The U.S. Department of Education published Final Rules on Federal Student Loan Issues in the October 23, 2008 Federal Register. These new regulations, which are effective as of July 1, 2009, implement several provisions enacted by the College Cost Reduction and Access Act (CCRAA) of 2007. Listed below are highlights of the changes that affect the Federal Family Education Loan (FFEL) Program.

Economic Hardship Deferment - §682.210

  • Defines family size for economic hardship purposes.
  • Clarifies that the Department of Health and Human Services is the source for information on poverty guidelines, not the Community Service Block Grant Act.
  • Eliminates the 20/220 debt-to-income ratio for a borrower working Full Time and the corresponding debt-to-income ratio criterion for a borrower who is working Part Time due to the new Income Based Repayment Plan.

(Lenders may use the 20/220 criterion for an eligible borrower who requests a deferment period that began prior to July 1, 2009 and is for a period not to exceed 12 months from the pre-July 1,2009 date.)

Military Service Deferment & Post-Active Duty Student Deferment - §682.210 & §682.211 (Can be implemented before July 1, 2009)

  • Clarifies that for the Military Service Deferment the 180-day extension is for borrowers whose active duty service includes October 1, 2007 and that the extension can be obtained after each period of service; not limited to one time only.
  • Incorporates HEROES waiver language that allows lenders to grant an initial 12-month military service deferment without supporting documentation from the borrower or the borrower’s representative.
  • Changes terminology from “Military Active Duty Student Deferment” to “Post-Active Duty Service Deferment”.
  • Clarifies that the Post-Active Duty Student Deferment is for borrowers whose service includes October 1, 2007 or begins on or after that date and that the borrower will receive their full grace period on a loan before the 13-month post-active duty student deferment period would begin.
  • Clarifies that if a borrower qualifies for both the military service deferment and the post-active duty student deferment the time is used concurrently.
  • Requires a lender to grant a mandatory forbearance for a borrower who is called to active State duty for more than 30 days and who does not qualify for a Military Service Deferment during the active State duty service period, but who qualifies for the Post-Active Duty Student Deferment.

Income - Based Repayment (IBR) - §682.205, §682.209, §682.211, §682.215, §682.300,§682.302, §682.304 & §682.405

  • Creates a new Repayment Plan, Income-Based Repayment, for Stafford, Grad PLUS and Consolidation loans. It is not available for Parent PLUS loans or for Consolidation loans that include Parent PLUS loans.
  • Requires lenders to disclose the IBR option at the time a loan is offered and no more than 6 months prior to the borrower’s first due date.
  • Caps loan payments at 15% of the borrower’s income that exceeds 150% of the federal poverty line income applicable to the borrower’s family size, divided by 12.
  • Excludes defaulted loans from the category of eligible loans for IBR repayment. (per the Higher Education Opportunity Act of 2008)
  • Establishes the maximum repayment period to be 25 years, remaining debt will be forgiven.
  • Adds an administrative forbearance type for repayment plan change and for processing loan forgiveness.
  • Calculates special allowance on the principal balance of the loan and any accrued interest unpaid by the borrower while the borrower has partial financial hardship under IBR. Unpaid accrued interest on subsidized loans paid by the Secretary during the three consecutive years from the date the borrower first entered IBR (excluding periods of economic hardship) is not eligible for SAP.

Eligible Not-For-Profit Holder - §682.302

  • Amends the Definition of Eligible-Not-for-Profit to incorporate the changes made by The Third Higher Education Extension Act of 2007.
  • Clarifies under what circumstances an entity qualifies as an eligible not-for-profit holder status.

Public Service Loan Forgiveness - §682.201, §685.212, §685.219 & §685.220

  • Permits a FFEL borrower to obtain a Direct Consolidation Loan on or after July 1, 2008 for the purpose of using the Public Service Loan Forgiveness Program.

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

Date posted: 2/18/09