June Newsline Articles
Congress Modifies Stafford Loan Interest Rates
Congress has approved and the President has signed an interim interest rate formula for federal Stafford Loans disbursed from July 1, 1998, through September 30, 1998. The 90-day student loan interest rate formula provides the following interest calculations and rates:
Students Stafford Loan
in-school, grace and deferment 91-day Treasury bill plus 1.7 percent (= 6.86 percent)
in repayment 91-day Treasury bill plus 2.3 percent (= 7.46 percent)
Lenders Stafford Loan
in-school, grace and deferment 91-day Treasury bill plus 2.2 percent (= 7.36 percent)
in repayment 91-day Treasury bill plus 2.8 percent (= 7.96 percent)
PLUS Loan (both Students and Lenders) 91-day Treasury bill plus 3.1 percent, capped at 9 percent (= 8.26 percent)
The interim formula gives lawmakers additional time to enact an alternative to a previously scheduled July 1 change in the federal student loan interest formula based on the 1992 Higher Education Act. This interim measure provides the same Stafford Loan interest rates as a compromise formula contained in legislation reauthorizing all federal student financial aid programs. The reauthorization legislation has passed the House by an overwhelming margin. Senate action on reauthorization, however, has been pushed back until this month. This delay raised concern that an alternative student loan interest rate would not be enacted prior to July 1.
The interim action was attached to the Intermodal Surface Transportation Efficiency Act (ISTEA). The legislation does not address consolidation loan interest rates. Emergency legislation passed last year set the interest rate on consolidation loan applications received from November 13, 1997, through September 30, 1998, at the current variable rate for new federal Stafford Loans.
Lenders had expressed great concern that the interest rate as mandated by the 1992 Higher Education Act was too low, threatening their participation in the student loan industry. This threatened withdrawal may have resulted in making loans unavailable to students for higher educational purposes. The interim action and the interest rate language in the reauthorization of the Higher Education Act is a compromise allowing borrowers a lower interest rate and keeping banks and other lenders in the student loan business.
The Louisiana Office of Student Financial Assistance (LOSFA) will provide new applications to replace those that schools and lenders currently have. LOSFA will also provide to lenders a copy of the addendum to the Notice of Guarantee which lists the actual interest rate. Lenders may use the addendum to fulfill their responsibility to disclose the correct interest rate to their borrowers whose loans were guaranteed before July 1, 1998, but will not be disbursed until after July 1 and whose original Notice of Guarantee lists an incorrect rate. This addendum will be available on the LOSFA website at www.osfa.state.la.us. Notices of Guarantee for loans guaranteed on or after July 1 will carry the correct interest rate.
Public Institutions Must Provide Status Letter
On July 1, 1998, federal regulations go into effect revising rules under which public Title IV institutions maintain eligibility by submitting proof that they are public.
To maintain eligibility, an institution must provide the U.S. Department of Education with proper documentation stating that it is public and that it is not in violation of any requirements under 34 CFR 668. Proper documentation consists of a letter from the state, local, municipal, tribal or other government official whose agency has the legal authority to designate whether an institution is public. The letter must be on official letterhead and signed by the official.
The letter is a one-time submission and should be submitted as soon as possible separately from other financial statements. Letters should be submitted to: U.S. Department of Education, Institutional Participation and Oversight Service at P.O. Box 44805, LEnfant Plaza Station, Washington DC 20026-4805. Submit to U.S. Department of Education, Institutional Participation and Oversight Service, 7th and D Streets S.W., GSA Building, Room 3514, Washington DC 20407 if sending by commercial overnight delivery.
NEWS AND UPDATES
Lender changes: Whitney Bank is now participating in LOSFAs loan program under lender identification number 805076, which is serviced by USA Group. Whitney will still participate under lender number 805148, serviced by Sallie Mae. Furthermore, the Louisiana Public Facilities Authority (LPFA), which is serviced by USA Group under identification number 805113, is now available for LOSFA guarantee.
On June 1, Shawn Johnson of Campus Federal Savings and Loan moved to Whitney Bank where she will work with Linna Alcoser. Filling in for Shawn will be David Warrington.
