On November 1, 2007, the Department of Education published Final Rules on Student Loan Issues and General Provisions in the Federal Register with an effective date of July 1, 2008. All the regulations outlined in the General Provisions Final Rules along with a number of regulations outlined in the Student Loan Issues Final Rules could be implemented on or after November 1, 2007. To review those changes please refer to the HESC announcement Highlights of Student Loan and General Provisions Final Rules which was posted to our Web site November 20, 2007.

Below is a brief summary of FFEL Student Loan changes that become effective as of July 1, 2008.

A. Final Rules (published November 1, 2007):

Total and Permanent (T&P) Disability Discharge - §682.402(c)
The three year conditional discharge period now begins the date the physician certifies the application, not the date that the borrower became totally and permanently disabled. Also, the borrower must submit the application to the lender no more than 90 days after the physician signed the application.

Record Retention Requirements for Electronically Signed Master Promissory Notes (MPN’s) - §682.414
The lender that originated the MPN will now be required to retain an original of an electronically signed FFEL Program MPN for 3 years after all loans on the MPN are satisfied.

Maximum Length of Loan Period - §682.401 & §682.603
The 12 month restriction for the maximum length of a loan period is eliminated, therefore allowing for loan certification periods to reflect a full Academic Year if greater than 12 months. Annual loan limits continue to apply to an academic year or to the period of time if takes to progress to next grade level.

Prohibited Inducements - §682.200, §682.209, §682.401& §682.406
The Department provided a list of prohibited activities and a list of permitted activities for lenders and guaranty agencies and ED’s authority to enforce the rules related to improper inducements was enforced.

Examples of Lender prohibited activities include:
  • Payment to another lender or any other party of referral or processing fees, except to comply with Federal or State law;
  • Payment of conference or training registration, transportation, and lodging costs, for an employee of a school or school-affiliated organization;
  • Payment of entertainment expenses, including expenses for private hospitality suites, tickets to shows or sporting events, meals, alcoholic beverages, and any lodging, rental, transportation, and other gratuities related to lender-sponsored activities for employees of a school or a school-affiliated organization; and
  • Staffing services to a school, except for services provided to participating foreign schools at the direction of the Secretary, as a third-party servicer or otherwise on more than a short-term, emergency basis, and which is non-recurring, to assist a school with financial aid-related functions.

Examples of Lender permissible activities (even if they are tied to loans or loan volume, or undertaken to obtain a Preferred Lender List) include:
  • Support of and participation in a school’s or a guaranty agency’s student aid and financial literacy-related outreach activities, excluding in-person school required entrance or exit counseling, as long as the name of the entity that developed and paid for any materials is provided to the participants and the lender does not promote its student loan or other products;
  • Meals, refreshments, and receptions that are reasonable in cost and scheduled in conjunction with training, meeting, or conference events if they are open to all training, meeting, or conference attendees;
  • Items of nominal value to schools, school-affiliated organizations, and borrowers that are offered as a form of generalized marketing or advertising, or to create good will; and
  • Other benefits to a borrower can include; repayment incentive program that requires, at a minimum, one or more scheduled payments to receive or retain the benefit; or the formation of loan forgiveness programs for public service or other targeted purposes approved by the Secretary (may not market to secure loan applications or loan guarantees).

Preferred Lender Lists (PLL) - §682.212 & §682.401
Schools who decide to have a preferred lender must list at least three unaffiliated lenders along with specific disclosures about the loan products offered by these lenders. The school also needs to provide a clear statement that they are not endorsing any of the lenders listed and that the student can choose from any FFEL lender even if they are not one listed on the school’s PLL.

B. Changes per the Higher Education Reconciliation Act of 2005:

Origination Fees - §682.202(c)
For Stafford Loans first disbursed on or after July 1, 2008 through June 30, 2009, a lender may charge a borrower an origination fee not to exceed 1 percent of the principal amount of the loan.

C. Changes per College Cost Reduction and Access Act of 2007:

Undergraduate Subsidized Stafford Loan Interest Rates - §682.202(a)
For undergraduate subsidized Stafford loans first disbursed July 1, 2008 – June 30, 2009 the fixed interest rate will be decreased from 6.8% to 6.0%.

Public Service Loan Forgiveness Program
FFEL borrowers may consolidate FFEL loans into a Direct Consolidation Loan in order to benefit from the Public Service Loan Forgiveness Program. (All payments credited towards this loan forgiveness program must have been made in the Direct Loan Program.)

D. Ensuring Continued Access to Student Loans Act of 2008:

Annual Loan Limits
The annual unsubsidized Stafford loan limit for undergraduate students is increased by $2,000 for all loans disbursed on or after July 1, 2008.

Aggregate Loan Limits
  • The aggregate unsubsidized loan limit for undergraduate dependent students is increased from $23,000 to $31,000 (minus subsidized borrowing) and
  • the aggregate unsubsidized loan limit for undergraduate independent students is increased from $46,000 to $57,500 (minus subsidized borrowing).

Questions regarding this guidance should be directed to the Office of Regulatory Compliance at 518-473-3986, toll free at 1-866-431-HESC (1-866-431-4372); press 6, or askpolicy@hesc.org

Date posted: 6/04/08