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.

Proration Requirements Modified

Provisions of the Higher Education Amendments of 1998 remove the specific prorated Stafford loan limits applicable to any first and second year undergraduate student whose program, or remainder of the program, is less than one academic year.

To incorporate the statutory changes, the base Stafford loan limits (subsidized and unsubsidized) for first and second year undergraduate students whose program, or remainder of the student’s program, is less than one academic year have been removed from subsection 5.7.H. The Common Manual has been revised to specify that the loan amounts for these students are now determined by using the ratio of the student’s program or remainder of the student’s program (as measured in credit or clock hours) to a full academic year and multiplying that ratio by the applicable annual loan limit for a full academic year.

The "Stafford Annual Loan Limits" table in subsection 5.7.H. has been revised to reflect this change, which is effective for loan applications certified by the school on or after October 1, 1998.

Multiple Disbursement Exemptions

Federal statute and regulations have imposed multiple disbursement requirements on schools and lenders for a number of years. Reauthorization provisions from October 1998 create two new exemptions from these requirements for schools with exceptionally low cohort default rates:

• A school with a cohort default rate of less than 10% for each of the 3 most recent fiscal years for which information is available may schedule loans to be disbursed in single installments, if the loan is for a period of enrollment that is not more than a single semester, trimester, quarter, or for a school without standard terms, not more than 4 months.
  
• A loan made to a student enrolled in a study-abroad program may be made in a single disbursement if the eligible school at which the student will receive course credit for the study-abroad program has a cohort default rate of less than 5%.

These exceptions are applicable during the period beginning on or after October 1, 1998 and ending prior to September 30, 2002. Common Manual subsections 5.8.D., 6.2.A., and 6.2.B. have been revised to reflect the exemptions.

Delayed Delivery Exemptions

Under the 1998 Reauthorization, schools with cohort default rates of less than 10% for each of the 3 most recent fiscal years for which data is available are now exempt from delayed delivery provisions. The provisions, which remain in effect for all other schools, require that a school delay the delivery of loan funds to first-year undergraduates who have not borrowed Stafford or SLS loans until the 31st day of the student’s first payment period.

This change is effective during the period beginning on or after October 1, 1998 and ending prior to September 30, 2002. Revisions have been made to subsections 5.8.D., 6.2.A., 6.3.E., 6.3.I., A.1.B., and appendix G of the Common Manual.

Extended Repayment Schedule Terms

The 1998 Reauthorization requires lenders to offer an extended repayment schedule of up to 25 years to new borrowers with loans first disbursed on or after October 7, 1998, who accumulate outstanding FFELP loans totaling more than $30,000. This extended schedule must comply with the statutory minimum annual payment amount of $600.

In addition, all FFELP borrowers—regardless of the date on which their first funds were disbursed or their outstanding indebtedness—are permitted to change their selection of repayment schedule annually. Statute requires lenders to comply with an eligible borrower’s request at least once every 12 months.

Subsections 7.6.C., 7.6.D., and 7.6.E. of the Common Manual have been revised to reflect these changes. The provision permitting a borrower to revise his or her repayment schedule at least once every 12 months is effective for borrower requests received by the lender on or after October 1, 1998. The addition of the new extended repayment schedule is effective for new borrowers with loans first disbursed on or after October 7, 1998.

Plan for Doing Business

Current Common Manual policy requires lending and purchasing programs of a governmental entity or nonprofit organization that makes or purchases FFELP loans with tax-exempt obligations to be audited for compliance with its Plan for Doing Business.

The Higher Education Amendments of 1998, eliminated the requirement for a Plan for Doing Business and the associated audits. The audit requirements of the Plan for Doing Business have been removed from subsection 3.8.C. of the Common Manual. In addition, subsections 3.8.A., 3.8.B., and 3.8.C. have been merged into subsection 3.8.A. to eliminate any misconception that three separate audits are required.

This change is effective retroactively to the date a lender’s Plan for Doing Business was approved by the Secretary or Governor. In addition, lenders may not pursue any action against the Secretary for any amounts paid or offset by the Secretary based on a final settlement agreement that was entered into prior to July 1, 1998 and that resolves any audit or program review violations that were identified based on provisions in effect at the time of the audit.

Military Extension of the Grace Period

The Higher Education Amendments of 1998 provide that a Stafford borrower with a loan in a grace period, or with a loan in an in-school status that would subsequently enter a grace period, who is called or ordered to active duty, is entitled to a military extension of the grace period for a period not to exceed 3 years. To qualify for this extension, the borrower must be called or ordered to active duty, on or after October 1, 1998, from a reserve component of the U.S. Armed Forces for a period in excess of 30 days. The maximum 3-year military extension includes the time period necessary for a borrower to resume enrollment at the next available and regular, scheduled enrollment period.