Please note: staff members of the Loan Operations Division (including Loan Processing and Servicing, Claims, Pre-Claims and Collections Sections) will be unavailable June 25-26 as they complete their strategic planning session for 1998. Telephone calls will be answered by student workers, who will take messages as necessary, and Customer Services Division staff, who will continue to handle necessary business.
LOSFAs Customer Services Division, including members of the Program Review Section and Customer Service representatives, will be out of the office July 1-2 to conduct its annual strategic planning session. Incoming calls will continue to be answered by substitute staff during this two-day period.
The Louisiana Office of Student Financial Assistance will be closed Friday, July 3, for the Independence Day holiday.
An updated list of lenders participating in LOSFAs loan programs is available. The list includes lender name, address, phone number, identification number and the loan programs the lender participates in. The list is available both alphabetically and by servicer. Parties interested in receiving a copy should call LOSFAs Customer Service Representatives at (800) 259-5626, Ext. 1012.
A completely updated Common Manual is scheduled to be mailed to lenders July 1. The entire book has been reprinted because so many changes have occurred since the last printing. Lenders should receive their copy directly from the printer. If you haven't received your copy by August 1, please call LOSFAs Publication Section at (800) 259-5626, Ext. 1024.
Reminder: the area code for the Baton Rouge area will change from 504 to 225 in August. Both area codes may be used until April 1999, after which only 225 may be used.
START Program Changes Implemented for 1998 Enrollment Period
Open enrollment for the Student Tuition Assistance and Revenue Trust Program (START) begins July 1 and runs through November 1. Accounts may be opened at any time for newborns less than one year old. Beginning in mid-June, interested persons can check with their local libraries for Depositor Agreement Booklets or call the Customer Service Representatives at the START Saving Program office, (800) 259-5626, Ext. 1012, or (225) 922-1012.
The START Savings Program has undergone several legislative and rule changes since the close of its first annual enrollment period benefitting current and future participants.
Section 529, Internal Revenue Code (IRC), was amended by Congress in 1997, allowing the inclusion of room and board expenses in the expenses treated as Qualified Higher Education Expenses. The amendments to Section 529 have also clarified the gift tax treatment of contributions and expanded the definition of family members for purposes of rollovers and distributions. Additionally, START rule changes have been implemented to simplify the application process.
The definition of "Qualified Higher Education Expenses" has been expanded to allow the distributions of funds from a START Savings Account to pay for room and board expenses. As a result of this change, a Beneficiary will be able to receive $1,500 per year from a START Savings Account to pay for room and board. This also means that the value of the Maximum Allowable Account Balance will be increased to allow for the increased savings amount to cover the room and board expense of a Beneficiary while attending school. The START rules have been amended to allow for the savings of an additional $1,500 for each year of attendance at a postsecondary institution.
The definition of "Family Member" under section 529, IRC, has been expanded to include step-siblings and their spouses. This expands the category of persons who could qualify as the substitute Beneficiary of an account in the event one should have to be named. The definition of Account Owner remains the same and includes parent, grandparent, legal guardian or the individual claiming the Beneficiary as a dependent for federal income tax purposes and independent students. Godparents are not valid account owners, as are neither wives nor husbands attempting to open accounts for each other. Minors who wish to open accounts must be married, legally emancipated or a member of the armed forces and they must not be claimed as a dependent on anothers federal income tax return.
The gift tax treatment of contributions to a START Savings Account has been clarified. Under the new amendments to Section 529, IRC, a contribution by an Account Owner is now treated as a "completed gift." This means that an Account Owner may contribute up to $10,000 per year ($20,000 for joint gifts) without incurring any gift tax on the contribution. If the contribution exceeds this annual gift tax exclusion, Section 529 allows for a special five-year carry-forward rule which allows the Account Owner to claim the contribution over a five-year period for gift tax purposes. Account Owners making substantial lump sum contributions to their START Savings Accounts should consult with their financial adviser concerning the tax implications of their individual circumstances.
