FSA RELEASES PUBLIC SERVICE LOAN FORGIVENESS FIGURES

Last month Federal Student Aid released a report on the status of the Public Service Loan Forgiveness program drawing criticism for abysmal approval rates. Under the Public Service Loan Forgiveness Program (PSLF), which was established by the Bush administration in 2007, borrowers who make 120 qualifying monthly payments, and who have done so under a qualifying repayment plan and who have worked full-time for a qualifying employer may have their outstanding Direct Loan balance forgiven. Roughly 28,000 borrowers applied since October 2017 when the first cohort of borrowers could have been eligible based on the potential they made 120 qualifying payments. The problem is only 96 of those borrowers have been approved, mostly for not making enough payments under a qualified plan.

70% of the applications processed by FSA have been outright denied due to borrowers not meeting the program requirements such as having eligible loans, having made 120 qualifying payments or qualifying employment. Another 28% of the applications were denied due to missing or incomplete information on the application. While it is possible that some of these borrowers may qualify one day, the question is when and how many?

The United States Government Accountability Office (GAO) released a report finding that the Department of Education did not provide key information to PSLF servicers and borrowers, particularly which employers, and loan payments qualify. Their recommendations to Federal Student Aid include some common-sense fixes.

The GAO recommended that FSA should develop comprehensive guidance for PSLF servicing. Additionally, they recommend that they develop an authoritative list of qualifying employers and make that list available to borrowers. The GAO also recommended that FSA should standardize the information from other loan servicers to ensure accurate payment information for borrowers is available, and to provide that information to borrowers along with other information about their loans so that their payments qualify for PSLF. You can read the full GAO report here.

COHORT DEFAULT RATES RELEASED

On September 24, 2018, the Official Cohort Default Rates were released for the 2015 Fiscal Year.

The national default rate has fallen since last year after it rose to more than 11.5%. Since 2013, the National Student Loan Cohort Default Rate has been trending down, despite a small uptick last year. The official 2015 rate is now 10.8%.

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 15.6% for the 2015 CDR. Public institutions fared much better at 10.3%, followed by private institutions with just 7.1% of students defaulting on their loans. There are some interesting outliers in this year’s CDR which signify borrowers are struggling in each sector.

Although the privates had the lowest overall default rate, borrowers from schools identified as 2-3 year schools, defaulted at a rate of 16.7%. At private colleges identified as less than 2 years, that rate jumps to 22%, beating the defaults in every other category. Even among public institutions, students who had attended institutions identified as 2-3 year schools the same 16.7% of borrowers defaulted on their loans. Out of the 6155 schools included in the national cohort default rate, nearly 27.5% of schools were identified as 2-3 year institutions and those institutions account for nearly 23% of all defaults.

Borrowers from institutions identified as 4-year institutions had the lowest rates of default in each sector.

The Fiscal Year 2015 Three-Year CDR is calculated by dividing the number of borrowers who entered repayment in 2015 by the number of borrowers who entered repayment in 2015 and defaulted in 2015, 2016 or 2017. 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.

Nearly sixty institutions with at least one year of cohort default rates over 30% will be required to submit a formal default management plan to ED. High cohort default rates are also a trigger for program reviews and can lead to heightened cash monitoring.

This year seven institutions will lose Title IV program eligibility because their 2015 Cohort Default Rate is over 40%. Five institutions will also lose eligibility to participate in the federal student aid programs due to having three years of official 3-year Cohort Default Rates that are 30% or greater.

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 2, 2018 through the eCDR appeals website.

DIRECT LOAN ORIGINATION FEES EFFECTIVE OCTOBER 1, 2018

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. 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.

Beginning on October 1, 2018 the loan origination fees have gone down slightly. For Federal Direct Loans where the first disbursement is made on or after October 1, 2018, and before October 1, 2019 the origination fees are as follows:

The loan fee for Direct Subsidized Loans and for Direct Unsubsidized Loans is 1.062%. For example, the fee on a $5,500 loan will be $58.41.

The loan fee for Direct PLUS Loans (for both parent borrowers and graduate and professional student borrowers) is 4.248%. For example, the fee on a $10,000 PLUS Loan will be $424.80.

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, both of which suffered a reduction in the award amount for any grant that is first disbursed on or after October 1, 2018.

The Iraq-Afghanistan Service Grant was reduced by 6.2% for FY 19 resulting in a reduced award of $5717.11. Meanwhile the Teach Grant was also reduced by 6.2% resulting in a maximum award of $3752.00.

For more information about these programs, check out this electronic announcement from Federal Student Aid.

FISCAL YEAR 2015 OFFICIAL COHORT DEFAULT RATES COMING SEPTEMBER

ED will release Fiscal Year (FY) 2015 Official Cohort Default Rates (CDR) to all eligible institutions in September. Schools will receive their CDR electronically via their SAIG mailbox, sometime on or after September 25. The Cohort Rates are an important metric used to determine school or program quality.

