On August 14, 2008, President Bush signed the Higher Education Opportunity Act (HEOA) of 2008 to reauthorize the Higher Education Act for another five years. The following are highlights of the bill as it relates to the Federal Family Education Loan (FFEL) Program.

Section 1: Provisions Effective August 14, 2008


Code of Conduct
    • Requires institutions of higher education to establish and follow a Code of Conduct with respect to student loans. This is similar to the requirements enacted per the Student Lending Accountability, Transparency and Enforcement (SLATE) Act of 2007.

Preferred Lender List
    • Establishes preferred lender list requirements that closely mirror those found in the November 1, 2007, final rules. HESC will be providing a fact sheet to assist schools on maintaining a list compliant with all Federal and State requirements.

Prohibited Inducements
    • Revises the prohibited inducement provisions for lenders as follows:
      1. Prohibits lenders from offering schools or school officials payments for referrals or finder’s fees, stock, prizes, travel, entertainment expenses, tuition payment or reimbursement, or equipment at below market value, in order to secure loan applications.
      2. Prohibits unsolicited mailings of loan applications by electronic means.
      3. Prohibits a consulting arrangement or contract with a financial aid office employee or other employee who has responsibilities for financial aid.
      4. Prohibits compensating an employee to participate on an advisory council (though reasonable expenses may be reimbursed).
      5. Prohibits performance of , or payment of another person to perform, any function that a school is required to perform (other than required exit counseling).
      6. Prohibits paying a student to secure applications unless the student is also employed by the lender for other purposes.

Lender
    • Clarifies that lenders may provide technical assistance comparable to the kinds of technical assistance provided to schools by the Department.

    • Allows lenders, if requested by the school, to grant an in-school deferment based on information found in NSLDS.

    • Requires that student loans be reported to consumer reporting agencies, including an indication that the loan is an education loan and information on the repayment status of the loan.

Lender Disclosures
    • Requires the lender, at the time the lender grants a deferment on an unsubsidized Stafford loan, to disclose to a borrower the effects of capitalization.

    • Requires the lender to disclose, at the time of granting forbearance, information on the capitalization of interest and its effects on loan balances.

    • Requires that at least once every 180 days during the forbearance, the lender must disclose to the borrower:
        • the amount of unpaid principal and the amount of interest that has accrued since the last statement;
        • the fact that interest will accrue on the loan during the forbearance;
        • the amount of interest that will be capitalized and the date on which capitalization will occur;
        • the option of the borrower to pay the interest that has accrued before the interest is capitalized; and
        • the borrower’s option to discontinue the forbearance.

    • Upon borrower approval of a loan, the lender must send a separate notification in simple terms explaining the rights and responsibilities, including a statement of the consequences of defaulting on the loan, and a statement that a defaulted borrower will be reported to a consumer reporting agency.

    • The following items are added to the list of disclosures that lenders must make before disbursement:
        1. For unsubsidized Stafford and Grad PLUS loans, an explanation that the borrower has the option to pay interest while in school or the interest will be capitalized;
        2. For parent PLUS borrowers, an explanation that:
          1. the parent may be eligible for a deferment if the parent is enrolled as a student, and
          2. the parent has the option to defer repayment while the student is enrolled and will happen if interest is not paid during such period;
        3. A description of the types of repayment plans available;
        4. A statement summarizing circumstances in which repayment of the loan or interest that accrues on the loan may be deferred;
        5. A statement of the circumstances in which a borrower may obtain a forbearance;
        6. A description of the options available for forgiveness; and
        7. An explanation of the costs the borrower may incur during repayment (e.g. late fees and collection costs).

    • The following items are added to the list of disclosures that lenders must make before repayment:
        1. The scheduled date repayment is to begin or a deferment is to end;
        2. Information on loan repayment benefits, including any limitation, reasons a borrower may lose eligibility, examples of the impact on length and amount of repayment, and whether and how the borrower can regain eligibility;
        3. A description of the repayment plans available and a statement that the borrower can change plans;
        4. The amount of interest already paid;
        5. The projected total of interest the borrower will pay ;
        6. The nature of any fees that can be charged during repayment;
        7. A description of the options by which a borrower can avoid or be removed from default; and
        8. Resources where the borrower can receive advice and assistance.

    • PLUS and Unsubsidized loans are exempt from the requirement that lenders provide a disclosure of monthly payment amounts if the lender provides the borrower with a sample projection of monthly repayment amounts assuming different levels of borrowing and interest accruals resulting from the capitalization of interest, and if the lender includes the cost to the student of capitalizing principal and interest, and of capitalizing interest only.