Section 529, IRC, exempts the earnings of a START Savings Account from current income taxes. The earnings are taxed to the Beneficiary upon distribution. Congress is considering legislation which will exempt the START Savings Account from all income taxes, even upon distribution, as long as the distributions are used for Qualified Higher Education Expenses. The Parent and Student Savings Account PLUS Act should be approved by the House and Senate Conference Committee sometime in mid-June and be sent to the President for signature. Once signed by the President, START Savings Accounts will be totally income tax free.
New START rules eliminate the requirement to make a minimum deposit of $10 upon submission of a START Savings Account application. The new procedure allows an Account Owner 60 days from the date the application is accepted to make the minimum $10 deposit. If the initial deposit is not received within the 60-day period, the new account will be automatically canceled.
New Account Owners are no longer required to submit proof of residency documents in order to establish an account. The new Depositors Agreement contains a certification of citizenship and state residency, and signature of the Account Owner will serve as verification of the citizenship and state residency requirements. Additional documentation supporting the certification may be requested on a case-by-case basis.
Because of some confusion in regard to the ownership rights to an account, the START rules have been changed to eliminate co-ownership. If a dispute arises as to the right to direct or receive the proceeds of an account, Louisiana property law will govern. Account ownership remains non-transferable except in the event of the death of an Account Owner. The new rule states that the individual named by the Account Owner in the event of the Account Owners death may elect to either maintain the account or close the account and distribute the proceeds to the designated Refund Recipient.
ED Provides Instructions for Form 799
The Department of Educations "Dear Colleague Letter " (98-L-205) of April 1998 provides instructions for reporting changes required by modifications to the Higher Education Act of 1965. These changes affect reporting on the Lenders Interest and Special Allowance Request and Report (ED Form 799). It also addresses how the Debt Collection Improvement Act of 1996 affects receipt of payments.
A summary of some of the issues addressed in the Dear Colleague Letter follows.
The Emergency Student Loan Consolidation Act of 1997 changed the interest rate on consolidation loans to a variable rate from the weighted average interest rate of the loans being consolidated rounded upward to the nearest whole percent. System edits related to the processing of ED Form 779 have been modified for reporting of variable rates under consolidation loans as of April 1, 1998. These modifications are retroactive for the quarter ending December 31, 1997.
A small group of 8/10 percent loans will be given a new code to more accurately calculate special allowance. The loans involved are the 8/10 percent loans made on or after July 23, 1992, and prior to July 1, 1994, to old borrowers (borrowers with outstanding debts) when they reach the 49th month of repayment.
The U.S. Treasury Departments Debt Collection Improvement Act of 1996 mandates that all recipients of federal funds must receive payments by Electronic Funds Transfer (EFT) after January 1, 1999. Forms required for EFT sign-up along with reminders were sent out with the quarterly ED Form 799 in March 1998. If any institution has not submitted the form required for EFT sign-up, it is asked to do so as soon as possible.
Lenders sending EFT payments are reminded that they must submit a cover letter detailing how the payment is to be applied. This cover letter should be transmitted by fax to the Lender Reporting Team at (202) 708-9106.
Callers may acquire information on the T-Bill rate for the current quarter, for the last four quarters and current interest rates by dialing (202) 205-0045 and following instructions. The caller may transfer directly to a specialist on the Lender Reporting Team for further information. For information via the web, EDs address is www.ed.gov. For faster access to the interest rates and T-Bill rates, the Federal Family Education Loan (FFEL) Branch can be found at www.ed.gov/offices/OPE/Professionals/sfaorg/AFMS/.
The Department of Educations customers and service providers must ensure that their computer systems are able to store, process and report date data in ways that differentiate between years before and after the year 2000. For information on EDs Year 2000 Project and guidance on how to ensure your computer system meets compliance requirements, go to the Departments Year 2000 Project web site at www.ed.gov/y2k.
LOSFA Reassures TOPS Applicants
The Louisiana Office of Student Financial Assistance (LOSFA) is in the process of qualifying 1997 and 1998 high school graduates for Louisianas new Tuition Opportunity Program for Students (TOPS), according to John W. Bell, Acting Director of the Scholarship/Grant Division of LOSFA.
