ADEQUATE DOCUMENTATION REQUIRED IN PERKINS LOANS COLLECTIONS

Federal Student Aid recently published an electronic announcement informing schools that they really need to try to collect on their delinquent and defaulted Perkins Loans and must maintain good corroborating documentation of their efforts and activities. Although the Perkins Loan Program has ended, institutions are still expected to comply with the program rules outlined in the Higher Education Act. One of those rules requires institutions to maintain documentation of their collection efforts for defaulted loans. According to the EA, schools that don’t maintain acceptable records, may be required to assign the loans to the Department “without recompense”. In the Department’s view, “the fact that a loan has been in default for more than two years suggests a lack of compliance with the collection procedure criteria established by regulation.” Thus, unless an institution can demonstrate with adequate documentation that they have tried to collect on a defaulted loan in accordance with the HEA’s requirements, they will be required to assign those loans to the Department. The Department said they will begin notifying institutions to provide documentation on their collection efforts shortly.

Although institutions can now voluntarily assign Perkins loans, including those loans that have an acceptable collection record or are not in default, at any time, there are specific rules to follow when pursuing collection themselves.

If the institution, or the firm it engages, pursues collection activity for up to 12 months and is not successful in converting the account to regular repayment status, or the borrower does not qualify for deferment, postponement, or cancellation on the loan, the institution shall:
• Litigate in accordance with the procedures in § 674.46;
• Make a second effort to collect the account as follows:
o If the institution first attempted to collect the account using its own personnel, it shall refer the account to a collection firm.
o If the institution first attempted to collect the account by using a collection firm, it shall either attempt to collect the account using institution personnel, or place the account with a different collection firm; or
o Submit the account for assignment to the Secretary in accordance with the procedures set forth in § 674.50.
If an institution is unsuccessful in its efforts to place a loan in repayment after extensive collection efforts, it must continue to service the loan by making yearly attempts to collect from the borrower until the loan is
• recovered through litigation;
• assigned to the Department; or
• written off only if the outstanding principal, accrued interest, collection costs and late charges are within the allowable thresholds as prescribed under § 674.47(h) (loans with a balance of less than $25; or loans with a balance of less than $50 if the borrower has been billed for this balance for at least 2 years).

UPDATE ON PERKINS LOAN ASSET DISTRIBUTION AND REIMBURSEMENT

In an electronic announcement from the U.S. Department of Education’s Office of the Under Secretary, ED announced that they will be reimbursing institutions for the institutional share of Perkins Loan Service Cancellations from the Perkins fund later this year. Before the end of the year ED is expected to send a letter to institutions participating in the Perkins Loan Program information about the specific amounts, what procedures to follow and the applicable deadlines. Institutions should not remove and return any funds to the Department or the institution until the institution has been notified to do so. More information is in this electronic announcement.

FSA TO DELAY DISTRIBUTION OF ASSETS FOR FEDERAL PERKINS LOAN PROGRAM

At last year’s Federal Student Aid Conference, Department officials announced that institutions were not required to return the federal share of their Perkins Loan Fund because the Department was still exploring ways to reimburse institutions for their Federal Perkins Loan Service Cancellations. In a recent announcement FSA stated that institutions should not remove the institutional share from their Perkins Loan Fund and return it to their institution either.

FSA is instructing institutions to forgo reporting repayment of any federal share or institutional share in its next Fiscal Operations Report and Application to Participate (FISAP) due October 1, 2019. The amounts in both the “Repayment of Fund capital to federal government” in Part III, Section A, Line 28 and “Distribution of excess/liquid fund capital” in Part III, Section A, line 30.2 should be the same amounts as the institution reported on the FISAP submitted by October 1, 2018. Note: Institutions that have already returned the federal share of their Perkins Fund to the Department and removed their institutional share from the Perkins Fund for the 2018–19 Award Year should report these repayments on the FISAP.

UPDATED PERKINS LOAN ASSIGNMENT FORM RELEASED

The Office of Management and Budget recently released an updated Perkins Loan Assignment Form. Schools that wish to assign Perkins Loans to the Department must begin using the new form by June 30, 2019 unless they complete assignments electronically via the Perkins Loan Assignment System online. The revised form replaces the one that recently expired on December 31, 2018. The new Expiration Date is December 31, 2021 and the form itself has a few other minor changes. According to the electronic announcement from Federal Student Aid, the Date of First Disbursement was moved from the required manifest portion (Section C) of the Institutional Certification page to the historical loan information portion (Section C) of the Borrower and Loan Information page. As a result, some of the data fields on the Borrower and Loan Information page have been shifted and renumbered. The Date of First Disbursement is the new field 20, followed by the Date of Last Disbursement as new field 21, and so on.
This change places the historical loan information together and should help ensure schools and third-party servicers provide all required data on the form.
With the change in field numbers, we also made corresponding updates to the Perkins. The revised form and the instructions have been posted to the Campus-Based Processing Information Page on the IFAP Website.

FEDERAL PERKINS LOAN ADMINISTRATIVE RESPONSIBILITIES AND REPORTING REQUIREMENTS

Although the Federal Perkins Loan Program ended a year ago, schools who haven’t exited the program and liquidated their Perkins Loan portfolio are still permitted to service them and must do so according to the instructions provided in an October 6, 2017, Dear Colleague Letter. As part of those instructions, schools still must meet several obligations under the Perkins Loan Program to ensure that certain administrative responsibilities and reporting requirements are met.

According to a recent reminder from Federal Student Aid (FSA), there are several important requirements schools must follow to ensure they are accurately reporting loans in the National Student Loan Data System and managing their Perkins Loan portfolio properly.


