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NASFAA National Conference. Seattle, Washington -- July 5 - 8, 2006 Washington State Convention & Trade Center. Loan Forgiveness, Cancellation and Discharge. Gail McLarnon U.S. Department of Education. Today’s Agenda.

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NASFAA National Conference

Seattle, Washington -- July 5 - 8, 2006

Washington State Convention

& Trade Center


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Loan Forgiveness, Cancellation and Discharge

Gail McLarnon

U.S. Department of Education


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Today’s Agenda

  • Teacher loan forgiveness in the Federal Direct Loan and the Federal Family Education Loan (FFEL) Programs

  • Teacher loan cancellation in the Federal Perkins Loan Program

  • Permanent and total disability loan discharges in the Title IV Loan Programs


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Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

  • FFEL and DL loan forgiveness of up to $5,000 adopted in the Higher Education Amendments of 1998

  • Taxpayer-Teacher Protection Act of 2004 (TTPA) increases loan forgiveness to up to $17,500 until September 30, 2005

  • TTPA requires all teachers to be “highly qualified”


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Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

  • Higher Education Budget Reconciliation Act (HERA) makes up to $17,500 in loan forgiveness permanent (retroactive to October 1, 2005)

  • HERA extends loan forgiveness to certain private school teachers effective 7/1/06


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Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

  • Resources:

    • FFEL Program regulations: §682.215

    • Direct Loan Program regulations: §685.217

    • Dear Colleague Letter GEN-04-14 summarizes teacher loan forgiveness provisions of TTPA http://ifap.ed.gov/dpcletters/GEN0414.html

    • Dear Colleague Letter GEN-06-02 summarizes HERA changes to teacher loan forgiveness http://ifap.ed.gov/dpcletters/GEN0602.html


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Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

  • Resources (cont.)

    • Teacher loan forgiveness application and forbearance forms http://ifap.ed.gov/dpcletters/GEN0502Revised.html

    • Look for Interim Final Regulations with Comments in late July implementing TTPA and HERA changes to teacher loan forgiveness on http://ifap.ed.gov


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Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

  • TTPA changes to teacher loan forgiveness

    • Loan forgiveness of up to $5,000 if a teacher teaches five years in an elementary or secondary school with a population of 30% of more low-income children

    • Teacher must be “highly qualified”


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Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

  • A “highly qualified” teachers is:

    • Fully certified or has passed a state licensing exam; licensed by the State in which he or she teaches

    • A new teacher who holds a B.A. and passes a rigorous State test demonstrating knowledge and teaching skills; secondary teachers also must complete major, graduate degree, or coursework equivalent to a major in teacher areas

    • Any other teacher who demonstrates competence in subject areas in which he or she teaches based on uniform State standards


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Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

  • TTPA authorizes loan forgiveness up to $17,500 if a teacher

    • Meets the previous requirements AND

    • Teaches special education in elementary or secondary school OR

    • Teaches mathematics or science in secondary school


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Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

  • Teachers who began qualifying service before the new law was enacted:

    • Do not have to meet the new requirements to get the $5,000, but

    • Must meet the new requirements to get the $17,500


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Teacher Loan Forgiveness in the FFEL and Direct Loan Programs

  • All Bureau of Indian Affairs Schools are considered low-income schools

  • Statutory interpretation of “highly qualified” changed—No longer tied to NCLB date of enactment


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Teacher Loan Cancellation in the Federal Perkins Loan Program

  • Higher Education Act authorizes up to 100% loan cancellation over a five year period for:

    • Full-time teachers in a school serving students from low-income families

    • Full-time special education teachers, including teachers of infants, toddlers children or youth with disabilities

    • Full-time teachers of mathematics, science, foreign languages, bilingual education of any other field of expertise determined by a State education agency to have a shortage of qualified teachers


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Teacher Loan Cancellation in the Federal Perkins Loan Program

  • Cancellation Rates

    • 15% of principal and interest for first and second years of teaching

    • 20% of principal and interest for third and fourth years of teaching

    • 30% of principal and interest for fifth and final year of teaching


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Teacher Loan Cancellation in the Federal Perkins Loan Program

  • Borrowers placed in deferment during periods of teaching service in anticipation of loan cancellation

  • The Department of Education does not approve or supply Perkins Loan cancellation and deferment forms.


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Teacher Cancellation in the Federal Perkins Loan Program Program

  • Resources:

    • Perkins Loan Program regulations: Subpart D of 34 CFR 674

    • Volume 6, Chapter 4 Financial Aid Handbook: http://ifap.ed.gov/sfahandbooks/030106Vol6FSAHandbook.html

    • Campus-Based Program Materials

      http://ifap.ed.gov/IFAPWebApp/currentCBPMaterialsPag.jsp


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Requirements for FFEL, Direct and Perkins Loan Forgiveness Program

  • Borrowers cannot receive benefits for qualifying teaching service under both HEA and National & Community Service Act

  • Loan holders do not refund payments received during a period when borrower qualified for loan forgiveness/cancellation

  • Directory of Designated Low-Income Schools for Teacher Cancellation Benefits used across Title IV loan programs-All BIA schools are low-income


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Total and Permanent Disability (TPD) Discharge of Title IV Loans

  • June 1999 – Department of Education’s Inspector General issues Report identifying weaknesses in the TPD process

  • November 1999 – Dear Colleague Letter GEN-99-36 strengthens process http://ifap.ed.gov/dpcletters/doc0625_bodyoftext.htm

  • November 2000 – Final regulations issued changing eligibility for post-TPD discharge http://www.ifap.ed.gov/fregisters/1101200010.html


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Overview of TPD Discharge Process Loans

  • Borrower applies to the loan holder for a disability discharge and loan holder makes preliminary determination of TPD.