In mid-May, LOSFAs Scholarship/Grant Division mailed the first in a series of certification materials to high school principals and guidance counselors throughout the state. The certification forms, used to qualify students as eligible for TOPS, list the 1997 and 1998 graduates from each high school who: 1) have submitted the 1998-99 Free Application for Federal Student Aid (FAFSA); 2) scored at least 19 on the American College Test (ACT); and 3) were processed as of the date the first certification forms were produced, May 12.
Counselors will use these forms to record and certify students high school grade point averages (GPA) and compliance with the core curriculum requirements of TOPS. More than 22,000 students names were included in this mailing, according to Bell.
LOSFA has received numerous calls from counselors and parents regarding the names of students who were not included in this first batch of certification forms. "This is merely the first of several certification form mailings," Bell said. "School officials, students and parents should not be alarmed at this point if an apparently eligible students name is not included. There are a number of reasons why seemingly qualified students were not included on this first certification form.
"We may not have received the students application as of May 12, 1998 (the date certification forms were produced); the applications of 1997 graduates who first applied after January 1, 1998, have yet to be processed; students whose ACT qualifying score was achieved prior to November 6, 1996, have not been processed; and students whose social security numbers were not correctly recorded on either the FAFSA or the ACT form have not been identified."
The second batch of certification forms will be mailed to high school officials by June 15, according to Bell. This batch will include many students not listed in the first certification mailing.
Additional certification mailings will go out throughout the summer as Scholarship/Grant matches information received from ACT and FAFSA. Bell urged students and parents to "please rest assured that every effort is being exerted to give every student the opportunity to qualify for TOPS."
Bell advised that "the one thing parents and students should do at this point in time is to check the Student Aid Report (SAR) received from the FAFSA federal processor and the ACT report to make sure that the students Social Security number is correct on both." If an error is noted, the student, parent or guidance counselor should contact a Customer Services Representative at (800) 259-5626, Ext. 1012.
Education and Entertainment Watchwords for Trailblazers 1998
Three days of learning and fun are in store for this summers Trailblazers. Organizers have jam-packed both of this years Trailblazer Camps with information designed to motivate participants and start them thinking about their education after high school.
Nominees number 128 students for events at Northwestern State University in Natchitoches on July 19-21. One hundred and nine more were nominated to go to Southeastern Louisiana University in Hammond on July 26-28, bringing this years total number of nominated Trailblazers to 237 73 percent more than attended last year.
Trailblazers is a three-day training camp designed to help high school juniors unravel the mysteries of college financial aid. High school principals and guidance counselors nominate to Trailblazer Camp those enthusiastic college-bound peer leaders whom they feel would best assist their senior classmates in pursuing college financial assistance. Armed with the information they gain from student financial aid professionals and college administrators, Trailblazers return to their schools ready to assist their guidance counselors in helping fellow students through the college entrance process.
"Admissions, applying for and understanding financial aid, the ACT and other aspects of entering college can be complicated and sometimes overwhelming," said Jennifer Burton, Office of Student Financial Assistance Customer Services Representative, who is coordinating both Trailblazer Camps. "Trailblazers get in-depth information to prepare themselves and their classmates for their upcoming senior year." Last years Trailblazers were among the first in the state to learn about the Tuition Opportunity Program for Students (TOPS) and were able to provide news of the latest developments to their fellow students.
LOSFA Executive Director Jack Guinn will be among those kicking things off by defining what makes a great Trailblazer. State Rep. Jimmy Long, Rep. Henry "Tank" Powell and Sen. Phil Short are also scheduled to speak at opening and closing ceremonies, as are representatives from Northwestern and Southeastern.
Here are some of the programs to be offered at Trailblazers 1998.
Dont Blow Your TOPS Learn what you need to do to make sure that youre a part of the states new scholarship program: qualifying criteria, the core curriculum, the different awards, the ACT, etc.
What is Financial Aid An overview of what financial aid is available for postsecondary education, including federal, state and private loans, work-study programs, grants and scholarships.
All About Admissions What do you need to be accepted into college? Learn everything you need to know about the admissions process.
Scholarships, Scholarships How to avoid scholarship fraud and find available sources of scholarship funds. Also learn what those awarding scholarship funds are looking for.
