Overview of the FFEL Program: Lender & Guarantor Roles

1. Session GA-03 Overview of the FFEL Program for Lenders and Guarantors Michael Novak FSA Training Officer, Dallas

2. WHAT IS FINANCIAL AID? FEDERAL STATE INSTITUTION OUTSIDE

3. Title IV Campus Based Pell Grant FDSLP FFELP TEACH ACG SMART Subsidized Stafford Direct Subsidized Direct Unsub Unsub Stafford Perkins FSEOG FWS Federal PLUS Direct PLUS

4. What is Need? COA (Cost of Attendance) EFC (Expected Family Contribution) ____________ NEED

5. Cost of Attendance • Tuition • Room & Board • Books & Supplies • Computer • Transportation • Personal • Childcare • Loan fees

6. NEED--How Does it Work?

7. Need-Based Programs • Grants • Federal Pell Grant • Academic Competitiveness Grant (ACG) • National SMART Grant • Federal Supplemental Opportunity Grant (FSEOG) • Loans • Federal Perkins Loan • Federal Subsidized Stafford Loan • Federal Direct Subsidized Stafford Loan • Federal Work Study

8. Not Need-Based Programs • Federal Unsubsidized Stafford Loan • Federal Direct Unsubsidized Stafford Loan • Federal PLUS Loan • Federal Direct PLUSLoan • TEACH Grant

9. Eligible Student • Is a U.S. Citizen or eligible non-citizen • Has a valid Social Security Number • Is registered with Selective Service • Is not in default on Title IV loan • Does not owe a repayment of Title IV grant

10. Eligible Student (cont.) • Is academically qualified • H.S. diploma • GED • Ability to benefit • Is enrolled in eligible institution • Is enrolled in eligible program • Is making satisfactory progress

11. Independent Student • Age 24+ • Veteran of Armed Forces • Married at time of application • Orphan or Ward of Court • Graduate or Professional Student • Have a dependent other than a spouse

12. How Does Student Qualify? • File FAFSA • Apply to School • Provide requested documents to school • Go to school!

13. The Loan Process:Delivering Funds Flow Student files FAFSA CPS processes data School awards loan GA guarantees loan Lender processes request Student signs MPN Lender/GA disburses funds to school School delivers $ to student

14. School Provides • Student eligibility determination and certification • Lender identification • Disbursement information, controls and delivery of $ • Refunds and returns • Enrollment information • Default aversion help— counseling, financial literacy, packaging

15. Eligible Lenders—examples • Banks, s&l’s, credit unions • State agency; non-profit designated by state • School • Guarantor

16. Eligible Lenders—getting started • Guarantor(s) • Agreement to Guarantee • US ED • Lender ID # • Lender Participation Questionnaire

17. Lender Responsibilities—Loan Origination • Reviewing and approving the request • Processing funding • Interest rate • Borrower disclosures • Disbursing the Loan • earliest date • number of disbursements • method of disbursements • cancellations

18. The Loan Process:Collections Flow

19. Lender Responsibilities—Loan Servicing • Verify enrollment, in-school and grace periods • Establish and disclose repayment terms • Apply borrower payments and returned funds • Retire paid-in-full loans

20. Lender Responsibilities— Deferment • Deferment—defers principal payments (plus interest, if “sub”) • Entitlement, if loan not in default • 30 day window to respond • Multiple categories (15+)

21. Lender Responsibilities—Forbearance • Forbearance— • Temporary “change” of payments • Interest continues • Length varies (12 mo. often) • Types • Discretionary • Mandatory • Mandatory administrative • Administrative • Key: lender believes borrower intends to repay but is currently unable

22. Lender Responsibilities—Due Diligence • Due Diligence: activities and timelines required when a borrower is delinquent, “missing” or ineligible for the loan • Includes written notices, telephone contacts, default aversion assistance from guarantor, final demand letter • May include address and telephone skip tracing • Includes warnings, explanations of options plus demands

