To assure that your Common Manual remains current, please record this document on your LPM/LPB index and retain it in Appendix E of your manual.

The nation’s guarantors provide the following summaries to inform schools, lenders and servicers of the latest Common Manual policy changes. These changes will appear in the manual’s next annual update. These changes will also be incorporated into the June 2006 Integrated Common Manual. The Integrated Common Manual is available on several guarantor Web sites, and it is also available on NCHELP’s Web site at www.NCHELP.org in the e-library. Please carefully note the effective date of each policy change.

 Consolidation Loan Eligibility for Married Couples
The Common Manual has been revised to comply with statutory changes derived from the Higher Education Reconciliation Act of 2005 by eliminating the option for a married couple to consolidate their eligible loans jointly.

Disbursement Rules
The Common Manual has been updated to include the revised disbursement requirements derived from the HERA, as follows:

• The lender, at the request of a student enrolled in a study-abroad program that is approved for credit by the home institution, must disburse loan funds directly to the student or pursuant to an authorized power of attorney, only after the student's enrollment is verified by the lender or the guarantor. Loan disbursement may be made directly to a student enrolled in a foreign school at the school's request after the student's enrollment is verified by the lender or guarantor. Students enrolled in foreign schools may not execute a power of attorney for the purpose of endorsing their FFELP loan disbursement.
  
• Foreign schools are no longer automatically exempt from the delayed delivery and multiple disbursement requirements but may be exempted based on low cohort default rates.
  
• The delayed delivery requirement and the single-term multiple disbursement requirement will be waived for schools that have a cohort default rate of less than 10 percent for each of the three most recent fiscal years for which data are available.
  
  

Student Eligibility
The Common Manual has been updated to state that a student who has been convicted of a state or federal drug-related offense that occurred while the student was enrolled in school and receiving Title IV aid is not eligible for Title IV funds.

Lender Disbursement Through an Escrow Agent
The Common Manual has been revised with statutory changes derived from the Higher Education Reconciliation Act of 2005. Revised policy requires a lender that disburses loan proceeds through an escrow agent to require the escrow agent to disburse the loan proceeds no later than 10 days after the agent receives the proceeds from the lender.

When Federal Interest Benefits Will Be Paid
As a result of statutory changes derived from the Higher Education Reconciliation Act of 2005, the Common Manual has been revised to state that if a loan is disbursed through an escrow agent, the lender may begin accrual of interest benefits no earlier than three days before the date of the first disbursement of the loan. For these purposes, disbursement means disbursement to the school or direct disbursement to the borrower.

Reduced Claim Payment Rate on Default Claims
The Common Manual has been amended to comply with statutory changes that reduce the amount of insurance paid on a default claim submitted by a non-exceptional performer lender or servicer on loans first disbursed on or after July 1, 2006. The guarantor will pay a default claim on such a loan at a rate of 97% of outstanding principal and eligible interest.

The Common Manual also has been amended to comply with statutory changes that reduce the amount of insurance paid on a default claim submitted by an exceptional performer lender or servicer to 99% of outstanding principal and eligible interest on default claims submitted on or after July 1, 2006. The guarantor will pay a default claim submitted by an exceptional performer lender or servicer prior to July 1, 2006, at the previous rate of 100% of outstanding principal and eligible interest.

Rehabilitation of Defaulted Loans
The Common Manual has been updated to reflect that a borrower is eligible to rehabilitate a defaulted loan after making nine full monthly payments that are received by the guarantor or its contracted vendor within 20 days of the due date during a period of 10 consecutive months.

School as Lender Changes
A school must have been eligible to be a school lender as of February 7, 2006, and must have made a loan(s) on or before April 1, 2006, to participate as a lender in the Federal Family Education Loan Program (FFELP) on or after July 1, 2006. The Common Manual has been updated to include the revised school-as-lender criteria derived from the Higher Education Reconciliation Act (HERA) of 2005, as follows:

• The HERA revises the requirement that the school not make loans to more than 50% of its undergraduate students by limiting lending to graduate and professional students.
  
• The HERA revises the requirement The HERA eliminates the requirement that the school not make a loan to an undergraduate student unless the student provides evidence that he or she was denied a loan by a commercial lender.

Schools are not permitted to make loans to undergraduate students under the new provisions, so limitations on undergraduate lending are no longer necessary.

The following rules apply to schools acting as lenders in the FFELP on or after July 1, 2006:

• The school must not be a home-study school.
  
• The school may make subsidized and unsubsidized Stafford loans only to its graduate and professional students.
  
• The school may not make PLUS loans or Consolidation loans.
  
• The school is permitted to make loans only to its graduate and professional students.
  
• The school must offer origination fees or interest rates, or both, that are less than the statutory maximums for those fees or rates.
  
• The school must use the proceeds from its interest benefits and special allowance payments from the Department and from interest payments from its borrowers, as well as the proceeds from the sale or other disposition of its loans, for need-based grant programs, except for reimbursement of reasonable, direct administrative expenses. The school must ensure that the proceeds from the FFELP loan portfolio are used to supplement the non-federal grant funding sources rather than substitute for funds from those other sources.
  
• The school must not have a cohort default rate that exceeds 10% for each of the two most recent fiscal years—unless it has received a waiver on this restriction from the Department.
  
• The school must award any contract for financing, servicing, or administration of its FFELP loans on a competitive basis.
  
• The school must submit to the Department an annual lender compliance audit for any year in which the school engages in activities as an eligible lender. This requirement applies regardless of the size of the school’s loan portfolio or annual loan volume.
  

In addition, a correction to previous policy removes the requirement that the school separate its lending function from other school functions and that the school employ at least one person whose responsibilities are limited to the lending function. The requirement is revised to require that the school employ one person whose responsibilities are limited to the administration of financial aid programs for students attending that school.

Teacher Loan Forgiveness Eligibility
The Common Manual has been revised to reinstate the previous increased teacher loan forgiveness amounts of up to $17,500 for teachers in certain specialties and also reinstates the additional eligibility criteria that were imposed by previous legislation.

Teacher Loan Forgiveness Eligibility
The Common Manual has been revised to state that a teacher who is employed in a nonprofit private school and who is exempt from state certification requirements may have such employment qualify for loan forgiveness if the teacher can demonstrate rigorous subject knowledge and skills by taking competency tests in the applicable grade levels and subject areas. The competency tests must be recognized by five or more states for the purpose of fulfilling the highly qualified teacher requirements, and the score achieved by a teacher on each test must equal or exceed the average passing score of those five states. If a nonprofit private school teacher is subject to state certification, the teacher is not required to further demonstrate the knowledge and skills noted in this paragraph or to take additional competency tests.

Change in Stafford Loan Interest Rate
The Common Manual has been amended to comply with current statutory language that requires loans first disbursed on or after July 1, 2006, be a fixed interest rate of 6.8%, as a result of legislative changes reflected in Public Law 107-139, enacted in February 2002.

Federal Consolidation Loan Borrower Eligibility Criteria
The Common Manual has been corrected to clarify that in order to qualify for a Federal Consolidation loan, a borrower must certify that he or she does not have another Federal Consolidation loan or Direct Consolidation loan application pending.

Deferment Eligibility Chart
The Deferment Eligibility Chart (Figure 11-1) has been revised by removing the bullets that indicate that for PLUS loans made before 08/15/83 and before 07/01/87, a PLUS loan borrower who is seeking a deferment based on the status of the dependent student for whom the loan was obtained, qualifies for an in-school deferment if the student is attending school full time or half time.