Higher Education Reconciliation Act of 2005

Higher Education Reconciliation Act of 2005 Title VIII of the Deficit Reduction Act of 2005 Items Pertaining to Institutions and Borrowers NHHEAF Networks Organizations Training April 25, 2006 Craig Stevens Regulatory Compliance Specialist cstevens@gsmr.org NOTE: This document is for general reference purposes only. Readers should refer to the detail of the Higher Education Reconciliation Act of 2005 (S. 1932), and the corresponding ED Dear Colleague Letter (GEN-06-02 & FP-06-01), for official guidance.

H.E.R.A. Removal of Early Repayment Option HEA §428(b)(7)(A) Higher Education Reconciliation Act of 2005 Borrowers are no longer allowed to request early entry into repayment from their lenders. Conversion to repayment is defined as no less than six months and one day after ceasing to become half-time. (Title VIII of the Deficit Reduction Act of 2005) This provision applies to all requests for early entry into repayment received on or after July 1, 2006. Any request received after July 1, 2006 for early entry into repayment must be denied.

H.E.R.A. Termination of Eligibility for FFEL and Direct Consolidation Loans HEA §428C(a)(3)(B) Higher Education Reconciliation Act of 2005 Borrowers who obtain a consolidation loan in either FFELP or Direct Consolidation Programs may not obtain a subsequent consolidation loan unless they meet a certain criteria. Included language also adds a provision to the borrower eligibility criteria that allows a FFELP borrower with no Direct Loans to consolidate with the Direct Loan Program for the purposes of obtaining an income-contingent repayment plan, so long as the loan has been submitted to the Guaranty Agency for default aversion. (Title VIII of the Deficit Reduction Act of 2005) This change is effective for consolidation applications received on or after July 1, 2006.

H.E.R.A. Removal of Joint Consolidation Loans HEA §428C(a)(3)(C) Higher Education Reconciliation Act of 2005 Married borrowers will no longer be allowed to jointly consolidate their FFELP or Direct Loans into one single consolidation loan. (Title VIII of the Deficit Reduction Act of 2005) This change is effective for any joint consolidation applications received on or after July 1, 2006.

H.E.R.A. FFELP Borrower Access to the Direct Consolidation Program HEA §428C(b)(5) Higher Education Reconciliation Act of 2005 If a FFELP borrower is denied a FFELP consolidation loan, or is unable to obtain a FFELP consolidation loan with income-sensitive repayment terms, the Secretary will offer a Direct Consolidation loan to any borrower who requests it. Also added is a provision to allow the Secretary to offer a Direct Consolidation loan to a defaulted borrower in order to resolve that default. (Title VIII of the Deficit Reduction Act of 2005) Borrowers seeking a Direct Consolidation loan will be able to apply on or after July 1, 2006.

H.E.R.A. Study Abroad Loan Disbursement HEA §428(b)(1)(N) Higher Education Reconciliation Act of 2005 A student enrolled in a study abroad program is now eligible to receive direct disbursements, instead of disbursements being done through schools. (Title VIII of the Deficit Reduction Act of 2005) Loans with loan periods beginning on or after July 1, 2006 are affected.

H.E.R.A. Multiple Disbursement Exemption HEA §428G(a)(3) Higher Education Reconciliation Act of 2005 An institution with a cohort default rate of less than 10 percent in each of the last three fiscal years for which information is available, is now eligible for an exemption of the multiple disbursement requirement. (Title VIII of the Deficit Reduction Act of 2005) These changes take effect for any disbursement made on or after February 8, 2006.

H.E.R.A. Disbursement Delay for First Time Students HEA §428G(b)(1) Higher Education Reconciliation Act of 2005 An institution with a cohort default rate of less than 10 percent in each of the last three fiscal years for which information is available, is now exempt from delaying a disbursement for a first time student for thirty days. (Title VIII of the Deficit Reduction Act of 2005) These changes take effect for any disbursement made on or after February 8, 2006.

