LOUISIANA STUDENT FINANCIAL ASSISTANCE COMMISSION
|LPM NO.:||L97-1||Effective Date:||As Indicated|
|Pub. Date:||January 1, 1997||Distribution:||Lenders and Schools|
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.
Maximum Length of Retroactive Forbearance Modified
Under current Common Manual policy, lenders may grant a discretionary forbearance retroactive to the date the borrowers delinquency began or up to 270 days, whichever is less, if a delinquent borrower does not properly identify the period of the forbearance or identifies a period that does not correspond with the delinquency status of the loan. Current federal regulations require that a single forbearance be granted for no longer than a 12-month interval, which is longer than the 270 days indicated in the current Common Manual policy.
The Common Manual will be revised to allow a lender to grant a forbearance retroactively to resolve the borrowers delinquency, provided the duration of each forbearance agreement does not exceed the maximum 12-month limit. Because a single forbearance may be granted for no longer than 12 months, multiple forbearance agreements may be required in order to eliminate a delinquency. The lender is expected to notify the borrower of the actual forbearance period granted. If the lender has lost insurance on the loan, the lender must perform a cure to reinstate the guarantee on the loan in accordance with Common Manual subsection 8.8.F.
This change is effective for forbearances granted by the lender on or after April 1, 1997. Earlier implementation by the lender is acceptable. Subsection 7.11.F. of the Common Manual will be revised to reflect this change.
Notification of Bankruptcy on Delinquent Loan Modified
If a lender receives notice that a borrower has filed for relief under bankruptcy, all collection activities on the loan must cease. If collection activities continue on the loan, the court may hold the collector in contempt of court, which may result in fines or penalties. Because guarantors are required to perform collection activities on a delinquent loan during the preclaims and supplemental preclaims assistance process, it is critical that the lender notify the guarantor of the bankruptcy action in order to cease collection activities on the loan. In addition, the guarantor must be notified when collection activities may be resumed after the automatic stay is lifted. In order to insure timely notification to the guarantor, the Common Manual will be revised to require the lender to notify the guarantor when these two events occur.
If the lender receives a Notice of the First Meeting of Creditors (the Notice) or other confirmation from the bankruptcy court (directly either from the court or from another source), that a borrower has filed for relief under any chapter of the bankruptcy code, the lender must cease collection activities and may not file a preclaims assistance request with the guarantor. Further, if the lender has already filed for preclaims assistance and receives notice of any bankruptcy action, the lender must immediately, within 5 business days of the lenders receipt of the Notice, notify the guarantor to cancel preclaims activities based on a bankruptcy action filed on the borrowers loans. If the lender files for preclaims assistance on a loan on which it has received notice of a bankruptcy action or if the lender fails to timely notify the guarantor, within 5 business days, to cease collections activity on a preclaim that was filed previously, the result will be permanent cancellation of the guarantee on the loan at issue based solely on if the lenders failure to comply with these provisions results in the court determining the loan to be unenforceable. Further, the lender will be required to reimburse the guarantor for costs associated with defending itself against contempt of court charges on the account if those charges are based solely on the lenders failure to comply with these provisions and can be demonstrated accordingly.
In the event the lender receives notice that the bankruptcy action has ended and the loan remains enforceable and the loan was deemed nondischargeable, the bankruptcy case was dismissed, or discharge was reversed the lender must treat the loan as though it were in forbearance. Any accrued interest should be capitalized from the date of the bankruptcy petition to the date the lender received notification that the bankruptcy action was concluded. The lender may also include in the administrative forbearance any period before the date of the bankruptcy petition for which the borrower was delinquent, as outlined in subsection 8.2.D. of the Common Manual, and bring the loan current. If, however, the lender permits a period of delinquency to remain on the loan, and that delinquency is beyond the period when a request for preclaims assistance would have been generated, the lender must request preclaims assistance from the guarantor not later than 10 days from the date on which the lender receives notice that the stay on collection activities has been lifted. If the loan was purchased as a claim by the guarantor and subsequently repurchased and brought current by the lender, the request for preclaims assistance must be made within the appropriate time frame, as outlined in subsection 8.1.J. of the Common Manual.
This change is effective for loans on which the bankruptcy notification is received by the lender on or after May 1, 1997. Subsection 8.1.J. of the Common Manual will be revised to reflect this change.
