On November 1st, 2007, the Department of Education published the Final Rule on the pending regulatory changes worked on during the 2006-2007 Negotiated Rulemaking session. The Secretary is required by law to publish the final language no later than November 1st in order to make the changes effective the following July 1st. Consequently, the changes outlined below are effective July 1st, 2008, although many of the changes have the option of early implementation. The Federal Register containing the Final Rule language also contained some of the regulatory provisions necessary to promulgate the changes resulting from the passing of H.R. 2669, The College Cost Reduction and Access Act of 2007. As those provisions were effective, per Congress, on October 1, 2007, regulations were needed immediately, and could not wait for a new negotiated rulemaking process to start.

Most of what was contained within the Final Rule was exactly what was seen in the draft regulations published over the summer. Consequently, the below summary will give a very brief outline of the rule, with emphasis on the changes between the draft regulations and the final version. Due to space restrictions, we’ve chosen to just cover the “highlights” of the upcoming changes. As always, contact any Government Relations team member for further questions.Graduate PLUS Loans

Schools must determine borrowers' Stafford loan eligibility prior to processing a Graduate PLUS loan. If the borrower does not request their full Stafford eligibility, schools must also explain to borrowers the variations between Stafford and Graduate PLUS, including interest rates, interest accrual, and when repayment begins. Schools must also ensure that Graduate PLUS loan borrowers receive entrance counseling whether or not they have received Stafford or PLUS loans in the past. Counseling must include sample repayment amounts and average indebtedness figures of borrowers in similar programs or of borrowers at their institution, including Stafford and Graduate PLUS loans.

Exit Counseling - Stafford Loans
Counseling must include average indebtedness figures of borrowers in similar programs or of borrowers at their institution, including Stafford and Graduate PLUS loans. Lenders and guarantors may no longer participate in in-person entrance and exit counseling.

Deferments
A borrower’s representative can now request a military deferment on their behalf. Also, lenders may rely on each others information to process deferments, per the borrower’s request. So if the borrower has an unemployment deferment on their account with Lender A, they can request Lender B to process an unemployment deferment on their account for the same period without submitting additional paperwork.

Death Discharges
Borrower’s families may now submit true and exact copies of death certificates to have Title IV loans discharged (rather than original’s) however faxed copies will not be accepted.

ID Theft
Lenders may place a 120 day forbearance on an account to investigate claims of identity theft. Credit bureau reporting will also be suspended during this time.

All of the above items may be implemented earlier than July 1st, 2008 if the school, lender or guarantor should choose to.

Maximum Loan Periods
The 12-month maximum loan period would be eliminated, allowing schools to certify loans with loan periods longer than 12 months. This change will require that schools be more vigilant when certifying loan periods as any edits alerting schools longer loan periods will be eliminated.

Inducements
Lenders and guarantors cannot offer points, premiums, payments, or other inducements to schools or borrowers in exchange for loan volume. The final rule integrated, with some changes, the draft language and other guidance previously received from various sources. The language provides an exhaustive list of permissible activities and a non-exhaustive list of prohibited activities. Any activity not listed as permissible falls under the burden of “rebuttable presumption” where it will be the responsibility of the affected parties to prove an inducement did not occur and that there was no quid pro quo. While the guarantor and lender lists are similar, there are some differences. For example, guaranty agencies (and not lenders) are permitted to pay travel costs for school officials to participate on an agency’s governing board, a standing official advisory committee, or in support of official agency activities.

Prior guidance has been changed to prohibit all payments of loan application referral or processing fees between lenders and any other entity (including other lenders).

Repayment incentive programs to borrowers continue to be permitted as long as the benefit received, such as a principal reduction, is done in exchange for the borrower making one or more scheduled payments.

Allows lenders to provide schools, school-affiliated organizations, and borrower’s items of nominal value (generally assumed to be $10 or less)
Lenders and guarantors may no longer participate in in-person entrance and exit counseling however they may still provide materials and participate in other financial literacy and default prevention outreach activities.

Staffing may only be provided by schools and guarantors during a federally declared emergency or other disaster as approved by the Secretary.

There are many other details within the new inducement language which if listed would create an article all its own. We strongly encourage you to read both the preamble and new regulations themselves in their entirety.

Preferred Lender Lists
Preferred lender lists are allowed but require schools to:

• Offer three or more lenders that are not affiliated (see definition below)
• Disclose the criteria used to select their preferred lenders
• Select their preferred lenders on an annual basis
• Provide comparative information about other lenders' interest rates and benefits
• Communicate to borrowers that the choice of lender belongs to them
• Not assign lenders to first-time borrowers
• Not delay process if borrower selects lender outside of preferred lender list
  

Definition of Affiliated Lender
In relation to schools' preferred lender lists, lenders are considered affiliated if the:

• Lender is under full or partial control of the same organization
• Leadership of one lender represents the majority of the leadership at another lender, or
• Lender is making loans and holding loans on behalf of another lender

For more detailed information, please contact your Government Relations team or go to the National Council of Higher Education Loan Programs (NCHELP) website or NASFAA.