New Disaster Areas and New Guidance Alabama, Kentucky, Minnesota, New Hampshire, New Jersey, North Carolina, Tennessee

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.

Due to tornadoes that streuck April 8-9, 1998, the following counties in Alabama have been declared to be disaster areas: Covington, Cullman, Jefferson, St. Clair, Tuscaloosa, and Walker.

Due to tornadoes that struck April 16, 1998, the following counties in Kentucky have been designated to be disaster areas: Adair, Barren, Bell, Casey, Clay, Floyd, Knott, Knox, Leslie, Metcalfe, Perry, Pike, Warren, and Whitley counties.

Due to tornadoes that struck March 29, 1998, the following counties in Minnesota have been declared to be disaster areas: Blue Earth, Brown, Cottonwood, LeSuer, Nicollet, Nobles, and Rice counties.

Due to flooding that began June 12, 1998, the following counties in New Hampshire have been declared to be disaster areas: Belknap, Carroll, Grafton, Hillsborough, Merrimack, and Rockingham counties.

Due to flooding that began February 4, the following counties in New Jersey have been designated to be disaster areas: Atlantic, Cape May and Ocean counties.

Due to tornadoes that struck March 20-21, 1998, the following counties in North Carolina have been designated to be disaster areas: Durham, Edgecombe, Lenoir, Nash, Rockingham, Wake, and Wayne.

Due to flooding that began January 6, 1998, the following counties in Tennessee have been declared to be disaster areas: Carter, Johnson, Unicol, Washington. In addition, due to severe storms and flooding that began on July 13, 1998, the following counties in Tennessee has been designated to be a disaster area: Lawrence and Lewis counties.

When does the 3-month forbearance begin?

Because there have been several disaster designations recently that have occurred some months after the disaster events it may be helpful to summarize the guidance issued by the Department concerning how the disaster forbearance policy is intended to work.

The holder of the loan decides if it will grant forbearance to the borrower. The holder is in the best position to know about the difficulties that the borrower has experienced. In many cases, the holder (particularly one in the local area) may be familiar with the actual extent of damage resulting from the disaster. Some borrowers may be affected by the disaster immediately. Others may encounter problems weeks after the disaster occurs. This is particularly true for floods, which create problems sequentially, for weeks at a time, as they spread over wide areas. Conversely, an earthquake begins at a precise moment and affects a fixed geographic area.

Loan holders are strongly encouraged to grant forbearances of up to 3 months to borrowers who contact them and indicate that they have been adversely affected by a disaster and need some temporary relief from their loan obligations. For this initial forbearance period, the holder will not be required to obtain a signed agreement from the borrower, but the holder must document in its files to show the date the borrower requested the forbearance. To continue a forbearance past this initial period, the borrower must provide supporting documentation and agree to the terms of the forbearance in writing, as is normally required under 34 CFR 582.211(c).

To illustrate how this could work, let’s look at some examples involving a flood. On August 15, a lender receives a call from a borrower who lives in a county listed in a disaster area. The borrower asks for forbearance because of financial problems caused by flood and damage to her home. The lender decides that it will grant forbearance, and informs the borrower that she does not need to make her next 3 monthly payments. However, if she continues to need forbearance after the 3-month period expires, she will need to provide documentation satisfactory to the lender showing that she continues to have financial or other problems that would justify the lender’s approval of an extension of the forbearance. The borrower would need to sign a forbearance agreement for this extended forbearance.

Three months later, the same holder is contacted by two more borrowers who live in the same county. One borrower asks for forbearance because of flood damage that just affected him the day before. The other borrower says that her home was flooded in August, and she has been so busy since then that she forgot about her student loan until now. Once again, the loan holder is expected to make a reasonable decision of how to handle these requested. Some borrowers may need forbearance to cover their overdue payments retroactively to the beginning date of the flood. Other borrowers may only need forbearance as of the date they asked for it, or as of the date that the flood actually affected them. The holder could also decide that the borrower has not been affected by the flood and does not need a forbearance. These are judgment calls by the loan holder, and the Department expects loan holders will exercise their judgment reasonably.

Obviously, there are limits that could be reached, for example, if the holder receives a call from a borrower who claims that he was harmed by the flood that occurred one year ago. Most people probably would be skeptical of such a belated claim, and would question why the holder routinely granted the 3-month, semi- administrative disaster forbearance to the borrower rather than a normal forbearance. The general approach the Department anticipates that loan holders will take is to be generous in the granting of disaster forbearances that cover the immediate time periods when the disasters occur. As time goes by, and the impact of the disaster recedes, the holder should eventually reach a point where borrowers claiming that they suffered a disaster-related problem long after the disaster would be treated under the normal forbearance rules.

Disaster-related Forbearance Policy

1. Loan holders are strongly recommended to grant forbearances to borrowers who contact them and indicate that they have been adversely affected by the disaster and need temporary relief from their loan obligations. If the holder believes that the borrower has been harmed and needs assistance, the holder may grant a forbearance for up to 3 months after the disaster strikes the borrower, based on either the borrower's oral or written request for assistance, which must be documented in the holder's files.

2. The holder does not need to obtain supporting documentation or a signed written agreement from the borrower to justify a forbearance for this initial 3-month period. The Secretary will decline to enforce the requirements of 34 CFR 682.211(c) for this period.

3. A continuation of the forbearance past this 3-month period will require supporting documentation and a written agreement from the borrower.

We will notify you if additional areas are designated. Questions and concerns may be addressed to the Department’s toll-free number at 1-800-433-7327, Monday through Friday from 9:00 a.m. to 5:00 p.m. EST.