BIG CHANGES COMING TO PSLF

Federal Student Aid just announced big changes to Public Service Loan Forgiveness.

In the past when a borrower made a lump sum payment or otherwise pre-paid their loan, those payments would only count as one qualifying payment toward PSLF. In August, FSA’ changed their policy and as a result prepayments and lump sum payments will count for as qualifying payments if a borrower has a valid employment certification on file and other usual eligibility conditions are being met. This news is HUGE for those working in public service and seeking PSLF.

FSA also announced they are launching a redesigned PSLF Help Tool for borrowers on the studentaid.gov website. The tool will help borrowers determine their eligibility and even apply for PSLF using a single  form for PSLF and Temporary Expanded PSLF (TEPSLF). Following the StudentAid.gov update, borrowers will only need to submit this one form to certify their employment or to be considered for forgiveness under PSLF or TEPSLF. 

COHORT DEFAULT RATE – PARTICIPATION RATE INDEX APPEAL

There’s good reason for schools to keep their default rates low. Schools with low default rates enjoy special benefits such as the ability to disburse loans without delaying the disbursement date for 30 days for first time borrowers and the ability to make single loan disbursements for students in study abroad programs.  

On the other hand, schools with Three-Year CDRs of 30% or greater for three consecutive years or with CDRs greater than 40% for one year may face federal sanctions. 

Some schools have a small number of borrowers entering repayment which can really make their rates look awful. At other schools only a small portion of the student body takes out student loans. If only three students chose to borrow loans, and one defaults, a school’s default rate would be 33% and subject to sanctions. 

If a school is facing sanctions, schools with a low loan “participation rate” may be able to appeal sanctions through the Participation Rate Index Appeal. To qualify a school can’t have more than 21% of students borrowing loans in a cohort. 

 To determine if your school might qualify check out the Templates and Spreadsheets section of FSA’s Default Management website and navigate to the Participation Rate Index Worksheet.  This worksheet is intended to help schools understand whether their student loan volume is low enough to meet the criteria of a PRI Challenge or Appeal. 

COHORT DEFAULT RATES RELEASED

On September 28, 2020, the Official Cohort Default Rates were released for the 2017 Fiscal Year. 

Since 2013, the National Student Loan Cohort Default Rate has been trending down, despite a small uptick last year. The official 2017 rate is now 9.7%, down 4% from the Official FY 2016 rate of 10.1%

According to Federal Student Aid’s National Default Briefing, the highest Defaults are still coming from the proprietary school sector which has an average of 14.7% for the 2017 CDR. Public institutions fared much better at 9.3%, followed by private institutions with just 6.7% of students defaulting on their loans. 

The Fiscal Year 2017 Three-Year CDR is calculated by dividing the number of borrowers who entered repayment in 2017 by the number of borrowers who entered repayment in 2017 and defaulted in 2017, 2018 or 2019. A school with a high default rate will face sanctions and may lose its eligibility to participate in Federal Student Aid Programs or expand their scope of participation with ED. Schools with Three-year CDRs of 30% or greater for three consecutive years or with CDRs greater than 40% for one year are subject to federal sanctions. 

The official Three-Year rates were sent to all schools via their Student Aid Internet Gateway (SAIG) mailbox. Federal Student Aid’s Operations Performance Management Services calculates the rates which measure the ratio of students who enter repayment during a cohort year and who later default on those loans. Since the data isn’t always right, schools can challenge and appeal their CDR calculation to have their rates adjusted. Schools may begin submitting challenges and appeals on Tuesday, October 6, 2020 through the eCDR appeals website. 

DIRECT LOAN ORIGINATION FEES EFFECTIVE OCTOBER 1, 2020

Did you update your loan origination fees yet? 

Before you send your next batch of disbursements, make sure your financial aid management system is up to date with the new loan origination fees that went into effect on October 1st or they’ll bomb out on the Common Origination and Disbursement website. If your fees still need to be adjusted, go ahead and check out this guidance in this Electronic Announcement to learn how to fix it. 

Because of the Budget Control Act of 2011, which was enacted to prevent the United States from breaching the “debt-ceiling” sequestered funds from federal agencies to keep the budget in balance. When the federal government begins their federal fiscal year each October 1st, origination fees on direct loans change as a result. The sequestration law isn’t set to expire until 2021. Hey wait, that’s next year! OMG can’t WAIT for this to be over.  

Beginning on October 1, 2020 the loan origination fees have gone down slightly. For Federal Direct Loans where the first disbursement is made on or after October 1, 2020, and before October 1, 2021 the origination fees are as follows:

The loan fee for Direct Subsidized Loans and for Direct Unsubsidized Loans is 1.057%. For example, the fee on a $5,500 loan will be $58.13. 

The loan fee for Direct PLUS Loans (for both parent borrowers and graduate and professional student borrowers) is 4.228%. For example, the fee on a $10,000 PLUS Loan will be $422.80.

Sequestration doesn’t just impact Federal Direct Loans, it impacts other aid programs such as the Iraq – Afghanistan Service Grant Program and TEACH Grant Program. 

Sequestration requires aid in both programs to be reduce by a pre-determined percentage from the amount authorized in the statutes. Fortunately, the reductions in the current year are slightly less than in prior years. The Iraq-Afghanistan Service Grant Program Award was reduced by 5.7% for FY 21 resulting in an award of 5983.34. The TEACH Grant was also reduced by 5.7% resulting in a maximum award of $3772.00.  

For more information about these programs, check out this Electronic Announcement from Federal Student Aid. 

 

FISCAL YEAR 2017 OFFICIAL COHORT DEFAULT RATES COMING LATE-SEPTEMBER

ED will release FY 2017 Official Cohort Default Rates (CDR) to all eligible institutions in mid-September. Schools will receive their CDR electronically via their SAIG mailbox.

The Cohort Rates are an important metric used to determine school or program quality. Schools with 3-year CDRs of 30% or greater for three consecutive years or with CDRs greater than 40% for one year may face federal sanctions. Institutions may challenge, appeal, or have their rate adjusted in certain circumstances. Be on the lookout for more information such as an Electronic Announcement announcing the official release dates of the 2017 CDR package from FSA’s Operations Performance Division in the forthcoming days. In the meantime, check out the Default Management Web site which contains resources for Financial Aid Professionals, Data Managers and Students here.