Common Manual Update

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.

LOSFA provides the following summaries to inform schools, lenders, and servicers of the latest Common Manual policy changes. These changes will appear in the manual's next annual update in 2001. However, these changes are effective before the next update is scheduled to be delivered.

Week of Instruction

The Common Manual has been revised to change the definition of "a week of instruction" with respect to time for preparation for final examination. Such periods of time counted toward "a week of instruction" may include only preparation for final examination occurring after the last scheduled day of classes for a payment period. In addition, homework has been added to the list of activities that are not considered as instructional time.

Suspension of Due Diligence for Death Claims

The Common Manual has been revised to include a lender option to grant an additional 60-day suspension of due diligence activities, for a total of up to 120 days, when reliable but unofficial notification is received that a borrower or student has died. This additional 60-day suspension may be applied only when the initial 60-day suspension has ended and it is determined that additional time is required to obtain the required death claim documentation.

Default Aversion Assistance Time Frames Chart

The Common Manual has been revised to include a Default Aversion Assistance Time Frames chart.

Claim Recalls/Repurchase

The Common Manual Common Claim Initiative (CCI) policy has been updated to reflect that, whether the lender is required to recall the claim or the lender chooses to recall the claim, if a claim is later filed, the lender must provide a complete history of the account from the out-of-school date reported on the Claim Form. (Refer to subsection CCI8.3.B. for documentation requirements.)

In addition, policy language and glossary language have been revised to expand the definition of "recall" and to redefine the term "repurchase." The definition of "recall" under the CCI now includes claims for which the lender returns the claim payment amount within 30 days of the lender's receipt. "Repurchase" has been redefined under the CCI as a transaction that occurs more than 30 days after the date the lender receives the claim payment.

Claim Repurchase

The Common Manual Common Claim Initiative (CCI) policy has been updated to reflect that a repayment schedule must be sent to the borrower for rehabilitated and repurchased loans no more than 60 days and first payment due date set no more than 75 days after the lender considers the purchase to be complete (e.g., the date the repurchase check is sent to the guarantor, the date the lender receives the loan file from the guarantor, or the date the lender receives collateral from the guarantor).

PLUS Interest Rate Change

Since July 1, 1987, PLUS and SLS loans have accrued interest based on a variable interest rate. For PLUS loans disbursed on or after July 1, 1998, the rates have been calculated based on a 91-day Treasury bill rate which remains in effect for these loans. For loans first disbursed prior to July 1, 1998, the variable rates have been determined based on the 52-week Treasury bill rate. However, beginning July 1, 2001, the variable interest rate for PLUS and SLS loans first disbursed during the period beginning July 1, 1987 and ending June 30, 1998 will be adjusted annually on July 1, and calculated by adding 3.1% or 3.25%, as applicable, to the weekly average one-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the last calendar week ending on or before June 26 of that year.

Mandatory Forbearance for Teacher Loan Forgiveness Program

The Common Manual has been revised to include the requirement that a lender grant a mandatory forbearance annually, at the borrower's request, while the borrower maintains eligibility for loan forgiveness under the Teacher Loan Forgiveness Program. At the time of each annual request, the lender must be reasonably sure that the cancellation amount will satisfy the anticipated outstanding loan balance at the time of the expected cancellation. Before granting a forbearance to a borrower, the lender must require the borrower to submit the following:

• Documentation showing the beginning and anticipated ending dates of the period during which the borrower expects to perform the qualifying teacher service for that year.

• A self-certifying statement of the borrower's intent to satisfy the teacher loan forgiveness requirements.

The lender also grants a forbearance, at the borrower's request, for a period not to exceed 60 days while the lender is waiting for a completed teacher loan forgiveness application from the borrower. In addition, after receiving the application, and if requested by the borrower, the lender grants a forbearance to cover the period needed by the guarantor to determine the borrower's eligibility for discharge. The forbearance begins on the date the lender receives the completed teacher loan forgiveness application and ends on the date the lender receives a denial of the request or the loan discharge amount from the guarantor. For this forbearance, as with other forbearances, comakers of a consolidation loan must individually qualify for the same, or a different forbearance in order for one to be granted.

