Beginning with the 2020-2021 award year, federal student loan borrowers will have to complete an extra step before their loans disbursements will be released by the Common Origination and Disbursement System. The “Informed Borrower Confirmation” requires borrowers to review and acknowledge their loan indebtedness each year before the school can disburse and draw down those funds.
The changes will take effect in the COD system and are expected to be operational by April 2020. FSA is instructing schools to modify their student and parent facing 2020-2021 award year websites and materials to ensure students are aware of the new requirement. Institutions should also plan to modify their internal document tracking, disbursement approval procedures and system software to account for the changes. Although schools will be able to send origination and disbursement records to COD before a borrower has confirmed their loan indebtedness, COD will not allow the loan to disburse if the confirmation process hasn’t been completed. Once the Informed Borrower Confirmation goes live, schools will receive a new COD Reject Edit 225 on submitted Direct Loan disbursements if the Informed Borrowing Confirmation process has not yet completed by the borrower.
The regulations under the 2016 Borrower Defense To Repayment established a standard procedure for ED to follow when evaluating borrower defense to repayment discharge claims for loans that were first disbursed prior to July 1, 2020.
When a borrower makes a claim and attempts to have their loans discharged, ED will notify the school and give them a chance to respond to the borrower’s allegations. In a recent electronic announcement, FSA advised that they’ll begin sending claim information to schools to review and respond to within the next few weeks. This information will likely include a letter from ED with instructions for school personnel to follow, and a copy of the borrower’s discharge application and any supporting evidence. Institutions will have 30 days to respond to any allegations and during that time can provide supporting evidence to ED if they choose to dispute the borrower’s allegations.
Earlier this year new Final Rules pertaining to Borrower Defense were published but won’t got into effect until July 2020. Those rules however will only apply to new loans disbursed on or after July 1, 2020
On September 23, 2019, the Official Cohort Default Rates were released for the 2016 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 is trending down again. The official 2016 rate is now 10.1%, down 6.5% from the Official FY 2015 rate of 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 15.2% for the 2016 CDR. Public institutions fared much better at 9.6%, followed by private institutions with just 6.6% of students defaulting on their loans.
The Fiscal Year 2016 Three-Year CDR is calculated by dividing the number of borrowers who entered repayment in 2016 by the number of borrowers who entered repayment in 2016 and defaulted in 2016, 2017 or 2018. 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 1, 2019 through the eCDR appeals website.
ED will release FY 2016 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 2016 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.
NEW INTEREST RATES TAKE EFFECT ON JULY 1, 2019
Interest rates are going down for new Federal Direct Student Loans beginning on July 1, 2019.
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 2.479%, an increase over last year’s high yield of 2.995%. As a result, borrowers with new loans for the 2019-2020 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, 2019 and June 30, 2020
Direct Subsidized Loan 4.53%
Direct Unsubsidized Loans 4.53%
Direct PLUS Loans 7.08%
Graduate & Professional Students
Direct Unsubsidized Loans 6.08%
Direct PLUS Loans 7.08%
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.