If the borrower resumes at least half-time enrollment at the end of the military extension, the borrower is entitled to a new grace period at the end of the in-school period. If the borrower does not resume at least half-time enrollment, the borrower is entitled to a new grace period at the end of the military extension.

Interest that accrues during the military extension is paid by the Department for subsidized Stafford loans. Interest accruing on unsubsidized Stafford loans is the responsibility of the borrower.

**If the NCHELP Q/A document dated 11/16/98 is consistent with your 12/2/98 document, this information should be accurate. 

Lenders are reminded that if the borrower is in repayment, deferment, or forbearance when he or she is called or ordered to active duty, the borrower may be eligible for a military deferment or a mandatory administrative forbearance (see subsection 7.10.G. or 7.11.D., respectively, for more information.)

This change is effective for Stafford borrowers with loans in grace periods or with loans in an in-school status that would subsequently enter grace periods, who are called or ordered, on or after October 1, 1998, from a reserve component of the U.S. Armed Forces to active duty for a period in excess of 30 days. Section 7.2 of the Common Manual has been revised to reflect this change and subsection 7.10.G. has been revised to add a cross-reference to section 7.2.

In-School Deferment Eligibility Criteria Modified

The Higher Education Amendments of 1998 removed the requirement that a new borrower from July 1, 1987 to June 30, 1993 obtain a new loan for the enrollment period that is to be covered by an in-school deferment for half-time enrollment. Common Manual subsection 7.10.A. and the "Deferment Eligibility Chart" contained in section 7.10 have been revised to remove this obsolete requirement.

In addition, the "Deferment Eligibility Chart" in section 7.10 has been revised to remove information that addresses interest subsidy of Consolidation loans. This information is already addressed in other sections of the Common Manual.

These changes are effective for in-school deferments granted by the lender on or after October 1, 1998.

In-School Deferment Documentation Requirements Modified

The Common Manual currently requires that, prior to the granting of an in-school deferment, the lender must receive a written or verbal request from a borrower—or, as applicable, the dependent student—along with supporting documentation from the school. To align the manual with the Higher Education Amendments of 1998, the in-school deferment requirements have been modified.

Under the new provisions, the lender must determine the eligibility of a borrower—or, as applicable, the dependent student—for an in-school deferment based upon the receipt of any one of the following:

• A written or verbal request for deferment from the borrower and documentation of the borrower's eligibility for the deferment.
  
• A newly completed loan application that documents the borrower's eligibility for a deferment.
  
• Student status information received by the lender indicating that the borrower is enrolled at least half-time.

The deferment should be granted through the eligible student’s anticipated graduation date. If an in-school deferment is granted by the lender based upon a newly completed loan application or the receipt of student status information and, in either case, the borrower has not requested the deferment, the lender must notify the borrower of the in-school deferment and of the option to continue paying on the loan.

Subsection 7.10.A. has been revised to reflect this modification which is effective for in-school deferments granted by the lender on or after October 1, 1998.

New Administrative Forbearance Type Added

Common Manual subsection 7.11.B. has been revised to incorporate a new administrative forbearance type authorized by the Higher Education Amendments of 1998.

The lender may now grant a forbearance for a period not to exceed 60 days if the lender determines it is warranted in order to collect or process supporting documentation following a borrower’s request for deferment, forbearance, a change in repayment plan, or loan consolidation. If such supporting documentation is not received within 60 days, the lender must resume servicing activities on the 61st day.

The lender must not capitalize interest that accrues on the borrower’s loan during this period of administrative forbearance unless the lender receives documentation or information that results in the granting of a deferment or other forbearance type that would be concurrent with this period in which case capitalization is permitted.

These changes are effective for administrative forbearance granted by the lender on or after October 1, 1998.

Mandatory Forbearance for Loan Forgiveness Programs

The Higher Education Amendments of 1998 eliminate the Stafford Loan Forgiveness Demonstration Program, which was never funded, and introduces the Loan Forgiveness Demonstration Program for Child Care Providers. Current language addressing the eligibility of a borrower for a mandatory forbearance for his or her participation in the Stafford Loan Forgiveness Demonstration Program has been removed. The manual has been revised to require that a lender grant forbearance to any borrower participating in the Loan Forgiveness Demonstration Program for Child Care Providers, provided the program is funded.

Subsection 7.11.C. of the Common Manual has been revised to reflect this change, which is effective for mandatory forbearance granted on or after October 7, 1998, provided the Loan Forgiveness Demonstration Program for Child Care Providers is funded

Loan Forgiveness Program for Teachers

The Higher Education Amendments of 1998 eliminated the Stafford Loan Demonstration Forgiveness Program and implemented the Loan Forgiveness Program for Teachers, which is intended to encourage individuals to enter and continue in the teaching profession. Under this program, the Department repays a portion of a borrower’s Stafford loan obligations. In order to be eligible for this forgiveness program, the following criteria must be met:

• The borrower must be a "new borrower" on or after October 1, 1998. (A new borrower is defined as a borrower who has no outstanding balance on a FFELP loan at the time he or she signs a promissory note for a FFELP loan.)
  