Cutting Through the Red Tape An overview of the forms students need to complete and what they should expect to receive in the mail related to financial aid. This includes filling out the Free Application for Federal Student Aid (FAFSA) and interpreting the Student Aid Report (SAR), award letters and award notifications.
What to do to boost ACT scores, to surf the Internet, to make intelligent career choices and additional topics are covered in other sessions.
Theres plenty of time for fun after all the informational sessions. Participants at both sites can indulge at a pizza party, jam at a dance featuring locals disc jockeys, tour the campus, take a dip at a pool party, eat barbecue and enjoy other fun and games.
Trailblazers 1998 promises to be educational and entertaining. "Theres a lot of important information that students need to know," said Burton. "Trailblazers will give them the information they need and show them how to use it to their advantage and to the advantage of their classmates."
Schools Receive 1996 Draft Cohort Default Rates
Schools should have received draft cohort default rates for fiscal year 1996 from the U.S. Department of Education. Schools have 30 days from the date they receive the draft cohort rates to review them. They may challenge the official rates later this year once they are calculated by the Department. The publication date for the official rates is not known at this time.
Challenges may be based on errors in draft backup data. Any school that does not challenge errors at this time will not have an opportunity to challenge errors at a later date.
Challenges to the draft should be mailed to: Mark Rhodes, Compliance Section, Louisiana Office of Student Financial Assistance, P.O. Box 91201, Baton Rouge, La. 70821-9202. If you did not receive a copy of the draft cohort rate data, you may request it by calling (202) 708-9396. Questions should be addressed to Mark Rhodes, Louisiana Office of Student Financial Assistance, at (800) 259-5627, ext. 1021.
Information Systems Division on the Cutting Edge
Information Systems staff members are pictured from left to right: Vincent Randolph, Karen Belecci, Cynthia Marsellus, Ted Anderson, Director Terry Tuminello, Mathilde Rivera, Kenny Davis, MaryLen Strickland, Sherri Rowe, Bruce Moberly and Pam Jenkins. Not pictured is Glyn Guidry.
Think of computers and images of cutting-edge technology come to mind. Keeping the Louisiana Office of Student Financial Assistance (LOSFA) running smoothly and on that cutting edge is the job of the Information Systems Division. Its staff of 12 provides the entire agency with computer software and hardware support to assist student loan borrowers, lenders and Louisianas entire student financial aid community.
Headed by Director Terry Tuminello, the division is divided into two units, Programming and Technical Support.
Programming Manager Mary Len Strickland supervises seven employees responsible for analysis and programming of Scholarship/Grant, START, TOPS and Loan systems. These employees meet extensively with users to determine their needs and automate many of their functions.
Strickland is currently working with the Scholarship/Grant Division to develop specifications for the new TOPS Automated System. When finished, a student will be able to go to the LOSFA webpage, enter his or her social security number and find out immediately if a TOPS award has been made. The system will also be able to provide LOSFA with students grades and ACT scores, determine whether or not students have fulfilled core curriculum requirements and relay a list of students and the awards for which they are eligible directly to universities. LOSFA can store data on students eligible but not yet determined to be recipients of awards as well as students who are receiving awards which will be "grandfathered out" in deference to TOPS.
Information Systems plans to have the TOPS Automated System completed by August 1998.
Mathilde Rivera supervises three Technical Support employees responsible for maintenance and support of the agency's mainframe computer, personal computer network, operations and the Internet. The Technical Support Unit continues to upgrade LOSFAs network operating systems, process its software and expand its Internet functions. Over the past few years, LOSFA has transferred all agency-supported systems to its in-house mainframe computer (AS400) and provides all support for these systems with in-house staff. The agency will upgrade its AS400 in July, expanding its capabilities.
Moving into the electronic business area will be the main focus of Information Systems in the future. This involves moving as many of LOSFAs functions as possible to the Internet. "Imaging is another positive aspect of moving into electronic business," Tuminello said. "Well be eliminating a lot of the paper we produce and putting this information on optical disk. This will allow documents to be simultaneously viewed throughout the agency and speed up information processing."
