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Lenders/ Guarantors/Servicers – Who Does What and When?. Presented by: Gretchen Bonfardine Professional Services Consultant. What is a lender? What is a guarantor? What is a servicer? What does each do – from certification through repayment. Objectives .

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Presentation Transcript
slide1

Lenders/ Guarantors/Servicers – Who Does What and When?

Presented by: Gretchen Bonfardine

Professional Services Consultant

objectives
What is a lender?

What is a guarantor?

What is a servicer?

What does each do – from certification through repayment

Objectives
slide3
Which entity provides the funds?

Lender

Guarantor

Servicer

Which entity manages deferments and forbearances?

Lender

Guarantor

Servicer

Quiz
slide4
Which entity is responsible for default prevention activities?

Lender

Guarantor

Servicer

Which entity has federal oversight over the FFEL program?

Lender

Guarantor

Servicer

Quiz
slide5
Who is responsible for contacting borrowers during the grace period to provide repayment options?

Lender

Guarantor

Servicer

Quiz
players
Players
  • Lender / Servicer
  • Lender must administer its loan portfolio in compliance with the following:
    • The Higher Education Act of 1965; Federal regulations; Federal directives, including Department guidance
    • such as Dear Colleague Letters/Dear Partner Letters; Guarantor policies, as outlined in the Common Manual; Other requirements and procedures provided by the guarantors with which the lender participates
  • Lender usually contracts these activities out to a Servicer
  • Guarantor
  • The federal oversight for the FFEL program
  • Provides insurance to the lender that if the debt management efforts don’t work, and the borrower doesn’t repay, the Guarantor will repay the loan to the lender.
  • If borrower fails to make payments and they go into ‘pre-claims’, the guarantor gets involved with due diligence activities
lender
Provides funding for loans

Manages any loan changes until the loan has been fully disbursed and passed on to the servicer

Lender
lender servicer
The following slides detail the lenders responsibilities. But most lenders contract these responsibilities out to servicers.

It is ultimately the lender’s responsibility to ensure that all requirements are upheld, but it generally does so through it’s contracts with the servicer

Lender / Servicer
lender servicer general responsibilities
(including but not limited to…)

Respond within 30 days to all inquiries from the borrower or endorser

A lender is required to keep current, complete, and accurate records foreach FFELP loan it holds. All records must be retrievable in a coherent hard copy format or in other media formats such as microform, computer file, optical disk, or CD-ROM.

Lender / Servicer – General Responsibilities
lender servicer record keeping requirements
A record of any adjustments that the lender receives to the borrower’s requested loan amount.

Copy of the signed promissory note. The original or a true and exact copy of the promissory note must be retained until the loan is paid in full or assigned to the Department.

The guarantee disclosure for each loan, with a record of any changes to the disclosure.

Evidence of disbursement

Lender / Servicer – Record Keeping Requirements
lender servicer record keeping requirements1
Documentation of the lender’s handling of any refunds issued by the student’s school.

Documentation supporting any Social Security number change.

Documentation of the date on which the student was no longer enrolled at least half time and the schools the student attended.

Notice of address changes for the borrower or references.

Documentation of all repayment terms established with the borrower, including the repayment start date and the amount and number of installments.

Lender / Servicer – Record Keeping Requirements
lender servicer record keeping requirements2
A record of all payments received, including the dates, amounts, and way in which each payment was applied to the principal, interest, and other outstanding balances on the loan.

Evidence of any deferment eligibility, including the beginning and ending dates for each.

Documentation of any forbearance granted, including the beginning and ending dates for each.

Documentation of all due diligence efforts.

A record of each communication on the loan—other than regular reports by the lender showing that an account is current—between the lender and a credit bureau.

Lender / Servicer – Record Keeping Requirements
guarantor
The federal oversight for the FFEL program

Provides insurance to the lender that if the debt management efforts don’t work, and the borrower doesn’t repay, the guarantor will repay the loan to the lender.

If borrower fails to make payments and they go into ‘pre-claims’, the guarantor gets involved with due diligence activities

Ultimately, the guarantor is responsible for default prevention activities.

What does your Guarantor do?

Do they go above and beyond their required activities?

Guarantor
guarantor general responsibilities
Provide Notice of Guarantee (NOG) to the school

Provide Disclosure Statement to the borrower

Provide default prevention programs and materials

Guarantor - General Responsibilities
servicer general responsibilities
On behalf of the lender, administer all aspects of loan repayment

This is who your borrowers will be interacting with throughout their entire repayment – it’s important to choose wisely!