In-School Deferment Certification without Anticipated Graduation Date Clarified
In an effort to standardize processing of in-school deferments among lenders, the Common Manual will be revised to provide guidance on how a lender should proceed when it receives certification for an in-school deferment that does not include the students anticipated graduation date (AGD).
The Common Manual will be revised to instruct lenders not to adjust the borrowers AGD if the lender receives enrollment information as part of an in-school deferment request that is certified for an academic period that ends earlier than the borrowers AGD of record and no conflicting AGD information is included on the enrollment certification. Although no change has occurred on the account, the lender must document that it received information from the school. However, the lender need not report to the guarantor any information regarding the loans status, except to fulfill the lender manifest/NSLDS reporting requirements.
If the lender receives enrollment information that is certified for an academic period that ends after the borrowers AGD of record, regardless of whether the information comes in the form of an in-school deferment request, other written means, or as provided by the guarantor as part of its school SSCR process, the lender should adjust the borrowers AGD to agree with the information provided on the enrollment certification. In all cases, the lender must determine whether newly reported enrollment information supersedes the information on the lenders records and, if so, must make appropropriate changes to the borrowers file or the servicing history of the loan.
The Common Manual currently requires that deferments should end no later than the AGD for students enrolled full time and for "new borrowers" on or after July 1, 1993, who are enrolled at least half time. The Common Manual will be revised to permit the lender to process the deferment through the academic period end date certified by the school or the AGD of record, whichever is later, if the enrollment verification information used to certify the borrowers deferment eligibility does not include an anticipated graduation date.
This change is effective for in-school deferment requests received by the lender on or after May 1, 1997. Earlier implementation by the lender is acceptable. Subsections 7.3.A. and 7.10.A. of the Common Manual will be updated to reflect this change.
Requirements for Guarantee of Consolidation Loans Revised
Based on an analysis of recent consolidation loan trends, guarantors will revise the Common Manual policy regarding the conditions under which a borrowers Consolidation loan will be guaranteed. Effective for consolidation applications received by the lender on or after May 1, 1997, a guarantor will guarantee a Consolidation loan only if the borrower (or borrowers, in the case of spouses applying to consolidate their loans) has one or more active loans currently held or guaranteed by that guarantor, except as otherwise agreed on a case-by-case basis by the lender and guarantor. The borrower may choose not to include the active loan that was issued under that guarantee in the Consolidation loan.
For purposes of this policy, an active loan is any loan that has not been paid in full, canceled, discharged (e.g., due to death, disability, closed school, false certification), or subrogated by the U.S. Department of Education. However, a subrogated loan may be included in a Consolidation loan if the borrower has another active loan guaranteed or held by the consolidating guarantor that has not been subrogated. A defaulted loan that is held by the consolidating guarantor is an active loan.
If a Consolidation loan is guaranteed and the guarantor later determines that it was not the guarantor or holder of at least one of the borrowers (or borrowers, in the case of spouses applying to consolidate their loans) active loans, the guarantor reserves the right to notify the lender that the guarantee on the Consolidation loan is not valid. The lender may attempt to transfer the loan to an appropriate guarantor, or the guarantee may be revoked. If the guarantee is revoked, interest and special allowance collected on that loan from the date of disbursement must be refunded.
This revision will be added to section 9.2 of the Common Manual. Some guarantors may have implemented this policy earlier than the May 1, 1997, effective date.
PLUS Deferment Eligibility Corrected
As currently written, two sections of the Common Manual appear to restrict a parent borrowers eligibility for in-school deferment based on the dependent students enrollment status only to "new" PLUS loan borrowers before July 1, 1993. In subsection 7.9.A., a parent borrower is permitted to defer all of his or her PLUS loans if a dependent student for whom the borrower obtained one or more PLUS loans meets the conditions required for the in-school, graduate fellowship, or rehabilitation training deferment--provided the parent is a "new" PLUS loan borrower before July 1, 1993. Subsection 7.10.A. of the Common Manual permits a parent borrower to defer all of his or her PLUS loans if the borrower or a dependent student for whom a PLUS loan was obtained meets the conditions required for an in-school deferment--provided the borrower is a PLUS loan borrower on or after July 1, 1987, but before July 1, 1993.