For the general public, LOSFAs website, www.osfa.state.la.us, is perhaps the most visible of the Information System Divisions projects. "Useful Internet Links," accessible by clicking on "Information Center" from the home page, lives up to its name by being perhaps the most useful of all the areas of the website. It contains roughly 60 links (the number is always growing) to access information on private and public colleges and universities, USA Group, the U.S. Department of Education, servicers, testing services, FAFSA and other important sites.
Other information available at the LOSFA website includes scholarship, grant, loan, school, lender and guarantor information. Computer users can order forms via LOSFA's Frequently Requested Forms page. Agendas to meetings of the Louisiana Tuition Assistance Authority (LATTA) and the Louisiana Student Financial Assistance Commission (LASFAC) are provided via the Internet. The text of Newsline, LOSFAs newsletter, is also accessible to the Internet browser complete with photographs.
Through the website, LOSFA alerts schools, lenders and servicers to Loan Program policy updates by means of Loan Program Memoranda (LPMs) and Loan Program Bulletins (LPBs). LPMs provide updated information to the Common Manual, the policy book of the student loan community. LPBs provide updated information on issues that do not require Common Manual revision such as school and lender eligibility, quarterly special allowance rates and disaster area declarations.
There is also a page devoted to "Louisiana Register Notices of Intent" on LOSFA-related topics. "Through publication in the Louisiana Register, LOSFA promulgates rules that are not related to the Common Manual," Tuminello said. "These Notices of Intent are published on the Internet, and interested persons can make responses directly to the agencys Policy Officer through e-mail or through writing to the address at the end of each notice."
As of March, schools can enter and review status changes of borrowers on the Internet. By using "Useful Internet Links" in LOSFAs Information Center, financial aid officers can go to the USA Group Homepage and from there to "OnLine Loan Connection for Schools" in order to gain ID- and password-protected access to their borrowers loan guarantee and account information.
Whether youre on the Internet looking for information about a school or a grant, or dealing even closer with LOSFA through its new TOPS Automated System or other services, the Information Systems Division typifies technologys "cutting edge." The result is the best system possible for Louisianas student financial aid industry.
Congress Considers Higher Education Act Reauthorization
The Higher Education Act (HEA) of 1965, the legislation under which the national student financial aid industry operates, is set for reauthorization by the U.S. Congress. The House of Representatives passed its version of the bill (H.R. 6) on May 6 and referred it to the Senate Committee on Labor and Human Resources on May 7. The Senate is considering its own bill (S. 1882). Once the Senates bill is approved and after lawmakers arrive at a consensus between the two bills, the legislation will go before the President for his signature.
The Higher Education Act, which allowed more students to receive student loans and lowered the lending risks to banks and guarantors, requires Congressional reauthorization approximately every five years. The Act has been amended throughout its history to reflect the financial aid industrys growth.
Both H.R. 6 and S. 1882, as well as proposals from the Clinton Administration, have common aims: to make college more affordable; to make the student aid process easier for students, families and schools; to ensure students receive a quality education; to encourage working and saving for college; to help lower-income individuals prepare for and go to college; and to recruit qualified teachers to high-need communities with teacher shortages.
Specifics of the Clinton Administrations proposals include:
reintroducing time-limits on eligibility for Pell Grants, encouraging students to complete their education more quickly.
clarifying that the federal government is the sole guarantor of FFEL loans and that guaranty agencies will act as third-party servicers of federal guarantees under performance-based agreements.
simplifying the application process for students and parents by requiring the same federal financial aid application for both FFEL and Direct Student Loan programs.
reducing origination fees by 1 percent for all student loans next year and eliminating them entirely for the most needy students by 2003.
deleting unfunded or obsolete provisions, consolidating overlapping activities and eliminating unnecessary regulatory requirements.
Emergency action has already lowered the interest rate for students; see story on page 1.
Additional aspects of the Pell Grant program, student loan programs and campus-based funds are also addressed.
Both bills in summary and in their entirety may be found at the Library of Congress website. Begin at thomas.loc.gov and search for H.R. 6 or S. 1882.
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