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06-22-2006, 06:32 AM
http://www.ogslp.org/news/archives/pdf/reconciliationupdate12-28-05.pdf
http://www.ogslp.org/News/Archives/pdf/DRAHERASummary2006.pdf <--This pdf. gives a nice summary of all the changes. It's in color and 32 pages.
Here is another link if you need some background info. (http://www.tgslc.org/reauth/hera.cfm)
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. --This has changed. See my previous post.
• 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 loans”
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 months”
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
http://www.ogslp.org/News/Archives/pdf/DRAHERASummary2006.pdf <--This pdf. gives a nice summary of all the changes. It's in color and 32 pages.
Here is another link if you need some background info. (http://www.tgslc.org/reauth/hera.cfm)
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. --This has changed. See my previous post.
• 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 loans”
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 months”
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