  • If loan holder determines that borrower does not meet criteria for TPD, loan is returned to prior status.

  • If loan holder determines borrower meets criteria for TPD, loan is assigned to Department’s Disability Discharge Unit. For FFEL loans, both loan holder and GA determine borrower eligibility.


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Overview of TPD Discharge Process Loans

  • Department reviews all assigned loans to affirm borrower eligibility for TPD.

  • Loan placed in conditional discharge status and monitored for 3 years if TPD affirmed.

  • Final TPD discharge granted if borrower’s earnings do not exceed poverty level for family of two and borrower does not receive any new Title IV loans during conditional period.


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TPD Discharge and Title IV Eligibility Loans

  • Title IV eligibility requirements vary depending upon date of TPD discharge

    • Before July 1, 2001

    • On or after July 1, 2001 and before July 1, 2002

    • On or after July 1, 2002

  • Refer to ISIR Codes and comments


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TPD Discharge and Title IV Eligibility Loans

  • Discharge before July 1, 2001

    • Certification from physician that borrower can engage in substantial gainful activity (i.e., no longer TPD)

      (NOTE: Need one per school)

    • Borrower statement acknowledging no discharge of new loan for pre-existing conditions unless substantial deterioration

      (NOTE: Need each loan)


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TPD Discharge and Title IV Eligibility Loans

  • Discharge on or after July 1, 2001 and before July 1, 2002 with new loan request within 3 years of TPD date:

    • Physician Certification

    • Borrower Acknowledgement Statement

    • Reaffirmation of Discharged loan

  • After 3 years from TPD date only certification and borrower acknowledgement required


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TPD Discharge and Title IV Eligibility Loans

  • Reaffirmation

    • If ISIR Discharge Date is within 3 years of new loan request, contact holder to identify 3 years from TPD date

    • If reaffirmed, requires new promissory note or signed repayment schedule


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TPD Discharge and Title IV Eligibility Loans

  • Reaffirmation

    • Do not certify/originate before holder confirms reaffirmation

    • If defaulted prior to discharge, reaffirmed loan retains default status and satisfactory repayment arrangements are required

    • Satisfactory repayment arrangements also applies during conditional period for conditional discharge


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TPD Discharge and Title IV LoansEligibility

  • Discharge on or after July 1, 2002

    • If final discharge granted – same as before 7/1/01

    • If “conditional” discharge

      • Physician certification and borrower acknowledgement for new loan

      • Borrower acknowledgement that neither new loan nor conditionally discharged loan are dischargeable now or in the future based on pre-existing condition unless substantial deterioration

      • Collection resumes on conditional loan/prior status applies


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NSLDS Tracking of TPD Discharges Loans

  • NSLDS uses Outstanding Principal Balance in conjunction with the loan status DS (disability) or DI (defaulted, then disabled), to distinguish between conditional and final discharge.

  • Borrowers denied final TPD discharge are returned to repayment status on NSLDS.

  • NSLDS May 2005 Newsletter on NSLDS Reporting http://ifap.ed.gov/nsldsmaterials/Newsletter10.html


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Department of Education Conditional Disability Discharge Unit

  • Conditional Disability Discharge Unit Website

    • http://www.fsacollections.ed.gov/contractors/ga/cdd/index.asp

    • Updates and Bulletins

    • Forms and Applications

    • FFEL Lender Performance Reports

    • Dear Colleague Letters and NCHELP Q&A


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TPD Discharge Facts and Figures Unit

  • Common reasons TPD Discharge Assignments are rejected

    • Promissory note missing

    • Condition begin date missing/incomplete

    • Payment history missing/incomplete

    • Loan Discharge application missing/incomplete


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TPD Discharge Facts and Unit Figures (cont.)

  • Processing Statistics:

    • Of total TPD applications received since inception:

      • 50% of borrowers reinstated to prior status on loan

      • 20% of borrowers received final TPD discharge

      • 30% of borrowers still in conditional discharge period

  • Borrowers reinstated to prior status on loan because:

    • 37% failed medical review

    • 7.8% received a new title IV loan

    • 54.6 failed to respond to request for income information

    • Less than 1% had income that exceed poverty guidelines


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Upcoming TPD Discharge Dear Colleague Letters Unit

  • Dear Colleague Letter announcing new address for TPD assignments:

    • U.S. Department of Education

      Conditional Disability Discharge

      6201 Interstate 30

      Greenville, TX 75402

  • Dear Colleague Letter announcing credit bureau reporting for TPD Discharge Assignments

  • Dear Colleague Letter announcing new TPD Forms



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