Common Manual Updates

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.

Deferment Requirements for "New Borrower" Clarified

Current Common Manual policy does not address how a lender should process a deferment request for a "new borrower on or after July 1, 1993" if the lender does not know the date of the borrower’s oldest outstanding loan.

The Common Manual policy will be revised to clarify that, before approving a deferment, the lender should determine a borrower’s deferment eligibility based on borrower information contained in the lender’s records and any information provided by the borrower. The lender may rely on the borrower’s certification, as evidenced by the borrower’s signature on the deferment form or other documentation or certification provided by the borrower, that he or she meets the deferment eligibility criteria. If the lender is aware of any conflicting information related to the borrower’s deferment eligibility, the lender must resolve the discrepancy before approving or denying the deferment.

If, after approving the deferment, the lender receives information indicating that the borrower did not qualify for all or a portion of the deferment, the portion of the deferment for which the borrower did not qualify must be canceled. For example, if a borrower has already received an aggregate total of 20 months of unemployment deferment when he or she is approved for another 6 months of unemployment deferment as a "new borrower July 1, 1993," then the lender learns that the borrower had other, older loans made prior to July 1, 1993, the borrower would not qualify for that portion of the unemployment deferment that exceeded the 24 month aggregate limit. In this instance, the borrower qualifies for only 4 more months of unemployment deferment, and the lender must cancel the 2 additional months that were previously approved.

The lender must make any necessary interest adjustments to the borrower’s account. The lender may grant administrative forbearance to cover past due payments resulting from the cancellation of all or part of the deferment. Lenders should review subsection 7.11.B. of the Common Manual for more information about administrative forbearance.

This change is effective for deferment requests received by the lender on or after January 1, 1998. Earlier implementation by the lender is acceptable. Common Manual subsection 7.9.A. will be revised to reflect this change.

Requirements for In-School or Student Deferment Clarified

Current Common Manual policy allows a lender to approve a deferment through the academic period end date certified by the school or the anticipated graduation date (AGD) of record, whichever is later, if the enrollment verification information used to certify the borrower’s deferment eligibility does not include AGD. However, it does not address how long an in-school deferment request remains valid when the lender receives new enrollment verification information for a student.

The Common Manual will be revised to clarify that the deferment will remain in effect until the student ceases to be enrolled full time, or for "new borrowers" on or after July 1, 1993, enrolled at least half time. In the event that the lender receives new enrollment verification information that indicates the borrower has been or will be continuously enrolled, a new deferment request is not required to extend the period of

deferment. When new information is received, the lender may combine the previous in-school deferment request from the borrower with the most recent enrollment verification received and approve the deferment through the AGD most recently certified by the school or the new academic period end date, whichever is later. A new deferment request is required only if the borrower has not been continuously enrolled or if a previous deferment is terminated at the borrower’s request.

This change is effective for enrollment verification information received by the lender on or after January 1, 1998. Earlier implementation by a lender is acceptable. Subsection 7.10.A. of the Common Manual will be revised to reflect this change.

Content of Delinquency Notices and Collection Letters Modified

Currently, Common Manual policy requires lenders to send a delinquent borrower at least four written notices or collection letters informing the borrower of the delinquency and urging the borrower to make payments during the period when a loan is 16-180 days delinquent (16-240 days delinquent for a loan repayable in installments less frequent than monthly). At least one of the notices or collection letters sent during this period must include at a minimum, information regarding deferment, forbearance, income-sensitive repayment, loan consolidation, and other available options to avoid default.

Based on recent clarification from the Department of Education, the minimum four written notices or collection letters must contain the language with the specified default avoidance options. Therefore, this Common Manual policy will be modified as follows:

Send the borrower at least four written notices or collection letters informing the borrower of the delinquency and urging the borrower to make payments. The required notices or collection letters sent during this period must include at a minimum, information regarding deferment, forbearance, income-sensitive repayment, loan consolidation, and other available options to avoid default.

This change is effective for notices and collection letters issued by the lender on or after January 1, 1998. Earlier implementation by the lender is acceptable. Subsection 8.1.D. of the Common Manual will be revised to reflect this change. Lenders should note that this policy change does not affect the content of the final demand letter.

Bankruptcy Claim Payment Error Discovered

When the Common Manual was updated in July 1997, a portion of subsection 8.2.D. Bankruptcy Claims that appeared in the September 1996 update of the Common Manual was inadvertently omitted. Following is the correct Common Manual language that should appear in this subsection. The omitted portion of this policy, effective for bankruptcy notifications received by the lender on or after July 1, 1996, has been underlined for easy identification.

Common Manual, July 1997, subsection 8.2.D. Bankruptcy Claims, page 18, column 1:

Loans Eligible for Bankruptcy Claim Payment

If a borrower files a Chapter 7 or 11 bankruptcy on a loan that has been in repayment for more than 7 years (excluding authorized periods of deferment or forbearance) or files a petition for undue hardship (or adversary complaint), the lender must file a bankruptcy claim. The number of years in repayment is measured from the first payment due date established by the lender through the date the borrower files the bankruptcy petition, excluding periods of deferment or forbearance. Any period of administrative forbearance applied in conjunction with a cure (cure forbearance) must be included in a loan’s repayment period for the purpose of determining if the loan is dischargeable in bankruptcy.
[§682.402(f)(5)(B); §682.402(i)(1)(A)]

If a borrower files a Chapter 12 or 13 bankruptcy (regardless of the number of years in repayment) or a petition for undue hardship (or adversary complaint), the lender must file a bankruptcy claim.

Please make a note of this policy language in the July 1997 version of the Common Manual. This error will be corrected when the Common Manual is updated.