23. Lender Responsibilities—Due Diligence • Failure to comply could mean • Inability to collect the loan • Rejection of the lender’s claim • Cancellation of the loan guarantee • Reduction of interest payment paid at claim purchase

24. Lender Responsibilities— Claims • Claim— request for reimbursement of lender funds based on • Defaulted loans • Discharged loans • Forgiven loans

25. Lender Responsibilities—Discharge • Discharge—reimbursement for release of borrowers from loan obligations (“happen to borrower”) • Bankruptcy • Closed schools • Death • Disability • 9/11 events • False certification by other than borrower

26. Lender Responsibilities—Forgiveness • Forgiveness–reimbursement for release of borrowers from loan obligations due to public service (positive borrower actions; example, teaching)

27. Lender Administrative Duties • Recordkeeping (GEN 01-06, e-sign) • Loan Assignment, Sale or Transfer • Permitted and Prohibited Activities • Reporting • Audits • Payments—Origination and Lender Fees, Servicing Fees

28. Lending—The Money Equations Money Source Student ED Secondary Market Lender Servicer Guarantor

29. Guaranty AgencyThe Relationships ED Lender GA School Student

30. Guaranty Agency • Acts as the intermediary between ED, private lenders and schools • Provides administrative and oversight responsibilities of schools and lenders participating in FFELP

31. Guaranty Agency • Each State must designate a guarantor responsible for guaranty activities in that State • State agency • Private non-profit • Currently we have 35 public or private agencies providing guaranty activities in all 50 states and territories

32. Guaranty Agency • Guarantees that a FFELP lender will be reimbursed for valid claims of default, discharge or forgiveness of loans • ED reimburses a portion of the payments made to the lenders

33. Guaranty Agency • Participates only with eligible schools • May require participation agreement or other reasonable criteria • May, along with ED, subject schools to limitation, suspension and termination (LST)

34. Guaranty Agency • Participates only with eligible lenders • May require participation agreement and other reasonable criteria • May also subject lenders to LST

35. Guaranty Agency • State (designated) guarantor guarantees loans for • Students attending school in their designated State • State residents attending school elsewhere • Some state guarantors are also authorized to guarantee loans made to students who are not state residents and who do not attend a school in its state

36. Guaranty Agency • State designated guarantor must make available a “lender of last resort” (LLR) program to make FFELP loans to any eligible student attending any eligible school in the guarantor’s designated State • All guaranty agencies, state or non-profit, must have a LLR program approved and available.

37. Guaranty Agency—oversight responsibilities • Enforce all Federal, State and GA requirements applicable to the federal loan programs • Conduct on-site program reviews of participating lenders, servicers and schools

38. Guaranty Agency—fiscal responsibilities • Maintain Federal Reserve Fund • Deposit federal advance funds, reinsurance payments, default collections and other funds received for guaranty agency activities • Use funds only for permitted activities such as payment of lender claims and meeting administrative requirements

39. Guaranty Agency—fiscal responsibilities (cont.) • Maintain GA operating fund • Deposit account maintenance fees, share of default collections, share of administrative cost allowances • Provide application processing, default aversion and collection activities, lender and school training, outreach activities, enrollment tracking, compliance monitoring, etc.

40. Guaranty Agency • Provide administrative duties • Pre-claim default prevention services • Payments to lenders for • Defaulted loans • Discharged loans • Forgiven loans • Collection services on defaulted loans held by the GA • Credit bureau reporting

41. Guaranty Agency • Offer other GA activities • Training and technical assistance • Student aid and financial literacy-related outreach activities to schools and students • Support to students experiencing difficulty with lenders or schools • Enrollment and loan reporting to NSLDS • Bankruptcy defense

42. Recent Legislation

43. Contact Information • We appreciate your feedback and comments. We can be reached at: • Phone: 214-661-9452 • Email: michael.novak@ed.gov • Fax: 214-661-9662