PLUS Loans
    • Clarifies that the ability to request repayment to begin 6 months after the date the student whom the PLUS loan is benefiting graduates or drops below half time applies to both parent and graduate student borrowers. During this period before repayment begins, interest will accrue on the loan and can be paid by the borrower either monthly or quarterly or be capitalized no more frequently than quarterly.

Consolidation Loans
    • Requires consolidation lenders to disclose to prospective borrowers whether any benefits would be lost by consolidating, including the loss of benefits associated with Direct or Perkins loans.

Additional Unsubsidized Stafford Loans
    • Clarifies that an independent student that has a baccalaureate degree and who is enrolled in preparatory coursework for entry into a graduate program, or coursework necessary for state certification as a teacher in an elementary or secondary school, is eligible for $7,000 in additional unsubsidized Stafford loans first disbursed on or after July 1, 2008.

Loan Forgiveness Programs
    • Extends teacher loan forgiveness eligibility to teachers employed by an educational service agency. HESC will notify program participants what constitutes such an agency.
    • Authorizes, on a first-come, first-served basis and subject to appropriations, loan forgiveness for students that are employed full-time, in an area of national need. Loan forgiveness may be up to $10,000 and double benefits will be prohibited.
    • Authorizes, on a first-come, first-served basis and subject to appropriations, loan forgiveness for students who enter and continue employment as civil legal assistance attorneys. Loan forgiveness may be up to $40,000.

Disability Discharge
    • Allows a borrower who receives a permanent disability rating due to a service connected condition from the Veterans Administration to be considered permanently and totally disabled for the purposes of discharging a loan with no additional documentation required.

Service Members
    • Allows eligible service members to request that the rate on their Stafford loans be reduced to 6%.
    • Allows certain service members to consolidate into the Direct Loan Program for the purpose of using the no accrual of interest benefit.


Section 2: Provisions Effective July 1, 2009


Repayment Plans
    • Income-based Repayment Plan is added to the list of repayment plans from which a borrower may choose.

Lender Disclosures
    • For loans with the first payment due on or after July 1, 2009, a new set of disclosures must be made during repayment, with each bill or statement that corresponds to each installment time period, including:
        1. the original principal amount;
        2. current balance;
        3. interest rate;
        4. the total amount already paid in interest, fees and against the balance;
        5. each fee charged for the most recent installment period;
        6. the date the borrower needs to make a payment in order to avoid additional fees and the amount of such payment and fees;
        7. the lender’s or loan servicer’s address and toll-free phone # for payment and billing error purposes; and
        8. a list of the names of the repayment plans available, a link to the Department’s Web site for descriptions, and a reminder that the borrower can change plans.

    • For loans with the first payment due on or after July 1, 2009, the lender must provide a borrower who has notified the lender that he or she is having difficulty making payments with a description of repayment plans available and how to change plans, a description of how to obtain a forbearance and the expected cost of the forbearance, and a description of the options available to avoid default.

    • For loans that become delinquent on or after July 1, 2009, a lender shall provide a borrower who is 60 days delinquent with notice of:
        1. the date on which the loan will default if no payment is made;
        2. the minimum payment the borrower must make to avoid default;
        3. options available to avoid default;
        4. discharge options; and
        5. resources where the borrower can receive advice and assistance.


Section 3: Provisions Effective July 1, 2010


Disability Discharge
    • The criteria for disability discharge is revised to provide for a discharge when there’s a physical or mental impairment, that prevents the borrower from engaging in substantial gainful activity, that can be expected to result in death, has lasted for at least 60 months or can be expected to last for 60 months. The Secretary may develop safeguards to prevent fraud and abuse.

Estimated Financial Assistance
    • The definition of a student’s estimated financial assistance is revised to exclude Veterans’ education benefits


Section 4: Provisions Effective October 1, 2011


Exception to Multiple Disbursement Rule
    • The cohort default rate used to determine exceptions to multiple disbursements of a loan;1) where the period of enrollment is not more than one semester, one trimester, one quarter, or four months and 2) for the delayed disbursement of loans for first year students is raised from 10% to 15%.


HESC’s Office of Regulatory Compliance will be working with other industry partners and will share the results of the analysis of this bill with our program participants. If you have any questions, please contact this office at (518) 473-3986 or at:askpolicy@hesc.org



Date posted: 8/14/08