Teacher Loan Forgiveness Program

The Common Manual has been revised to reflect the new requirements for the Teacher Loan Forgiveness Program and eliminate references to the previous Loan Forgiveness Program for Teachers. The Teacher Loan Forgiveness Program is intended to encourage individuals to enter and continue in the teaching profession in certain eligible elementary and secondary schools that serve low-income families. Under this program, the Department repays all or a portion of a borrower's Stafford loan obligations, and Consolidation loan obligations to the extent that a Consolidation loan repaid a borrower's Stafford loans(s). To be eligible for this forgiveness program, borrowers must meet the following criteria:

• The borrower must be a "new borrower" on or after October 1, 1998.

• The borrower must have been employed as a full-time teacher for 5 consecutive, complete academic years in a qualified school, as certified by the chief administrative officer at that school. A qualified school is one that meets all of the following criteria:

• Is in a school district that qualifies for funds under Title I of the Elementary and Secondary Education Act of 1965, as amended.

• Has been selected by the Department based on a determination that more than 30 percent of the school's total enrollment is made up of children who qualify for services provided under Title I.

• Is listed in the Annual Directory of Designated Low-Income Schools for Teacher Cancellation Benefits. (If this directory is not available before May 1 of any year, the previous year's directory may be used.)

If the school where the borrower is employed meets the eligibility criteria for any year of the borrower's employment, all subsequent years continue to qualify the borrower even if the school is no longer eligible. However, if the borrower is initially employed by a school that does not meet the criteria and the school later qualifies, the borrower's 5 qualified years of service begin when the school meets the eligibility 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 at 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 at which the borrower is employed. • One of the 5 years of qualifying service must be performed after the 1997-1998 academic year.

• A borrower who is in default on a loan(s) for which the borrower seeks forgiveness must have made satisfactory repayment arrangements on the defaulted loan(s) to reinstate Title IV aid eligibility. See section 8.9.

The loan for which forgiveness is sought must have been made before the end of the 5th year of qualifying teaching service.

Completion of one-half of an academic year is considered to be 1 academic year if the borrower's employer considers the borrower to have fulfilled his or her contract requirements for the academic year for the purposes of salary increases, tenure, and retirement, and the borrower is unable to complete the academic year due to any one of the following:

• A return to postsecondary education on at least a half-time basis in a program directly related to the borrower's teaching service.

• A condition covered under the Family and Medical Leave Act.

• An order to active duty status for more than 30 days.

A break in the borrower's teaching service for any one of the above reasons, (even if not counted as part of an eligible academic year for the purpose of the discharge), along with the time required to return to qualifying teaching service at the beginning of the next regularly scheduled academic year, is not considered a break in the required 5 consecutive years of service.

For the purpose of the Teacher Loan Forgiveness Program, the following definitions apply:

• An academic year means 1 complete school year at the same school, or 2 complete and consecutive half-years from different school years at either the same or different schools. Half-years exclude summer and generally fall within a 12-month period. For schools that have a year-round program of instruction, a minimum of 9 months is considered to comprise an academic year.

• Full-time means the standard used by a state in defining full-time employment as a teacher. For a borrower teaching in more than one school, the determination of full time is based on the combination of all qualifying employment. A borrower may combine service at multiple qualifying schools to equal full-time teaching service.

• Elementary school means a public or nonprofit private school that provides elementary education as determined by state law or the Department if that school is not in a state.

• Secondary school means a public or nonprofit private school that provides secondary education as determined by state law or the Department if the school is not in a state.

• Teacher means a person who provides direct classroom teaching or classroom-type teaching in a non-classroom setting, including special education teachers.

The Department will repay, on behalf of a qualified borrower, no more than a combined total of $5,000 under both the FFELP and FDLP for outstanding principal and accrued interest on his or her qualifying Stafford loan(s) [or the outstanding portion of a Consolidation loan used to repay qualifying Stafford loan(s)] 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(s).

No borrower may, for the same service, receive benefit under both the Teacher Loan Forgiveness Program and subtitle D of Title I of the National and Community Service Act of 1990.

Procedures for applying for the Teacher Loan Forgiveness Program have not been defined, but are being addressed by the community in its discussions with the Department.

False Certification Loan Discharges

The Common Manual has been revised to allow the guarantor or Department to initiate the false certification discharge process if either possesses knowledge of false certification eligibility. If the guarantor or Department initiates the discharge process, the borrower may not be required to complete a discharge request.

