HESC Colleague NewsletterNovember 15, 2007  

Legislative and Regulatory Update

Steve Bomeisl

Legislative Update

President Bush signed the College Cost Reduction and Access Act of 2007 (CCRAA) on September 27. Provisions of this legislation include:
  • Funding to Pell Grant recipients will increase;
  • Interest rates for subsidized Stafford loans made to undergraduates will be reduced incrementally for five years for loans beginning with loans first disbursed on or after July 1, 2008;
  • A new public service loan forgiveness program will become available to those who meet selective criteria;
  • Military service deferments have been expanded to include all borrowers.

This legislation changes the cost structure of conducting business under the FFEL program for lenders and guarantee agencies. As a result, some lenders and guaranty agencies will have to reassess the benefits they provide to borrowers to maintain profitability.

For instance, lenders could be forced to cut back on paying origination fees and guaranty agencies may be hampered in their ability to pay the borrower’s default aversion fee.

More details about some of the outstanding issues are expected to be provided by U.S. Department of Education (ED) officials.

Final Regulations

On November 1, ED released final regulations on two Notices of Proposed Rulemaking (NPRMs) issued over the summer: the Loans Issues NPRM and General Provisions NPRM. These were published in the Federal Register.

Loan Issues NPRM
On June 12, ED published an NPRM addressing loan issues that have been the basis of numerous discussions and hearings in the last few months between ED staff and members of the student loan community.

Although these proposals have dealt mainly with more controversial subjects like prohibited inducements and preferred lender lists, other subjects addressed included simplification of the deferment process for borrowers, additional NSLDS reporting requirements, and changes to the total and permanent disability discharge procedures.

ED replied to these proposals and issued its final regulations package on November 1. Although the effective date of these regulations is July 1, 2008, some regulations may be implemented immediately. Details of these final regulations will be discussed at the HESC administrative workshops in December. Additional topics will be addressed in the coming months on HESC.org.

General Provisions Issues NPRM
On August 12, ED published an NPRM focusing on a multitude of issues that mostly impact procedures for school officials. Although all of the issues addressed in the NPRM had been agreed upon by every negotiator in the Negotiation Rulemaking sessions held in early 2007, this NPRM clarifies and consolidates regulations or definitions involving the following:
  • Student enrollment status definitions;
  • Independent study for direct assessment programs;
  • Cash management rules (including a clarification that ED officials will no longer accept appeals for late disbursements beyond the 180 day period);
  • Electronic disbursements, and use of stored-value cards;
  • Return of Title IV aid.

The effective date of the regulations in the General Provisions is July 1, 2008; however, the secretary has provided schools, lenders, guaranty agencies, and servicers with the option of implementing all these regulations immediately.

There are usually outstanding issues that need clarification, even after the final regulations are published. We expect them to be addressed by ED officials in a “dear colleague” letter.

We will provide you with additional information about these final regulations as we receive it.