Lenders and Schools


February 21, 2006


Federal Default Fee Effective Date

To assure that your Rules remain current, please record this document on your Bulletin index and retain it with your manual.

The Louisiana Office of Student Financial Assistance (LOSFA) previously announced that the fee charged for guaranteeing Federal Family Education Loans (FFEL) would increase on April 1, 2006 from .5% to 1%. In light of the recent passage of the Higher Education Reconciliation Act of 2005 (S.1932), LOSFA is changing the effective date of the fee increase to coincide with that designated in the Act.

Effective with loans guaranteed on or after July 1, 2006, a 1% federal default fee (formerly the guarantee fee) will be deducted from the borrower’s loan proceeds and remitted to the guarantor.

For students using Campus Federal Credit Union as their lender, this fee will be paid by the lender and will not be deducted from disbursements. Campus Federal Credit Union has agreed to pay the federal default fee on behalf of its student borrowers. LOSFA encourages other lenders to offer the same benefit to their student borrowers.

The applicable provision of the Higher Education Reconciliation Act of 2005, Sec. 428(b)(1)(H), is cited below:

ii. for loans for which the date of guarantee of principal is on or after July 1, 2006, for the collection, and the deposit into the Federal Student Loan Reserve Fund under section 422A of a Federal default fee of an amount equal to 1.0 percent of the principal amount of the loan, which fee shall be collected either by deduction from the proceeds of the loan of by payment from other non-Federal sources, and ensures that the proceeds of the Federal default fee will not be used for incentive payments to lenders.”

The Federal Student Loan Reserve Fund is maintained by guarantors to reimburse lenders for loans that default; therefore, students are paying for the insurance that allows them to borrow at competitive rates without having to be creditworthy.

For additional information, please contact LOSFA at (800) 259-5626, Ext. 1012 or e-mail custserv@osfa.state.la.us.