This year’s Cohort includes three years; FY 2015, 2014 and 2013.

Schools with low cohort default rates can receive their funds more timely than schools with rates above certain thresholds. Schools with a 3-year cohort default rate less than 15% enjoy the benefit of the ability to deliver disbursements to first-year, first-time undergraduate borrowers without delay. Schools with rates greater than 15% must delay the delivery of loans for 30 days.

Schools with 3-year CDRs of 30% or greater for three consecutive years, or with CDRs greater than 40% for just one year may face federal sanctions including loss of Direct Loan or Pell Grant Program eligibility. 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 2015 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.

EDUCATION DEPARTMENT RELEASES BORROWER DEFENSE PROPOSED RULES

The U.S. Department of Education released a new set of proposed rules to govern the Borrower Defense to Repayment process; effectively replacing the 2016 final rules imposed by the Obama Administration. Although students have multiple options for seeking discharge of loans, for example, when a school closes before a student can complete their educational program, the Borrower Defense rules enacted in 2016 outlined a standardized procedure which put the Department at the of the adjudication process. Since 2015 more than 100,000 claims have been filed and the Department has taken over the processing borrower defense claims. From 2015 to 2016, the Department engaged in negotiated rulemaking on borrower defense. On November 1, 2016, the Department published final regulations, certain provisions of which have been delayed until July 1, 2019.

According to a summary of the “Institutional Accountability Regulations” proposed by the Department, The proposed regulations would:

  • Provide students with a balanced, directed process that relies on a single Federal standard rather than many different state standards to ensure that borrower defense to repayment discharges are handled swiftly, carefully, and fairly;
  • Encourage students – including those who pay cash or use other forms of credit to pay for college – to seek remedies directly from institutions that have committed acts or omissions that constitute misrepresentation and cause financial harm to the student;
  • Provide students with an additional 60 days (from 120 days to 180 days) to qualify for a closed school loan discharge and incentivize closing institutions to engage in an orderly teach-out process rather than suddenly shutting their doors;
  • Ensure that institutions engaged in misconduct, rather than taxpayers, bear the burden of losses from borrower defense to repayment loan discharges;
  • Enable institutions to respond to borrower defense to repayment claims and provide evidence to support their response;
  • Discourage institutions from committing fraud or other acts or omissions that constitute misrepresentation;
  • Enable the Department to properly evaluate institutional financial risks in order to protect students and taxpayers;
  • Provide students who cannot obtain an official high school transcript or diploma the opportunity to receive federal financial aid and enroll by attesting, under penalty of perjury, that they completed high school, but disallowing such a borrower from later making a false certification student loan discharge claim if the borrower misrepresented the truth in their attestation;
  • Provide time for the Department to consider engaging in negotiated rulemaking to update the Composite Score methodology to reflect changes in FASB accounting standards; and
  • Maintain a strong, responsible Federal student aid system that can continue to provide redress for students who fall victim to misrepresentations by institutions.

The Department is seeking comment on the best and most fair process to students and taxpayers for loans disbursed on or after July 1, 2019.

In this request for public comment, the Department proposes two possible options for when a borrower can submit a borrower defense claim: 1) That the Department only accept “defensive” claims in response to a collection action, similar to the process described in the 1994 regulation; or 2) at the initiation of the borrower, similar to what has transpired since 2015, accept “affirmative” in addition to “defensive” claims.  Because the implications of this determination are far-reaching for taxpayers and borrowers, the Department is seeking specific public comment on these alternatives and the conditions that would apply in each case, including elements of adjudication, such as the evidentiary standard and time limitations on a borrower to submit a borrower defense.

The department has published the proposed rules in the federal register and public comment is open for 30 days until September 1, less than the usual 60-90 day comment period. Final regulations will be published by November 1, 2018 and will likely take effect on July 1, 2019.

You can read the full summary of the Institutional Accountability Regulations here.

2018-2019 DIRECT LOAN INTEREST RATES GOING UP

Interest rates are going up again for new Federal Direct Student Loans beginning on July 1, 2018.

Interest rates for Direct Loans are based on a formula whereby the rates are indexed to the 10-Year Treasury Note plus an “add-on” percentage. This year’s auction of the 10-year Treasury note resulted in a “high yield” of 2.995%, an increase over last year’s high yield of 2.400%. As a result, borrowers with new loans for the 2018-2019 award year will be paying more in finance charges over the life of their loan. You can read all about it here in a recent electronic announcement from FSA. Don’t forget to update your borrower communications and consumer information!

