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.

 Ineligible Loans

The Common Manual has been revised to provide a detailed explanation of how to determine who is responsible for a borrower’s receipt of funds for which he or she is ineligible and the appropriate steps to be taken in each instance. This is a clarification of current policy affecting section 7.12 and subsection 6.3.G.

Current policy provides that the borrower is considered ineligible for a loan if he or she provides false or incorrect information in the loan application process or acts in a way that causes the borrower to be ineligible for the loan. The revised policy identifies examples of borrowers receiving loan funds for a non-enrolled student and also clarifies when school, lender, or borrower liability may occur.

If loan funds have been delivered to or on behalf of a student who did not attend classes during the payment period for which the loan is intended, the borrower may be considered ineligible for those funds. The determination of whether the ineligibility is due to borrower, school, or lender error is contingent upon when the funds were delivered.

If a school delivers loan funds to or on behalf of an otherwise eligible student during the 10-day period prior to the beginning of the enrollment period, and the student does not attend any classes during the enrollment period, ceases to be enrolled at least half-time, or is expelled prior to the start of the payment period, the borrower is ineligible for those funds due to borrower error. In this case, the school must notify the lender of the borrower’s receipt of funds for which he or she is ineligible (see subsection 8.1.M. for lender servicing requirements for ineligible loans). The school will not be assessed any liability for delivering loan funds in this instance unless the school knew or should have known that the borrower was ineligible to receive the funds at the time they were delivered.

If a school delivers loan funds to or on behalf of an otherwise eligible student during the 10-day period prior to the first day of a second or subsequent payment period, and the student does not attend any classes during the second or subsequent payment period, ceases to be enrolled at least half-time, or is expelled prior to the start of the payment period, the school must determine whether the borrower is ineligible (see section 7.12). If the school determines that the borrower was ineligible for the loan funds, the school must notify the lender of the borrower’s receipt of funds for which he or she is ineligible (see subsection 8.1.M. for lender servicing requirements for ineligible loans). If the school determines that the borrower was eligible for the funds, the school must adhere to the applicable refund and repayment guidelines (see section 4.7). The school will not be assessed any liability for delivering loan funds in this instance unless the school knew or should have known that the borrower was ineligible to receive the funds at the time they were delivered.

Current policy also provides that if a borrower receives funds for which he or she is ineligible due to school error, the school is responsible for repaying the liability to the lender. The revised policy clarifies that the liability amount includes the amount disbursed that the borrower is ineligible for plus any outstanding accrued interest due to the lender, but does not include any payment or prepayment made by the borrower prior to the date the school repays the funds. The school must also repay the U.S. Department of Education any interest and special allowance benefits received by the lender. If the school refunds the interest and special allowance to the lender, the lender must make an appropriate adjustment on its next quarterly ED Form 799. Until the school repays the funds, the lender must continue to service the loan as an eligible FFELP loan. If the school repays the entire amount of the loan, the school may ask the lender to assign the original promissory note to the school. This request must be made at the time the school repays the loan.

If a borrower misrepresents or misreports information that the school is required to verify, and the school fails to verify the information, resulting in the borrower's receipt of funds for which he or she is ineligible, the ineligibility must be considered a school error regardless of any error made by the borrower. In this situation the school must repay the amount that the borrower is ineligible for and any applicable interest and special allowance benefits, as described above.

In addition, current policy provides that if a borrower receives loan funds that he or she is ineligible for due to lender error, the lender may not bill the Department for interest or special allowance on the ineligible portion of the loan. The revised policy clarifies that if the borrower receives ineligible loan funds due to lender error, the lender must refund to the Department any such amounts already paid. The ineligible portion of the loan is not insured by the guarantor; however, the borrower remains eligible for all benefits identified in the promissory note, including deferment and various repayment options.

This clarification of existing policy is effective retroactively to the implementation of the Common Manual.