How do your servicer partners compare?

Do they go over an above?

Do you know what they do?

Servicer - General Responsibilities
responsibilities throughout life of loan
Origination Period

Lender – provides funding for the loan

Guarantor – provides guarantee for the loan

Once loan is fully disbursed, servicer gets loan info from lender

Servicer tracks data (status changes, pre-payments, interest rate changes, etc.)

Responsibilities throughout life of loan
responsibilities throughout life of loan1
Interim Period

A lender must provide repayment disclosure to a borrower within a specific time frame

Stafford Loans

No more than 240 days and no less than 30 days prior to the first payment due date

Guarantors recommend 90 days

If lender receives returned mail, guarantors recommend that they immediately begin skip tracing in an effort to keep the borrower in good standing

Responsibilities throughout life of loan
responsibilities throughout life of loan2
Interim Period

A lender must provide repayment disclosure to a borrower within a time frame applicable to the borrower’s loan type.

PLUS

For a PLUS loan, the lender must disclose the repayment terms at or before the beginning of the repayment period. For PLUS loans, the repayment period begins on the date of the last disbursement. The disclosure must be sent to the borrower—even if the loan will be placed into immediate deferment.

Responsibilities throughout life of loan
responsibilities throughout life of loan3
Interim Period

It is the responsibility of the lender/servicer to be in contact with the borrower

Some guarantors will also provide debt management services / programs during this time as well

Check with your servicers and guarantors to find out what activities they do.

Can they be coordinated for best service to the student?

Can you coordinate the schools activities to supplement or support what your partners are doing?

Responsibilities throughout life of loan
responsibilities throughout life of loan4
Repayment Period

Servicer updates guarantor with all changes to the loan throughout Interim and Repayment periods

Servicer manages deferments and forbearances

If borrower fails to make payments, the Servicer proceeds with required due diligence

Responsibilities throughout life of loan
due diligence
Lender / Servicer must ensure that no gap in collection activity of greater than 45 days

1 – 15 days delinquent – at least one written notice or collection letter informing the borrower of the delinquency and urging the borrower to make payments sufficient to eliminate the delinquency

16–180 days delinquent - Make at least four diligent efforts (each consisting of one successful contact or two unsuccessful attempts) to contact the borrower by telephone. At least one diligent attempt to contact the borrower by telephone must occur on or before the 90th day of delinquency, and another must occur after that date.

Also send the borrower at least four written notices or collection letters informing the borrower of the delinquency and urging the borrower to make payments.

Due Diligence
due diligence1
181—270 Days Delinquent - The lender / servicer must engage in collection efforts that ensure that no gap in collection activity of greater than 45 days occurs through the 270th day of delinquency. These efforts must urge the borrower to make the required payments on the loan.

241 Days or More Delinquent - The lender / servicer must mail a final demand letter to the borrower anytime the loan becomes 241 days or more delinquent. The final demand letter must require the borrower to remit payment in full and warn that if the borrower defaults on the loan, the default will be reported to a national credit bureau. The lender / servicer must allow the borrower at least 30 days after the date the letter is mailed to respond to the final demand letter and to bring the loan out of default before filing a default claim on the loan.

Due Diligence
slide25

The lender / servicer must request default aversion assistance from the guarantor no earlier than the 60th day and no later than the 120th day of the borrower’s delinquency

due diligence2
271–360 Days Delinquent - The lender / servicer must file a default claim with the Guarantor no later than the 360th day of delinquency

A lender is encouraged to file a default claim on or after the 300th day of delinquency to permit the borrower the longest possible period in which to resolve the outstanding delinquency and avert default.

Due Diligence
responsibilities throughout life of loan5
Repayment Period

The lender / servicer must request default aversion assistance from the guarantor no earlier than the 60th day and no later than the 120th day of the borrower’s delinquency

When borrower makes a payment, the Servicer takes back full responsibility for administering repayment

If borrower defaults, guarantor pays the claim and continues trying to rehabilitate the borrower

The lender / servicer provides borrower with “Paid in Full” notice.

Responsibilities throughout life of loan
slide28

Questions

Divider Page Arial Italic 24 pt.

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(800) 999-9080

(617) 728-4265 F A X

(800) 999-0923 T D D

www.amsa.com

American Student Assistance®

100 Cambridge Street, Suite 1600

Boston, MA 02114