Interest Rates for Direct Loans First Disbursed Between July 1, 2018 and June 30, 2019

Undergraduate Students
Direct Subsidized Loan                5.05%
Direct Unsubsidized Loans           5.05%
Direct PLUS Loans                      7.60%

Graduate & Professional Students
Direct Unsubsidized Loans           6.60%
Direct PLUS Loans                      7.60%

For each loan type, the calculated interest rate may not exceed a maximum rate specified in the HEA. The maximum interest rates are 8.25% for Direct Subsidized Loans and Direct Unsubsidized Loans made to undergraduate students, 9.50% for Direct Unsubsidized Loans made to graduate and professional students, and 10.50% for Direct PLUS Loans made to parents of dependent undergraduate students or to graduate or professional students.

DRAFT COHORT DEFAULT RATE CHALLENGE APPEAL DEADLINE APRIL 19, 2018

In a message to the Financial Aid Community posted by Federal Student Aid yesterday, FSA reminded schools the Fiscal Year 2015 Draft Cohort Default Rate Challenge Appeal Deadline is April 19, 2018.

On February 26, 2018, the Department of Education (the Department) distributed the FY 2015 Draft Electronic Cohort Default Rate (eCDR) notification packages to all Title IV eligible schools.

As a reminder, the 45-day timeline for schools to challenge their FY 2015 Draft Cohort Default Rate (CDR) data began on March 6, 2018 and will end on April 19, 2018. During this period, schools have the option to submit an incorrect data challenge, an uncorrected data adjustment (UDA), a loan servicing appeal (LSA), or a new data adjustment (NDA).

If you have any questions or concerns regarding CDR challenges and procedures, please contact us at FSA.Schools.Default.Management@ed.gov or by phone at 202-377-4259.

 

Thank you for your continued cooperation.

FY 2015 3-YEAR DRAFT COHORT DEFAULT RATES RELEASED

On February 26, 2018, the Department of Education distributed the FY 2015 3-Year Draft Cohort Default Rate (CDR) notification packages to schools via their Student Aid Internet Gateway (SAIG) mailbox. The package includes a cover letter and Loan Record Detail Report (LRDR). It’s important for schools to review their draft data because there are sanctions for schools with high cohort default rates and benefits for schools with low ones and the draft cycle is one of the only opportunities to challenge certain data.

The Fiscal Year 2015 3-Year Draft CDR is calculated by dividing the number of borrowers who entered repayment in 2015 by the number of borrowers who entered repayment in 2015 and defaulted in 2015 2016 or 2017.

Although there are no sanctions or benefits associated with the draft rates themselves, the draft rates become official in September. During the draft cycle, schools have an opportunity to challenge incorrect data or challenge their (low) participation rate. The challenge and appeals cycle begins on March 6, 2018 and lasts for 45 days. More information about submitting an Incorrect Data Challenge or a Participation Rate Index Challenge can be found in the Cohort Default Rate Guide

CREDIT FREEZE AND PLUS LOAN CREDIT CHECKS

Because of recent data breaches and increased security concerns, many consumers taking steps to protect their personally identifiable information (PII) from unwanted disclosure. When a consumer places a “credit freeze” on their credit profile with the credit bureaus, credit activity such as a credit inquiry cannot be performed unless they give additional consent.
According to Federal Student Aid, since a credit check is part request process for a Direct PLUS Loan or borrower Endorser application borrowers or endorsers with an active credit freeze may not be able to fully complete either process and may receive an error message when the credit check is run. The borrower or endorser must remove the credit freeze first; this action cannot be done by the school or Federal Student Aid.
FSA implemented messaging on the StudentLoans.gov website back in October to inform borrowers and endorsers that those who have a credit freeze on their credit profile will need to remove it before completing a Direct PLUS Loan Request or the Endorser Addendum.
Schools using the “Quick Credit Check” on the COD Web Site could experience an error or “timeout” response as a result of a borrower’s credit freeze. In some cases, Federal Student Aid will not be able to return a credit check response with the origination record and will reject the record with COD Reject Edit 996 (Invalid Value). Again, when troubleshooting a credit issue with a borrower or endorser, schools may want to see if the credit freeze situation may apply. If you have additional questions about credit check processing, FSA recommends that you contact the COD School Relations Center.

HOW LONG IS A PLUS LOAN CREDIT CHECK GOOD FOR

With the 2018-2019 FAFSA available beginning on October 1, 2017, schools will be able to complete COD Web credit checks for 2018-2019 PLUS Loans beginning on October 1, 2017.

So how long is a credit check on a PLUS Loan good for?

Credit checks are good for only 180 days from date the credit check was performed. If more than 180 days has passed between the date the credit check was conducted and the date the Direct PLUS Loan origination record is processed, a new credit check will be conducted. Therefore, it is important for schools to carefully consider the timeframe between completing a COD Web credit check and Direct PLUS Loan origination record processing for the 2018-2019 Award Year. This applies to both Parent PLUS and Grad PLUS Loans.