The Common Manual will be corrected to clarify that a borrower who obtains a PLUS loan on or after July 1, 1993, is eligible for in-school deferment on his or her PLUS loans based on the enrollment status of his or her dependent student if the borrower was a "new" borrower of any type of FFELP loan (rather than strictly a "new" borrower of a PLUS loan) before July 1, 1993. For example, if a PLUS loan borrower has an outstanding Stafford loan that was disbursed before July 1, 1993, subsequently borrows a PLUS loan on or after July 1, 1993, and later requests an in-school deferment on the PLUS loan based on the dependent students enrollment status, the borrower is eligible for an in-school deferment based on the students enrollment status.
This correction is effective for deferment requests made by PLUS borrowers retroactive to the effective date of the Common Manual. Common Manual subsections 7.9.A. and 7.10.A. will be corrected.
Requirement for a Signed Agreement Clarified
The Common Manual is being updated to correct a discrepancy between subsections 7.9.E. and 7.11.E. Subsection 7.9.E. provides examples of repayment arrangements that may be acceptable to the lender for resolving a default, for the purpose of establishing deferment eligibility. This subsection expressly permits a lender to apply administrative forbearance in conjunction with an eligible deferment request after default. However, subsection 7.11.E., by requiring a borrower to execute a signed agreement to repay the debt, seems to preclude the application of an administrative forbearance in conjunction with a deferment to a previously defaulted loan--especially because the deferment could be requested verbally and would not necessarily involve any document bearing the borrowers signature.
The Common Manual currently indicates that a lender may grant forbearance to a borrower or endorser to permit him or her to resume making payments following a period of default. To correct the discrepancy between subsections 7.9.E. and 7.11.E., the Common Manual will be revised to indicate that to resolve the delinquency, the terms of a discretionary forbearance agreement made after default must include the borrowers or endorsers signature and a new signed agreement to repay the debt. A new signed agreement to repay the debt is not required if an administrative forbearance is applied to resolve a delinquency remaining after a deferment request that resolves a borrowers default has been granted.
This change is effective for forbearances granted to a defaulted borrower retroactive to the effective date of the Common Manual. Subsection 7.11.E. of the Common Manual will be revised to reflect this change.
Definitions of FFELP Terms Added or Revised
Several definitions of FFELP terms are being added to the Common Manual. In addition, some terms are being revised to more accurately reflect their regulatory definition. These changes are effective retroactive to the effective date of the Common Manual, and will be added to appendix G.
Branch Campus: A permanent location of a school that is geographically apart and independent of the main campus; that offers courses leading to a degree, certificate, or other recognized educational credential; that has its own faculty and administration or supervision; and that has its own budgetary and hiring authority. A branch campus is one type of "additional location" at which schools may offer instruction to students. A school must establish eligibility for each of its locations (see subsection 4.1.A.).
Note: This definition will also be added to subsection 4.1.C. of the Common Manual.
Correspondence Study: A course of study in which the school provides instructional materials, including examination on those materials, to students who are not physically attending classes at the school. Instruction may be provided, in whole or in part, by video technologies. If the school offers 50% or more of its total courses by telecommunications, or by a combination of telecommunications and correspondence courses, the telecommunications courses offered by that school are considered "correspondence courses." A home-study course where instruction is provided by video cassettes or discs is also considered a correspondence course during any award year unless the school provides instruction via the same media, during the same award year, to its on-campus students. If a course is a combination of correspondence work and residential training, the entire course is considered correspondence study.
Note: This definition of "correspondence study" replaces the definition of the term "correspondence (or home study) program" in the Common Manual.
Disbursement: The transfer of loan proceeds by individual check, master check, or electronic funds transfer (EFT) by a lender to a borrower, a school, or an escrow agent (see section 6.2). For a Consolidation loan, disbursement is the transfer of borrower loan proceeds from the consolidating lender to the current holder of the loan being consolidated (see section 9.5).
Ineligible Borrower: A borrower who does not meet federal eligibility criteria for a Federal Stafford loan, or in the case of a parent borrower, a Federal PLUS loan. See subsection 5.2.A. for specific eligibility criteria, and subsections 8.1.M. and 8.2.F. for more information.
Prepayment: A payment received when the borrower is not required to make either principal or interest payments; when a borrower is required to make interest payments, but previously authorized the lender to capitalize accruing interest; or when the borrower makes a payment that is greater than the amount of the borrowers regular installment or the amount due. See subsection 7.8.B. for more information on prepayments.