The U.S. Department of Education published Final Rules on Federal Student Loan Issues and General and Non-Loan Programmatic Issues in the October 29, 2009 Federal Register. Although these regulations have an effective date of July 1, 2010, the Secretary of Education has determined that certain regulations may be implemented on or after November 1, 2009 at the discretion of the lender, guaranty agency, loan servicer or institution.

These Final Rules incorporate changes necessary to implement provisions of the Higher Education Opportunity Act (HEOA) of 2008, and also incorporate certain changes made to the Higher Education Act (HEA) by the Technical Amendments to the Higher Education Act of 2009 along with the Ensuring Continued Access to Student Loans Act (ECASLA) of 2008. Also these final rules make a number of minor technical corrections and conforming changes.

Since there were so many changes in the regulatory packages published on October 29, 2009, this announcement only attempts to summarize the most important changes. Please review the final rules and attend workshops or Webinars to receive more details on these changes and how to implement them.

Questions regarding this guidance should be directed to the Office of Regulatory Compliance at 1-518-473-3986; toll free at 1-866-431-HESC (866-431-4372), press 6; or by e-mail at askpolicy@hesc.org


Section I. Student Loan Issues


Total and Permanent Disability - §682.200(b), §682.201(a), §682.402(c)
  • Revises the definition of totally and permanent disabled to be: 1)those unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that: a) can be expected to result in death, b) has lasted for a continuous period of not less than 60 months; or c) can be expected to last for a continuous period of not less than 60 months; or 2) a veteran that is determined by the Secretary of Veteran’s Affairs to be unemployable due to a service-connected disability.
  • Adds the definition of Substantial Gainful Activity - a level of work performed for pay or profit that involves doing significant physical or mental activities, or a combination of both.
  • Ends the three year conditional discharge process and establishes two new discharge processes, for the two groups defined above. 1) For those unable to engage in any substantial gainful activity, the Secretary will make a determination if the loan is eligible for discharge at the time the application is received and 2) For veterans determined to be unemployable, the veteran/borrower has to complete a Totally and Permanent Disability Discharge application and submit it to the lender with documentation from the Department of Veterans Affairs showing that the borrower is unemployable due to a service-connected disability. The veteran/borrower will not be required to provide any additional documentation to the lender related to the service-connected disability.

Consolidation Loans - §682.201(e), §682.205(i) & §682.206(f)
  • Permits borrowers with FFEL Consolidation loans first disbursed on or after October 1, 2008 (including Federal Consolidation Loans that repaid FFEL or Direct Loan program Loans first disbursed on or after October 1, 2008), to obtain a Direct Consolidation loan in order to receive the no accrual interest benefit for active duty service members.
  • Requires at the time a lender provides a consolidation loan application to the borrower the following be disclosed: 1) whether there will be a loss of loan benefits, 2) repercussions of including a Perkins loan in the consolidation, 3) repayment plans available, 4) options to prepay, 5) borrower benefit programs vary among lenders, 6) consequences of default and 7) process and deadline by which the borrower may cancel the consolidation loan.
  • Requires the lender, after receipt of all information necessary to make the consolidation loan and prior to making any payments to pay off the underlying loans, to notify the borrower of their option to cancel giving the borrower at least 10 days from the date of the notice for the borrower to cancel.

PLUS Loans -§682.202(b), §682.210(v) & §682.211(f)
  • Permits lenders/servicers to capitalize the unpaid interest accrued from the date of the first disbursement to the date the repayment period begins.
  • Entitles Graduate PLUS borrowers whose loans were first disbursed on or after July 1, 2008 to defer payment for the six-month period immediately following the last date of at least half –time enrollment.
  • Entitles Parent PLUS borrowers whose loans were first disbursed on or after July 1,2008 to defer payment for any period for which the student for whom the parent obtained the loan is enrolled at least half time and for the six month period immediately following the last date of at least half-time enrollment of the dependent student. And, if the parent borrower is a student, the parent borrower is entitled to defer payment the for the six month period immediately following the last date of their at least half-time enrollment.
  • Permits lenders/servicers to grant an administrative forbearance on borrower’s PLUS loans that were first disbursed before July 1, 2008 to align the repayment start date of those loans with the borrower’s PLUS loans that were taken out on or after July 1, 2008 (may be implemented on or after November 1, 2009).

Servicemembers Civil Relief Act - §682.202
  • Limits the annual interest rate on any FFELP or Direct loan to 6% for the duration of the borrower’s active duty military service. This is effective as of August 14, 2008 for loans made prior to the borrower entering active duty status, and requires the receipt of a written request from the borrower along with a copy of the borrower’s military orders.

Deferments - §682.210 (a) & §682.210(c)
  • Requires the lender to notify unsubsidized loan borrowers, before the deferment is granted, of the option to pay the accruing interest or cancel the deferment and continue paying on the loan. This information may be provided at or prior to the time the deferment is granted.
  • Adds a new condition for a lender to grant an in-school deferment - when the lender confirms a borrower’s half-time enrollment status through the use of NSLDS if requested to do so by the school the borrower is attending.

