Department Issues Guidance on Ensuring Continued Access to Student Loans Act
The U.S. Department of Education published Dear Colleague Letter GEN-08-08 to provide additional clarification and guidance on the provisions of the recently enacted Ensuring Continued Access to Student Loans Act of 2008.
Additionally, the USA Funds® Web site provides a matrix summarizing the Federal Family Education Loan Program provisions of the Ensuring Continued Access to Student Loans Act, updated to reflect the information included in the Dear Colleague Letter. For more information, contact USA Funds’ policy advisers.
The Dear Colleague Letter addresses key topics of the law, including the following:
The U.S. secretary of education’s authority to purchase FFELP loans.
Lenders of last resort.
Increased annual loan limits.
Loan limits for preparatory coursework.
Increased aggregate loan limits.
Temporary change in “adverse credit” definition.
PLUS loan grace period.
Capitalizing interest on PLUS loans.
Changes to ACG and National SMART Grant programs.
The U.S. secretary of education’s authority to purchase FFELP loans. The letter explains the purchase price for Stafford and PLUS loans made under the FFELP. (ED will not purchase consolidation loans.) The Department also has the authority to purchase a participation interest in such loans. The letter reiterates the administration’s commitment to a strong FFELP and emphasizes that the loan purchase parameters are temporary measures.
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Lenders of last resort. The letter reiterates the provisions of the Ensuring Continued Access to Student Loans Act that were effective May 7, 2009:
- LLR lenders will make Stafford and PLUS loans.
- Loans must be made with terms that charge the maximum permissible interest rate and without reduction in loan fees.
- Entire schools may be designated as LLR schools rather than having the LLR designation made on a student-by-student basis.
- LLR lenders may not market LLR loans and may not violate inducement prohibitions already in place for other FFELP lenders.
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Increased annual loan limits. The letter provides a triggering event and effective date for the new, higher unsubsidized Stafford loan limits. The increased annual loan limit (increased by $2,000 for most undergraduate borrowers) is effective for loans with first disbursements on or after July 1, 2008, for loan periods that end on or after that date.
The letter also clarifies that dependent, undergraduate students whose parents are unable to obtain a parent PLUS loan are not eligible for the new $2,000 increase in annual unsubsidized Stafford loan amounts and the $6,000 or $7,000 additional unsubsidized Stafford annual loan limit amount simultaneously. For schools that already have assembled award packages for the 2008-2009 academic year, the school can either repackage the award amounts to include the new loan limits, or notify the student that the student may be eligible for additional unsubsidized loan amounts.
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Loan limits for preparatory coursework. The letter clarifies that the statute’s intent is not to change the annual loan limit for a student taking coursework in preparation for enrollment in an undergraduate program. Loans made for these students still may not exceed $2,625 per year. The letter also clarifies that the annual loan limit for preparatory coursework for enrollment in a graduate or professional program, or in a teacher certification program, remains at $7,000.
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Increased aggregate loan limits. The new law increases aggregate loan limits for undergraduate students but does not increase the amount of subsidized Stafford funds available to those students.
- Dependent undergraduate students may borrow up to $31,000 in Stafford loan funds with no more than $23,000 of that sum being subsidized Stafford loan funds.
- Independent undergraduate students (and dependent students whose parents are unable to borrow PLUS loan funds) may borrow up to a total of $57,500 in Stafford funds. No more than $23,000 of that amount may be in subsidized Stafford funds.
- Graduate student aggregate loan limits remain unchanged at $138,500, no more than $65,500 of which may be in subsidized Stafford funds.
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Temporary change in “adverse credit” definition. For the period Jan. 1, 2007, through Dec. 31, 2009, a lender may consider a PLUS applicant to not have adverse credit if the applicant’s credit reflects each of the following:
- Has been not more than 180 days delinquent on mortgage payments.
- Has been not more than 180 days delinquent on medical bills for the applicant or the applicant’s family.
- Has not been or is not more than 89 days delinquent on the repayment of any other debt.
The letter encourages lenders to re-examine the PLUS loan eligibility of applicants who have been denied PLUS loans based on established regulatory criteria to determine if these new criteria would make them eligible for PLUS loan funds.
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PLUS loan grace period. For parent PLUS loans with first disbursement dates on or after July 1, 2008, the parent may choose to enter repayment according to existing repayment rules (with a first payment due no more than 60 days following the date on which the loan is fully disbursed) or may choose to defer repayment until six months after the date on which the dependent student for whom that loan was obtained ceases at least half-time enrollment.
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Capitalizing interest on PLUS loans. If the parent chooses to enter repayment immediately, the lender must capitalize interest that accrues between the date of disbursement and the 60th day after the loan is fully disbursed, unless that interest is otherwise paid. If the parent chooses to defer the start of repayment until six months after the dependent student ceases enrollment, the parent may choose to pay accruing interest either monthly or quarterly, or the lender may capitalize that interest no more frequently than quarterly. For other periods of deferment, the parent borrower may choose to pay accruing interest either monthly or quarterly, or the lender may capitalize the interest no more frequently than quarterly. These provisions are effective for parent PLUS loans first disbursed on or after July 1, 2008.
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Changes to ACG and National SMART Grant programs. The letter provides a summary of and clarification regarding the Academic Competitiveness Grant and National Science and Mathematics Access to Retain Talent Grant programs. Schools that are determining student eligibility and delivering grant funds under these programs are encouraged to carefully study the revised parameters.
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You will need Adobe Reader to access the Dear Colleague Letter and matrix from the USA Funds Web site.