• The borrower must have been employed as a full-time teacher for 5 consecutive, complete school and academic years in a school that qualifies – in at least one of the 5 years of service - for loan cancellation for Perkins Loan recipients who teach in such schools. Each borrower must meet one of the following criteria:

• If employed as an elementary school teacher, the borrower must have demonstrated knowledge and teaching skills in reading, writing, mathematics, and other areas of the school’s curriculum, as certified by the chief administrative officer of the school in which the borrower is employed.

• If employed as a secondary school teacher, the borrower must be teaching a subject which is relevant to the borrower’s academic major, as certified by the chief administrative officer of the secondary school in which the borrower is employed.

• The borrower must not be in default on a loan for which the borrower seeks forgiveness.

The Department will repay, on behalf of a qualified borrower, no more than $5,000 of the borrower’s outstanding Stafford loan balances (or the outstanding portion of a Consolidation loan used to repay qualifying Stafford loans) at the end of the 5th complete year of teaching. Receipt of a benefit under this program does not entitle the borrower to a refund of any payments made on the loan.

No borrower may, for the same service, receive a benefit under both the Loan Forgiveness Program for Teachers and subtitle D of Title I of the National and Community Service Act of 1990. In addition, the borrower may not receive this benefit under both the FFELP and the FDLP.

As of this printing, processes and procedures for applying for loan forgiveness have not been defined, but are being addressed by the community in its discussions with the Department.

The Department is authorized to issue regulations, as necessary, to carry out the provisions of this section. These changes are effective for new borrowers on or after October 1, 1998. Section 7.14 of the Common Manual has been revised to reflect these changes.

Loan Forgiveness Demonstration Program for Child Care Providers

The Higher Education Amendments of 1998 authorized a new loan forgiveness demonstration program. The Loan Forgiveness Demonstration Program for Child Care Providers is intended to bring more highly trained individuals into the early child care profession and to retain those providers for longer periods of time. Under this demonstration program, the Department would repay up to 100% of a borrower’s Stafford loan obligations. For the purpose of this program, the term "child care services" is defined as activities and services provided for the education and care of children from birth through age 5.

If the program is implemented, the borrower must meet the following criteria to qualify for this forgiveness program:

The borrower must be a "new borrower" on or after October 8, 1998 (a new borrower is defined as a borrower who has no outstanding balance on a FFELP loan at the time he or she signs a promissory note for a FFELP loan).

• The borrower must complete a degree in early childhood education. This field is defined as education in the areas of early child education, child care, or any other educational area related to child care that the Department determines to be appropriate.
  
• The borrower must obtain employment in a child care facility, defined as a facility, including a home, that provides child care services and meets the applicable state or local government licensing, certification, approval, or registration requirements, if any.
  
• The borrower must work full-time as a child care provider for the 2 consecutive and immediately preceding years in a low-income community, defined as a community in which 70% of households within the community earn less than 85% of the state’s median household income.

If the borrower qualifies, the Department will pay –on a first-come, first-served basis subject to the availability of funds– a percentage of the total amount of all eligible loans (excluding PLUS and Consolidation loans) at the rate of:

• 20% after completion of the 2nd year
• 20% after completion of the 3rd year
• 30% after completion of the 4th year
• 30% after completion of the 5th year

The Department will also pay a proportionate amount of the interest that accrues each year.

If an individual not participating in this program returns to school, after initially graduating from school, to obtain an associate or baccalaureate degree in early childhood education, the student may apply to the Department for repayment under this forgiveness program of qualified loans received for a maximum of 2 academic years when the student returned to school. Repayment by the Department will be made in accordance with the preceding rate schedule.

The Department will give loan repayment priority to borrowers who received forgiveness in the prior year. No borrower may, for the same service, receive a benefit under both this Loan Forgiveness Program for Child Care Providers and subtitle D of title 1 of the National and Community Service Act of 1990

Qualified borrowers may request loan forgiveness at the end of each year of eligible child care employment by completing an application as required by the Department. During the period of eligible employment, a borrower shall receive a forbearance unless the borrower qualifies for a deferment. Receipt of a benefit under this program does not entitle the borrower to a refund of payments made on the loan.  (HEA 428K)

As of this printing, processes and procedures for applying for loan forgiveness have not been defined, but are being addressed by the community in its discussions with the Department.

These changes are effective for new borrowers on or after October 8, 1998, provided the program is funded. A new section 7.15, reflecting the preceding language has been added to the Common Manual.