False Certification Loan Discharges

The Common Manual has been revised to remove the borrower's employment attempt conditions previously required for false certification loan discharge requests. Borrowers are no longer required to certify that a reasonable attempt was made to obtain employment in the occupation for which the program was intended to provide training.

Cohort Default Rates

Common Manual chapter 10 has undergone major revisions to more accurately reflect the actual cohort default rate process and mimic the modified structure of federal regulations. In addition, new text includes the substantive changes derived from new regulations published November 1, 2000 and the budget bill signed into law in December. While the structure of the chapter changes dramatically, the following are the substantive regulatory and policy changes of which schools should be aware:

• A school will lose eligibility to participate in the FFELP and the FDLP 30 days after receiving notice that its official cohort default rate for the most recent fiscal year exceeds 40%, unless the school appeals or requests an adjustment to that rate. The loss of eligibility is applicable to the remainder of the fiscal year in which the notice is received and the next 2 fiscal years.

• A school will lose eligibility to participate in the FFELP, the FDLP, and the Federal Pell Grant Program 30 days after receiving notice that its 3 most recent official cohort default rates equal or exceed 25%, unless the school appeals or requests an adjustment to that rate. The loss of eligibility is applicable to the remainder of the fiscal year in which the notice is received and the next 2 fiscal years.

• Any school may appeal its most recent cohort default rate based on improper servicing and collection. A school subject to an initial loss of eligibility may appeal any cohort default rate upon which the loss of eligibility is based. This appeal alleges that improper servicing and collection caused defaults on specific loans that were included in the calculation of the cohort default rate. A school subject to an extended loss of eligibility may appeal only its most recent official cohort default rate.

• A school subject to provisional certification may appeal its cohort default rate using the erroneous data appeal.

• The calculation of the Participation Rate Index (PRI) challenge or appeal has been expanded to address schools with a single cohort default rate over 40%. The PRI puts into perspective the impact of the school's cohort default rate on the federal fiscal interest. Thus, a low PRI indicates that the overall impact of the school's students who default is not significant in terms of federal dollars. The PRI is the percentage of a school's students that obtain FFELP or FDLP loans multiplied by the school's cohort default rate. The calculation is accomplished as follows:

Step 1—Select a 12-month period that ends no more than 6 months prior to the beginning of the fiscal year for which the cohort default rate is calculated.

Step 2—Determine the number of regular students enrolled on at least a half-time basis during any part of the selected 12-month period.

Step 3—Of those students identified in Step 2, determine the number who received FFELP or FDLP loan funds to attend the school during a loan period that overlaps with any part of the 12-month period selected in Step 1.

Step 4—Divide the result of Step 3 by the result of Step 2 to determine the percentage of students who received loans.

Step 5—Multiply the result of Step 4 by the school's cohort default rate to obtain the PRI.

A school that is subject to a loss of FFELP eligibility may use the PRI appeal based on either of the following conditions:

• The school has one cohort default rate over 40% and the PRI for that cohort's fiscal year is less than or equal to 0.06015.

• The school has three consecutive cohort default rates of 25% or more and the PRI for any one of the three cohorts' fiscal years is less than or equal to 0.0375.

• A school remains accountable for the consequences of a high official cohort default rate after its merger with or acquisition of another school, or after a branch campus becomes a separate, freestanding school. Rules for calculating cohort default rates for schools affected by these structural changes are explained in detail in the new regulations.

• Any school that merges with or acquires another school and that is otherwise eligible to participate in the FFELP loses FFELP eligibility based on a single official cohort default rate greater than 40% or equal to or greater than 25% for each of its 3 most recent official cohort rates if all of the following criteria apply:

• Both schools are parties to a transaction that results in a change in structure or identity.

• The FFELP-eligible school offers an educational program at substantially the same address as that at which the FFELP-ineligible school offered programs before the change in structure or identity.

• There is a commonality of ownership or management between the two schools.

The Department will notify the school that it is subject to the same loss of eligibility as the ineligible school. The loss applies to all of the school's locations from the date the school receives the notice until the end of the ineligible period applicable to the ineligible school. A school subject to an applied loss of eligibility may submit a request for adjustment or an appeal that would be applicable to the ineligible school.

