Common Manual Updates
216 and 219

 

LOUISIANA STUDENT FINANCIAL ASSISTANCE COMMISSION
OFFICE OF STUDENT FINANCIAL ASSISTANCE

LOAN PROGRAM MEMORANDUM

LPM NO.: L98-2 Effective Date: As Indicated
Pub. Date: March 24, 1998 Distribution: Lenders and Schools
Topic:   Common Manual Updates 216 and 219

 

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.

 

CA/Location Cure Preclaims Assistance Requirements Modified

Current Common Manual language states that in cases when a lender performs an ICA/location cure procedure on a loan for which a preclaim assistance request has not been submitted in the most recent 180-day delinquency period, the lender must submit a request for preclaim assistance after the borrower has been located and before sending the final collection letter.

However, because there are no regulatory or statutory requirements for this activity, this requirement has been removed. Guarantors have determined that, in such cases, lenders often submit requests for preclaims assistance after the guarantor has received a claim which provides no opportunity to prevent default.

Common Manual subsection 8.8.K. has been revised to reflect this change, which is effective for borrowers located on or after July 1, 1998, unless implemented earlier by the guarantor.

 

Refunding Fees

The Common Manual currently provides a list of circumstances under which a lender is required to refund appropriate amounts of the guarantee and origination fees as a credit to a borrower's principal balance. New regulations published November 28, 1997 in the Federal Register clarify that a lender must return fees any time the school returns funds to the lender in order to comply with Title IV program requirements. The new regulations also clarify when the return of fees is required for funds that are repaid or returned by the borrower within 120 days of the disbursement.

A lender must refund the guarantee fee and origination fee or an appropriate prorated amount of the guarantee fee and origination fee, and apply the refund as a credit to the borrower’s principal balance if any of the following conditions exist:

 If a borrower who does not have any loans in repayment repays or returns any portion of the disbursement within 120 days of the disbursement, the lender must apply the funds as a cancellation or partial cancellation of the loan and refund the guarantee fee and origination fee or an appropriate prorated amount of the guarantee fee and origination fee, as applicable. The lender must apply the refund of the guarantee fee and origination fee as a credit to the borrower’s principal balance. However, the borrower may request in writing that the lender apply funds received from the borrower as a regular payment or prepayment on the loan (see subsection 7.8.A. regarding applying regular payments and subsection 7.8.B. regarding applying prepayments). The lender must comply with the borrower’s request.

If a borrower has any loans in repayment, a lender must apply funds that are repaid or returned by the borrower within 120 days of the disbursement according to its normal payment processing procedures. However, a borrower may request in writing that the lender apply the funds as a cancellation or partial cancellation of the loan. The lender must comply with the borrower’s request and refund the guarantee fee and origination fee or an appropriate prorated amount of the guarantee fee and origination fee, as applicable.

If the lender paid the guarantee fee and origination fee instead of deducting the fees from the borrower's loan, the lender may retain the guarantee fee and origination fee and is not required to refund the fees to the borrower.

If the borrower paid the guarantee fee and origination fee directly to the lender rather than having the fees deducted from his or her loan, the lender must refund the guarantee fee and origination fee to the borrower instead of applying it as a credit to the loan.

This clarification is effective for funds received by the lender on or after July 1, 1998. Subsections 6.6.D. and 6.6.F. of the Common Manual will be revised to reflect this change.

 

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