Borrower Specific Deferment Exceptions Removed

Current Common Manual policy states that deferments generally are borrower specific—not loan specific. However, if all of the borrower’s loans are paid in full and the borrower subsequently obtains a new loan, the borrower is eligible for all deferments applicable to that loan, despite any previous periods of deferment. For example:

· A borrower has used 36 months of unemployment deferment on loans A and B, then obtains additional loans. The borrower is not eligible for additional unemployment deferment, even if loans A and B are subsequently paid in full.

· A borrower has used 36 months of unemployment deferment on loans A and B, then pays both loans in full. After both loans are paid in full, the borrower obtains new loans. The borrower is eligible for an additional 36 months of unemployment deferment.

Current subsection 7.10.L. clarifies that parental leave deferments are neither borrower specific nor loan specific, but are based on occurrence. A borrower is eligible for a parental leave deferment for each newborn or adoption and may obtain a deferment for the maximum period for each occurrence. Duplicative parental leave deferment guidance found in section 7.9 is being removed.

These changes are effective for deferment requests received by the lender on or after July 1, 1999, unless implemented earlier by the guarantor.

Guarantee on Subsidized Stafford Loans

Common Manual guarantors have adopted a new policy to help ensure that all students eligible for interest subsidy on subsidized Stafford loans benefit from that subsidy. If a student fails to check the box on the loan application indicating his or her request for a subsidized Stafford loan, but the school certifies subsidized Stafford loan eligibility for the student, the guarantor will guarantee the subsidized Stafford loan for the lesser of the amount certified by the school or requested by the student. Subsection 6.1.B. of the Common Manual has been revised to reflect this new policy.

In addition, subsection 6.1.H. has been revised to reflect that a student’s failure to request a subsidized Stafford loan shall no longer preclude the reallocation of subsidized and unsubsidized funds (provided the student requested an unsubsidized Stafford loan). Previously, such reallocations were permissible only when the borrower had requested both subsidized and unsubsidized Stafford loan proceeds.

These changes are effective for loan applications and promissory notes received by the guarantor on or after April 1, 1999, unless implemented earlier by the guarantor.

Special Allowance Billing Limits Clarified

Current Common Manual policy states that lenders are eligible for special allowance payments on defaulted loans filed timely with the guarantor through the date on which the claim is paid. However, federal regulations further limit a lender=s billing of special allowance to the period during which the loan remains reinsured. Loans remain reinsured only if the default claim is paid within 90 days of the date on which the guarantor receives the claim.

The Common Manual has been revised to reflect the regulatory requirement that loans on which claims are filed with the guarantor on or before the 240th day of delinquency (or 300th day of delinquency for loans payable in less-frequent-than-monthly installments) are eligible for special allowance payment through the date on which the lender receives the claim payment, or through the 90th day (plus a 5-day mail time allowance) after the date on which the claims are filed with the guarantor, whichever is earlier. The lender may be required to readjust special allowance billing if it receives information from the guarantor specifying the date on which the guarantor received the claim. If such information is received, the lender must ensure that special allowance is not billed beyond the 90th day following the date the guarantor received the claim.

This clarification is being added to subsections 8.1.D., ^CCI8.1.D, and A.2.B., and is effective retroactively to the implementation of the Common Manual.

Satisfactory Repayment Arrangement

The Common Manual definition of the term "satisfactory repayment arrangement" has been enhanced to more accurately reflect the definition contained in current regulations. A satisfactory repayment arrangement may be established by a borrower either to regain eligibility for Title IV student assistance, to rehabilitate a defaulted loan, or to consolidate a defaulted loan.

The loan holder’s determination of a "reasonable and affordable" payment amount is based on the borrower’s total financial circumstances. "Voluntary" payments are payments made directly by the borrower, and do not include payments obtained by tax offset, garnishment, or income or asset execution. "On-time" means a payment received by the guarantor within 15 days before or after the scheduled due date.

This correction is effective retroactively to the implementation of the Common Manual.