• A school subject to a loss of eligibility due to a single cohort default rate exceeding 40% may submit an "average rate appeal" if at least 2 of the school's 3 most recent cohort default rates of 25% or more are calculated at an average rate, and at least 2 of those rates would be less than 25% if calculated for the applicable fiscal year alone.

• A school subject to a loss of eligibility based on a total of thirty or fewer borrowers in the 3 most recent cohorts of borrowers used to calculate the school's cohort default rates may submit a "thirty-or-fewer borrowers" appeal.

• HR 4577, signed by the President in December 2000, extends until July 1, 2004, the period during which historically black colleges and universities (HBCUs) and tribally controlled and Navajo community colleges may qualify for exemptions from loss of FFELP eligibility and other sanctions that would otherwise result from high cohort default rates.

• All references to "days" in cohort default rate regulations refer to calendar days. Previously, various time frames and deadlines carried their own specific definition of days, sometimes "business days" and sometimes "calendar days." The new time frames are comparable to the former ones in most cases.

• All references to the "weighted average cohort default rate" have been changed to the "dual-program cohort default rate," as the latter term is the one used by the Department in its publications.

• References to the Department's Draft Cohort Default Rate Guide and Official Cohort Default Rate Guide have been revised to refer simply to the Cohort Default Rate Guide. It is the Department's intention to consolidate both the draft and official information into a single publication that will be updated annually.

• Minor changes have been made to the text in section 10.6, addressing lender cohort default rates. These changes remove reference to the Guarantor and Lender Oversight (GLOS) division of the Department and replace those references with the new name of that division, Financial Partners. Additional changes remove references to guarantor activities from the text as convention dictates that guarantor activities are not detailed in the Common Manual.

Appendix G has been updated to replace the term, "Weighted Average Cohort Rate" with the term now in use by the Department, the "Dual-Program Cohort Default Rate." The definition of "Cohort Default Rate" has also been updated.

Written Agreements Between Schools

The Common Manual has been updated to reflect recent changes in federal regulations that allow a school to enter into a single written agreement with a study-abroad organization representing one or more foreign schools rather than a separate agreement with each individual foreign school that its students attend. The clarification that a study-abroad organization may represent one or more foreign institutions is included on page 65663 in the preamble language of the Federal Register referenced below.

School Reporting Requirements

The Common Manual has been revised to contain school "reporting" rather than "notification" requirements for maintaining eligibility. Changes include addition of the requirements to report decreases in levels of program offering or change in governance of a public school, and the addition of a reference to 34 CFR 600.21.

Change in Ownership or Status

The Common Manual now includes the revised requirements regarding private nonprofit, private for-profit, and public schools that experience a change of ownership resulting in a change of control and schools that change status as nonprofit, for-profit, or public schools. Such schools may continue eligibility by submitting an application to the Department.

In response to a school's application, the Department may approve a provisional Program Participation Agreement (PPA) (previously referred to as a TPPPA). The time frames applicable to the expiration of a provisional PPA are the same as those previously applicable to the TPPPA. To obtain an extension of the provisional PPA prior to its expiration, the school must provide to the Department a "same day" balance sheet, required documentation of accrediting agency and state licensing approval, and a default management plan (unless the school is exempt from providing the plan).

Change in Governance for a Public School

The Common Manual has been revised to state that a change in governance for a public school is not considered to be a change of ownership that results in a change in control, if the school remains a public school after the change and the new governing authority is in the same State and has acknowledged the school's continued responsibilities under its Program Participation Agreement (PPA). A public school must, within 10 days of a change in governance, report the change to the Department and each applicable guarantor.

Delivery of Title IV Funds

The Common Manual has been revised to state that a school may be prohibited from delivering Title IV funds to students if the school's Program Participation Agreement (PPA) expires, the school undergoes a change in ownership resulting in a change of control, or the school changes status as a non-profit, for-profit, or public school. The school may deliver Title IV funds if it has submitted a timely, materially complete application to continue certification to participate in Title IV programs. In addition, the school must receive a provisional Program Participation Agreement (PPA), submit any additional required information in a timely manner, and be awaiting a final determination from the Department. If a school does not comply with these requirements and continues to deliver Title IV funds, the school is liable for those Title IV funds delivered after the expiration of the school's eligibility. The Common Manual has also been updated to delete subsection 4.1.E. because this information was duplicated in section 6.4. A reference to section 6.4 was added at the end of subsection 4.1.D.

