptional Performance

 

• Provides that lenders and servicers designated as exceptional performers

receive 99% insurance

• No other changes to exceptional performance

 

Repayment Terms

• Requires that DL repayment plans other than income contingent be consistent

with FFELP plans

 

Regular Floor Income

 

• Provides for capture by the government of interest in excess of the special

allowance rate for loans disbursed beginning April 1, 2006

 

9.5% Floor Loans

 

• Makes permanent the Taxpayer-Teacher Protection Act provisions that pertain

to the elimination of the 9.5% floor; eliminates the exemption for recycling

beginning on the date of enactment of the Higher Education Reconciliation Act of

2005

• Delays until December 31, 2010 the effective date of the recycling prohibition

for governmental or nonprofit entities not owned or controlled by a for-profit entity

that receive the 9.5% SAP on less than $100 million of loans in the most recent

quarterly payment prior to September 30, 2005

 

PLUS SAP Gap

 

• Limitations on payment of special allowances on PLUS loans made on or after

January 1, 2000 are deleted

Disbursement Relief Renewed

• Expired provisions which granted disbursement relief for loans to students at

schools with low default rates are renewed, effective upon enactment of the

legislation

Section 458 Account/Account Maintenance Fee

• For FY 2006, preserves mandatory appropriations for administering the loan

programs and for paying guarantors the AMF; caps the amounts at $820 million

(this amount has been set at $795 million since FY 2003

• Beginning in FY 2007, provides that administrative funds other than the AMF

are subject to the annual appropriations process

• AMF payments from FY 2007-2011 continue to be mandatory

• Eliminates the cap on AMF funds and set s the AMF payment at an amount “not

to exceed the basis of 0.10 percent of the original principal amount of

outstanding loansâ€

 

Wage Garnishments

 

• Increases the amount that guaranty agencies may garnish without the

borrower’s consent to 15% of disposable pay

 

Loan Collection

 

• Beginning October 1, 2006, requires guarantors to remit to the Secretary a

portion of the collection fees on default consolidations equal to 8.5% of principal

and interest, thus effectively cutting retention on those collections to 10%

• Beginning October 1, 2009, prohibits guarantors from retaining any collection

fees on default consolidations that exceed 45 percent of the agency’s total

collections on defaulted loans

• No other retention cuts

• Reduces the number of payments needed to rehabilitate a loan from

“consecutive payments for 12 months†to “9 payments made within 20 days of

the due date during 10 consecutive monthsâ€

 

VFAs

 

• Eliminates the authority to waive the inducement provisions and the required

federal default fee in VFAs

 

School as Lender

 

• Limits lending to Stafford Loans to graduate and professional students at the

school that is acting as lender

• Requires that the lender award any contract for financing, servicing, or

administration of Title IV, HEA loans on a competitive basis; offer loans with a

origination fee or interest rate below Title IV levels; not have a cohort default rate

of more than 10 percent; provide for a compliance audit for any year it serves as

lender; and have met the current school-as-lender requirements and made

FFELP loans on or before April 1, 2006

• Provides that all proceeds above administrative expenses, including the

proceeds from sales of loans, must be directed to need-based aid

 

Military Deferment

 

• Provides for a 3-year military deferment for qualifying duty; applies to loans first

disbursed beginning July 1, 2001

Forbearances

• Eliminates the requirement that forbearance for serving in certain medical,

dental and national service programs, or for borrowers having a Title IV debt

burden of over 20%, be in writing is eliminated, provided the borrower is provided

a confirming notice

 

Loan Discharge

 

• Loans that were falsely certified as a result of a crime of identity theft are

dischargeable

 

Grants

 

• Authorizes “Academic Competitiveness Grants†of $750 and $1,300 to first- and

second-year undergraduate students, respectively, and “National Science and

Mathematics Access to Retain Talent SMART) Grants†of $4,000 for third- and

fourth-year undergraduate students

• To be eligible, a student must be a citizen of the United States, be eligible for a

Pell Grant, and meet academic requirements. First- and second-year students

must have completed a rigorous secondary school program of study recognized

by the Secretary; second-year students must also have earned at least a 3.0

GPA in their first year. Third- and fourth-year students must be pursuing a major

in one of several areas related to science, mathematics, or foreign language and

have earned at least a 3.0 GPA in the coursework required for their major.

Authorizes and appropriates $790 million for FY 2006 and increasing amounts in

each succeeding year through FY 2010; provides for ratable reductions in grants

 

Major Provisions Affecting Student Loans in

the Higher Education Reconciliation Act of 2005

NCHELP – December 19, 2005

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[TxQuiltGirl]

Thanks to LynnInMN for hunting this up for us and posting it. I'm pinning it so that it can be used a reference in the coming months for all who need or want to know how the upcoming changes will affect us.

 

Lynn, you're GREAT!

[grammers]

AWESOME!! Thanks!

 

Just what I'd been looking for (but hadn't found). Don't know where you found it but THANKS for posting it here!!

[Charlmagne]

Thanks LYN, for bringing this important provisions to us. It will affect me in many ways in near future.

 

Again, Thank you.