New Final Rules Posted on Loans-Lender/General Loan Issues

The U.S. Department of Education on Oct. 29 published final rules related to loans-lender/general loan issues.

The announcement is one of several recently issued regarding final rules — related primarily to statutory changes of the Higher Education Opportunity Act and the discussions of those statutory changes that were part of negotiated rulemaking in the spring and summer.

The effective date of new regulatory provisions or clarifications to statutory requirements generally is July 1, 2010. Most of the provisions themselves, however, were effective upon enactment of HEOA on Aug. 14, 2008. Participants in the Federal Family Education Loan Program were to have made a good faith effort to comply with the statute in a timely manner. 
 
The Department permits lenders to implement early — at the discretion of the lender, servicer or guarantor — the provisions related to the administrative forbearance of PLUS loans for the purpose of aligning repayment start dates.

USA Funds^®' policy advisers offer highlights of new regulations related to loans-lender/general loan issues:

Consolidation. HEOA requires the lender to provide additional information to the Consolidation loan applicant prior to making the loan. New regulations require a lender to also provide to the loan applicant information regarding the applicant's right to cancel the Consolidation loan and the deadline for that cancellation. The lender must permit the borrower no less than 10 days to respond and cancel the loan.

Income-based repayment. Lenders have revised calculations and criteria for determining the IBR eligibility of married borrowers who file joint tax returns.

Initial disclosures. A lender must include in its disclosure of fees and charges which of those fees, if any, the lender pays.

PLUS loan disclosure prior to repayment. In addition to all previously published data requirements, a lender must include in the pre-repayment PLUS loan disclosure the following information:

• The scheduled date that the in-school deferment or post-enrollment deferment will end.
• An estimated balance, including estimated interest to be capitalized as of the end date of the in-school or post-enrollment deferment, or the date of the disclosure, whichever is later.
• The amount of interest already paid, if any.

PLUS loan capitalization. A lender may capitalize unpaid interest accrued from the date of the first disbursement to the date repayment begins. Currently, regulations do not permit the lender to capitalize interest quarterly on a PLUS loan if those quarter-end dates fall between the first and last disbursements of the loan.

PLUS loan repayment alignment. The lender may use administrative forbearance to align the repayment start dates of a parent PLUS loan made before and after July 1, 2008 — some were eligible for different deferment provisions and post-enrollment deferment, and some were not — and to align repayment start dates of a single borrower’s Stafford and PLUS loans.

Rehabilitation and credit reporting. The statute requires that when a borrower completes loan rehabilitation, both the guarantor and any prior loan holder who has reported the loan’s default notify the national consumer reporting agencies to remove the default. New regulations impose a time frame on the prior holder’s reporting: The lender must request the appropriate changes regarding the rehabilitation within 30 days of receiving notification from the guarantor that a borrower’s loan is rehabilitated.

Interest charges for military service members. The statute provides an interest rate cap for loans obtained prior to a service member’s first day of military service. New regulations clarify that a lender is prohibited from charging the borrower any penalty equivalent to the amount of interest that the lender would have received on the loan at its statutory interest rate.

Total and permanent disability discharge —Veterans Affairs. New regulations clarify various aspects of the new TPD provisions for borrowers who have been deemed unemployable due to a service-related injury or illness under certain Veterans Affairs provisions.

TPD discharge — non-VA. New regulations amend the definitions of key words such as “substantial gainful activity” and “totally and permanently disabled” for purposes of granting TPD effective July 1, 2010. New provisions also will require some borrowers to resume payment on some previously discharged loans if those loans were discharged because of the borrower’s disability and the borrower wishes to obtain new loans. Regulations also remove all references to the “initial determination” of the borrower’s discharge eligibility.