H.E.R.A. PLUS Loan Interest Rate HEA §427A(1)(2) Higher Education Reconciliation Act of 2005 The interest rate for Federal PLUS loans increases from 7.9 percent to 8.5 percent. (Title VIII of the Deficit Reduction Act of 2005) This increase applies to all Federal PLUS loans which are first disbursed on or after July 1, 2006.

H.E.R.A. Increase in Annual Stafford Loan Limits HEA §428(b)(1)(A) and §428H Higher Education Reconciliation Act of 2005 • Annual loan limits for Stafford Loans were increased in the following amounts: • first year subsidized/unsubsidized combined limit was increased from $2,625 to $3,500 • second year subsidized/unsubsidized combined limit was increased from $3,500 to $4,500 • for graduate or professional students, additional unsubsidized loan limit was increased from $10,000 to $12,000 • for students with a baccalaureate degree who are enrolled in coursework necessary for a professional credential or state required certification for teaching at the elementary or secondary level, the additional unsubsidized loan limit has been increased from $5,000 to $7,000 (Title VIII of the Deficit Reduction Act of 2005) The increase in Annual Stafford Loan Limits will be effective for any loan certified on or after July 1, 2007.

Annual Stafford Loan Limits

H.E.R.A. PLUS loans for Graduate and Professional Students HEA §428B Higher Education Reconciliation Act of 2005 Graduate and professional students are now eligible to borrow PLUS loans up to the cost of attendance minus other financial assistance. Graduate and professional students must have applied for their annual loan maximum under the Stafford loan program before applying for a Graduate or Professional PLUS loan. (Title VIII of the Deficit Reduction Act of 2005) This program will be available to graduate and professional students for any loan that will be certified by the school on or after July 1, 2006.

H.E.R.A. College Access Initiative HEA §485D Higher Education Reconciliation Act of 2005 Guaranty agencies are now required to provide the Secretary with information to develop a Department of Education-run website. Guaranty agencies will provide information that contains links for promoting postsecondary education opportunities, programs, publications, and other services to provide students and their families with a comprehensive source for information. (Title VIII of the Deficit Reduction Act of 2005) Guaranty agencies are required to submit information by July 1, 2006 to the Secretary.

H.E.R.A. Removal of Federal Insurance Fee and Implementation of Federal Default Fee HEA §428(b)(1)(H) Higher Education Reconciliation Act of 2005 Changes made by HERA removed the optional 1 percent insurance premium and replaces it with a mandatory 1 percent Federal default fee. (Title VIII of the Deficit Reduction Act of 2005) The Federal default fee is in effect for all loans with a date of guarantee on or after July 1, 2006.

H.E.R.A. Origination Fee Reduction HEA §438(c)(2) Higher Education Reconciliation Act of 2005 The origination fee charged to Stafford Loan borrowers is being proportionally reduced annually until its elimination in July 2010. On July 1, 2006, the maximum origination fee will be reduced to 2 percent and will decrease ½ percent every year on July 1. (Title VIII of the Deficit Reduction Act of 2005) Fees will reduced beginning with loans with a first disbursement date on or after July 1, 2006.

Origination Fee Reduction Beginning with loans with a first disbursement date of 7/1/06, the reduction schedule goes as follows: • First disbursement before 7/1/07, maximum origination fee is 2 percent; • First disbursement on or after 7/1/07 but before 7/1/08, maximum origination fee is 1.5 percent; • First disbursement on or after 7/1/08 but before 7/1/09, maximum origination fee is 1.0 percent; • First disbursement on or after 7/1/09 but before 7/1/10, maximum origination fee is 0.5 percent; • First disbursement on or after 7/1/10 the origination fee is eliminated.

H.E.R.A. Higher Education Reconciliation Act of 2005 • What Else is Coming? • HR 609 – Reauthorization • Has passed House vote, placed on Senate Calendar. • Potential Lawsuits • Questions? (Title VIII of the Deficit Reduction Act of 2005)

Higher Education Reconciliation Act of 2005