Income-Based Repayment (IBR) - §682.215(a), §682.215(b)
  • Revises the definitions for Partial Financial Hardship (PFH). For those married or single borrowers filing individual federal tax returns, when determining the borrower’s PFH, the lender /servicer must re-calculate the borrower’s annual amount due on their IBR-eligible student loans, based on a standard, 10-year schedule and using the greater of the outstanding principal and interest at the time the borrower first entered repayment, or the outstanding principal and interest at the time the borrower requested IBR. For those married borrowers filing joint federal tax returns with their spouses, when determining the borrower’s PFH, the lender /servicer must recalculate the borrower’s annual amount due on their IBR –eligible student loans the same as for those filing individual federal tax returns however, if the spouse also has IBR – eligible loans, the above re-calculation must be performed on those loans as well, and the two re-calculated amounts must be added together. This total must then be used to determine each spouse’s eligibility for PFH. This means each spouse will have a greater opportunity to qualify.
  • Provides that in cases where both the borrower and their spouse have IBR-eligible loans and have filed a joint federal tax return, lenders/servicers must determine each spouse’s PFH payment amount by calculating that spouse’s percentage of the couple’s total IBR-eligible loan debt and multiplying that percentage by the combined PFH payment amount. If either spouse has IBR-eligible loans with multiple holders, each lender/servicer of those loans must further pro-rate the spouse’s PFH payment amount by calculating each loan holder’s percentage of the spouse’s outstanding IBR-eligible principal balance , and multiplying that percentage by the PFH amount attributable to that spouse.

Teacher Loan Forgiveness - §682.216(a), §682.216(b), & §682.216(c)
  • Clarifies that for those teachers working in elementary or secondary schools, at least one of the 5 qualifying teaching years must have been after the 1997-1998 academic year, whereas for those teachers working at an educational service agency the 5 qualifying teaching years must have been after the 2007-2008 academic year.
  • Defines an Educational Service Agency as a regional public multiservice agency authorized by State statute to develop, manage, and provide services or programs to local educational agencies, as defined in section 9101 of the elementary and secondary education Act of 1965, as amended.
  • Incorporates into regulations that an Educational Service Agency is an acceptable place of employment for teachers, as long as all existing criteria are met for teacher seeking forgiveness.
  • Clarifies that a borrower may not receive forgiveness for the same qualifying teaching service if the borrower has already received a benefit under: AmeriCorps Forgiveness; Public Service Loan Forgiveness; or National Need Forgiveness.

Rehabilitation Eligibility and Consumer Credit Reporting Requirements - §682.405(a), §682.405(b)
  • Limits the number of times a loan can be rehabilitated to once for defaulted FFEL loans rehabilitated on or after August 14, 2008.
  • Clarifies that when determining reasonable and affordable rehabilitation payments, guaranty agencies and their agents, must comply with current regulation requirements as outlined in §682.405(b)(1)(iii).
  • Requires that prior holders of rehabilitated loans request that any consumer reporting agency, to which the default claim payment or other equivalent record was reported , remove such record from the borrower’s credit history. This must be completed within 30 days of receiving notification from the guaranty agency of the rehabilitation.

Prohibited Inducements- §682.200(b)
  • Incorporates new prohibited and permissible activities, which includes lenders performing in-person entrance and exit counseling.
  • Clarifies that lenders may provide “technical” assistance to schools that is comparable to the technical assistance that the Secretary provides to Direct Loan Schools.

Lender Disclosure Requirements- §682.205(a), §682.205(b), §682.205(c), §682.205(d), & §682.205(j)
  • Modifies and adds items to the Initial, Prior to Repayment, During Repayment, and Address found on skips Disclosures.
  • Adds three new Disclosures: During Repayment, Borrower Having Difficulty and Borrowers 60 Days Delinquent.

Loan Transfers, Sales or Assignments - §682.208(e)
  • Adds three new items of information that need to be provided to a borrower by both the assignor and the assignee of the loan, either jointly or separately, if the assignment or transfer of ownership of any FFELP loan will result in a change in the identity of the party to whom the borrower must send subsequent payments. They are: 1) the effective date of the assignment or transfer of the loan; 2) the date, if applicable, on which the current loan servicer will stop accepting payments; and 3) the date on which the new loan servicer will begin accepting payments.

Forbearance and Borrower Contact - §682.211(e)
  • Requires a lender, at the time of granting a borrower or endorser a forbearance, to provide the borrower or endorser with information to assist in understanding the impact of capitalization of interest on the loan principal and total interest to be paid over the life of the loan.
  • Requires the lender, at least once very 180 days during the period of forbearance, to contact the borrower or endorser and provide additional information.

School as Lender (SAL) and Eligible Lender Trustee (ELT) Audit Requirements - §682.305 (c) & §682.601(a)
  • Require a SAL, or an ELT on behalf of a school or school –affiliated organization for the purpose of originating loans, submit an annual compliance audit to the Department regardless of the dollar volume of loans originated.
  • Requires that the audits include a determination that all the proceeds from special allowance payments, interest subsidies received from the Department, and any proceeds from the sale or other disposition of the loans originated by the SAL or ELT for need-based grants, and that those funds supplemented, but did not supplant, other Federal or non-federal funds otherwise available to the school to make need-based grants to its students.
  • Requires that the audits must determine that no more than a reasonable portion of the payments and proceeds from the loans were used for direct administrative expenses in accordance with §682.601(b).

Nationwide Consumer Reporting Agencies - §682.200(b)
  • Removes the definition of “national credit bureau” throughout regulations and replaces it with the definition of “nationwide consumer reporting agency”.
  • Adds the definition of nationwide reporting agency as a consumer reporting agency as defined in 15 U.S.C. 1681a of the Fair Credit Reporting Act.


Section II General and Non-Loan Programmatic Issues


Readmission Requirements for Servicemembers - §668.18 (New Section)
  • Requires institutions to among other things promptly readmit a servicemember with the same academic status as the student had when the student was last admitted to the institution and is required to make reasonable efforts to help the student become prepared or to enable the student to complete the program.
  • Requires a servicemember who wants to be eligible for readmission: 1)to give advance written or verbal notice of service to the appropriate official at the institution (an appropriate officer of the Armed Forces or official of the Department of Defense can also give this notice); 2)not to be absent due to service in the uniformed services for a cumulative length not to exceed five years and 3) to submit in writing or verbally his/her intent to reenroll to an office designated by the institution.




Date posted: 11/9/09