Prior Overpayment or Default Documentation Requirements

The Common Manual is being revised to include clarifications provided by the Department in its Dear Partner Letter (DPL) GEN-00-18 published November 8, 2000. The Department clarified the procedures a school should use to ensure that it does not deliver FFELP loan funds to students who are ineligible due to an unresolved prior overpayment of Title IV funds or an unresolved prior default on a Title IV loan. In all cases, the school must retain documentation that clearly substantiates its determination that a prior overpayment or default has been resolved. The Department specifically notes that documentation that the reporting entity has "no record" of the prior overpayment or default is not considered adequate for the release of FFELP funds. Specific procedural guidance is provided in the DPL and schools are encouraged to ensure their staff is familiar with the Department's recommendations.

Financial Aid Histories and the Delivery of Loan Proceeds

Revised Common Manual policy states that schools may not deliver Stafford or PLUS loan proceeds to a student or parent of a student who previously attended another eligible school until the school determines from information obtained from NSLDS or its successor system, that the student meets eligibility requirements pertaining to his or her financial aid history. The school must determine (1) whether the student is in default or owes an overpayment to any Title IV program; (2) the amount of the student's scheduled Federal Pell Grant disbursement and the amount of any Federal Pell Grant funds already disbursed to the student; (3) the outstanding principal balance of Title IV loans made to the student; and (4) the amount of, and period of enrollment for, Title IV loans made to the student for the academic year for which Title IV aid is requested.

For a student who transfers from one school to another during the same award year (i.e., a current-year transfer student), the school the student is attending must request or access through NSLDS updated information about that student in order to determine the student's eligibility for Stafford or PLUS loan proceeds. The school must wait for 7 days following a request to NSLDS before delivering Stafford or PLUS loan proceeds. However, if before the end of 7 days, the school receives the information from NSLDS in response to its request or obtains that information itself by directly accessing NSLDS, the school may deliver the loan proceeds as long as the student is otherwise eligible. Schools may no longer delay delivery of loan proceeds by 45 days while waiting for paper financial aid transcripts to arrive.

Schools are no longer required to respond to paper financial aid transcript requests for prior-year or current-year transfer students.

FFELP Delivery Requirements for Non-Standard Term Credit Hour Programs

Revised policy clarifies that a program measuring academic progress in credit hours but not using a standard semester, trimester, or quarter system may deliver second or subsequent disbursements no earlier than 10 days before the first day of any payment period if the terms are substantially equal in length throughout the loan period. Terms within a loan period will be considered substantially equal in length if no term in the loan period is more than two weeks longer than any other term in the loan period. Schools with credit hour programs that do not use terms, or use terms that are not substantially equal in length, are still required to wait until the later of the calendar midpoint of the loan period or the date that the student has completed half of the academic coursework in the loan period before delivering the second disbursement of the loan.

Economic Hardship Deferment

The Common Manual has been revised to update the economic hardship deferment information. Revised policy and regulation require the lender to use evidence of the borrower's "monthly income," rather than "total monthly gross income." "Monthly income" is defined as the gross amount of income received by the borrower from employment and other sources, or one-twelfth of the borrower's adjusted gross income, as recorded on the borrower's most recently filed federal income tax return. There is no longer a difference in required documentation for an initial and a subsequent economic hardship deferment. The revised policy and regulation allow a lender to grant the deferment for periods that, collectively, do not exceed 3 years. Any retroactive period of economic hardship granted under this revised policy must include July 1, 2000, or a later date. In all cases, the lender must ensure that the borrower's required documentation supports the begin date of the economic hardship period.

Forbearance Eligibility Chart

The Common Manual is revised to add a Forbearance Eligibility Chart. This chart is a reference tool that may be used to identify general information about discretionary, administrative, mandatory, and mandatory administrative forbearances, including situations in which these forbearance types may be used by a borrower and an endorser, if applicable. The chart also provides information about the length of the forbearance and general information about required documentation. For detailed information about each forbearance, see the applicable subsection.

Ineligibility Borrower Claims

The Common Manual has been revised to reflect guidance provided by the Department in an Office of Student Financial Assistance Dear Financial Partner Letter published October 17, 2000. Guarantors will now pay ineligible borrower claims at 98% rather than 100%.