Administrative Requirements

Due Diligence
• Keep borrowers informed, of any and all changes that affect the borrowers’ rights or responsibilities;
• Respond to any and all inquiries from borrowers;
• Ensure that information available is provided to those offices (admissions, business, alumni, placement, financial aid, and registrar’s offices) responsible for billing and collecting loans (including third-party servicers), as needed to determine the—
• Enrollment status of borrower;
• Expected graduation or termination date of borrower;
• Date the borrower withdraws, is expelled, or ceases enrollment on at least a half-time basis; and
• Borrower’s current name, address, telephone number, and social security number.

Use of Contractors for Billing and Collection
Schools must ensure servicers and collection firms comply with the program rules in performing its duties as outlined by any contractual agreement with the school. Schools that contract with third-party servicers to perform billing, collection, or other program activities remain responsible for compliance with program requirements in performing these duties. This includes decisions regarding cancellation, postponement, or deferment of repayment, extension of the repayment period, other billing and collection matters, as well as the safeguarding of all funds collected by its employees and contractors.
Servicers should provide:
• Statements to the school detailing activity associated with each borrower account in the portfolio;
• Changes in the borrower’s name, address, telephone number, or the borrower’s Social Security number; and
• Amounts collected from the borrower

Collection Procedures
When borrowers do not respond to routine billing methods, more intensive collection procedures are required, potentially including litigation with the borrower.
If the school, or the firm it engages, pursues collection activity for up to 12 months and does not succeed in converting the account to regular repayment status, or the borrower does not qualify for deferment, postponement, or cancellation on the loan, the school shall –
• Litigate in accordance with the procedures in § 674.46;
• Make a second effort to collect the account as follows:
• If the school first attempted to collect the account using its own personnel, it shall refer the account to a collection firm.
•If the school first attempted to collect the account by using a collection firm, it shall either attempt to collect the account using school personnel, or place the account with a different collection firm; or
• Submit the account for assignment to the Secretary in accordance with the procedures set forth in § 674.50.

After twelve months of collection efforts, if the collection firm retained by the school is unsuccessful in placing an account into a successful repayment status, the school must require the collection firm to return the account to the institution for one of the actions described above.
If a school is unsuccessful in its efforts to place a loan in repayment after extensive collection efforts, it must continue to service the loan by making yearly attempts to collect from the borrower until the loan is:
• recovered through litigation;
• assigned to the Department; or
• written off only if the outstanding principle, accrued interest, collection costs and late charges are within the allowable thresholds as prescribed under § 674.47(h) (loans with a balance of less than $25; or loans with a balance of less than $50 if the borrower has been billed for this balance for at least 2 years).

The Department recognizes that a school may have exhausted all of its collection options on some of its defaulted Perkins Loans and strongly encourages schools to assign these loans to the Department so additional steps can be taken to recover the loan funds. The Department has collection tools that are not available to schools, such as administrative wage garnishment, Treasury offset, and litigation by the Department of Justice.
Schools should also evaluate their portfolio, assess in particular the older defaulted loans, and ensure that collection procedures under 34 CFR 674.45 (including the assignment of defaulted loans) are being followed.

Ceasing Collections
A school may cease collection activity on defaulted accounts with balances of less than $200 (including outstanding principal, accrued interest, collection costs, and late charges) if the school performed the required due diligence and the account has had no activity for four years. Although interest will continue to accrue and may put the account over $200, the school will not have to resume collection activity if it documents that it ceased collection activity when the account was under $200. The borrower is responsible for repaying the account, including any accrued interest. The account will be included in the school’s cohort default rate, if applicable, and the borrower will still be in default and ineligible for federal student aid funds. Schools are encouraged to assign these loans to the Department.


Reporting Requirements

Schools, themselves or through their third-party servicers, are required to report enrollment and loan status information on all Perkins loans to NSLDS. Please be reminded of the following:
It is the school’s responsibility to ensure that the required reporting to NSLDS, including Perkins Loan account detail, is completed timely and accurately. Schools that use a third-party servicer must communicate the reporting requirements to their third-party servicer and ensure that the servicer complies with timely and accurate reporting. It is important for schools to understand that they are responsible for any non-compliance by the servicer.
Perkins Loan reporting includes enrollment data for each loan. It is important to report the actual location where the student is attending classes in the Code for Current School (NSLDS Perkins Data Provide Instructions (DPI), Field Code #286) for each loan record in the data extract file submitted to NSLDS. This ensures that the student is placed on the correct enrollment reporting roster and eliminates misreporting when the student is not attending classes at the main location.

For purposes of Perkins Loan assignment, it is very important that borrower loan information is accurate and kept current through the assignment process and until the loan has been officially accepted for assignment to the Department and the school is notified of the acceptance.

Schools should request a reconciliation report from NSLDS to ensure the school’s records are consistent with NSLDS, reconcile any discrepancies, and update NSLDS accordingly. ED strongly encourages schools to complete this reconciliation with NSLDS at least quarterly.

Schools can order a reconciliation report from the NSLDS Professional Access website. Once logged into the NSLDS Professional Access website, select “REC005 Perkins Extract by Parameters” under the Report tab. Be sure to order two separate report requests: one report should have the desired loan status of “Open” selected and the second report should have the desired loan status of “Open-Pending Transfers Only” selected. Note: Ordering only the “Open” status loans report will not necessarily return a report with the school’s complete open loan portfolio.
Until the Department accepts a loan for assignment and is able to successfully report on the loan in NSLDS, the loan is still the responsibility of the school. The school will receive an acceptance letter when the loan is accepted for assignment by the Department. At that time, the school must report the loan to NSLDS as transferred for assignment using the “AE” Code for Loan Status (NSLDS Perkins DPI, Field Code #263) and the assignment form’s “certification date” as the Date of Loan Status (NSLDS Perkins DPI, Field Code #262).