Common Manual Updates

LOUISIANA STUDENT FINANCIAL ASSISTANCE COMMISSION
OFFICE OF STUDENT FINANCIAL ASSISTANCE

LOAN PROGRAM MEMORANDUM

LPM NO.: L99-3 Effective Date: As Indicated
Pub. Date: February 25, 1999 Distribution: Lenders and Schools
Topic: 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.

 

Transfer of Loan Guarantee

Previously, guarantors had various policies regarding the criteria for the transfer of a loan's guarantee from one guarantor to another. Although federal regulations specify two key criteria, policies were not consistent regarding the other parameters for the loan to remain insured with the new guarantor. The Common Manual guarantors have identified two general categories of guarantee transfers. In some cases, a borrower requests that a loan's guarantee be transferred from one guarantor to another in order to have all of his or her loans administered under a single guarantor. In other cases, lenders may request the change of guarantee based on changes in servicer or guarantor relationships.

In the case of a borrower-requested guarantee transfer, the transfer may occur only if the borrower's request is obtained in writing, and the holder and both guarantors agree to the transfer. In the case of a loan made to two borrowers as comakers, both borrowers must request the transfer in writing.

A guarantor will not accept a borrower-requested transfer of guarantee on any loan for which any one of the following conditions exist:

The lender must certify in writing to the guarantor accepting the transfer that, according to its records at the time of transfer, none of these conditions exist for the loan being transferred.

A guarantee may be transferred without the borrower's request only with the prior approval of the Department, the loan's holder, and both guarantors.

Prior to any guarantee transfer, the lender of the loan must have an active agreement with the guarantor accepting the transfer. The lender also must obtain in writing the borrower's request or the Department's approval, as applicable, and supply the guarantor accepting the transfer with copies of those documents, if required by that guarantor. Guarantee fees paid on the loan will not be transferred.

This policy is effective for guarantee transfer requests submitted by lenders on or after July 1, 1999. Subsections now under section 3.3 are being renumbered, and this new policy is being added as a new subsection, 3.3.D., of the Common Manual.

 

Effect of PLUS Eligibility on Unsubsidized Stafford Loan Eligibility

Current Common Manual policy states that a school may certify a dependent student for additional unsubsidized Stafford loan funds if one of the student's parents is unable to obtain a PLUS loan.

However, if either parent later becomes eligible for a PLUS loan, current policy requires the school to request the cancellation of any future disbursements of additional unsubsidized Stafford loan funds.

Revised Common Manual policy has now been expanded to also state that the school must return to the lender any additional unsubsidized Stafford loan funds received by the school but not yet delivered to the student for that loan period.

Section 5.3 of the Common Manual has been updated to reflect this policy change, which is effective for loans certified by the school on or after July 1, 1999.

 
Consolidation Loan Changes

The Higher Education Amendments of 1998, signed by the President on October 7, 1998, revised certain provisions of the Federal Consolidation loan policy. The following changes, implemented to comply with the Amendments, are effective for loan applications received by the lender on or after October 1, 1998, and will be incorporated into the Common Manual:

Consolidation Loan Nondiscrimination

Subsection 9.1.A. of the Common Manual is being revised to state that a Consolidation loan lender may decline to consolidate Health Professions Student Loans (HPSL), including Loans for Disadvantaged Students (LDS), Nursing Student Loans (NSL), and Health Education Assistance Loans (HEAL) loans.

Eligibility and Underlying Loan Requirements

Section 9.2 of the Common Manual will be revised to include changed Consolidation loan borrower eligibility provisions. The new policy will remove the reference to temporary provisions concerning cancellation of a Direct Consolidation loan application through September 30, 1998. Section 9.3 will be removed and reserved because it contains information that has now been moved into section 9.2.

A borrower must not be subject to a judgment secured through litigation or an order of administrative wage garnishment on a Title IV loan. If the judgment has been released or the wage garnishment order has been rescinded, the borrower may be eligible to consolidate the loans (see bullet below on including Title IV defaulted loans in a Consolidation loan).

A borrower or married couple with FFELP loans held by multiple lenders may request consolidation from any participating consolidation lender regardless of whether the consolidating lender is a holder of any of the borrower or borrower’s loans.

In the case of a married couple seeking a Consolidation loan in which all of the loans to be consolidated are held by a single lender, only one of the borrowers must contact the lender and only one of the applicants is required to make the certification that they unsuccessfully attempted to obtain consolidation from the holder of their loans or that the holder of their loans does not offer an income-sensitive repayment schedule.

Loans That May Be Consolidated

Another revision to section 9.2 of the Common Manual will remove the restricted time period during which the borrower may include an FDLP loan among loans that may be contained in a Federal Consolidation loan, and will update information concerning adding loans after consolidation.

A borrower who currently has a Federal Consolidation loan is eligible for another Federal Consolidation loan if the borrower has obtained a new eligible loan after the date the original Consolidation loan was made. Any or all outstanding eligible loans may be consolidated, including loans made prior to any previous consolidation loan.

Federal and Direct Stafford, PLUS and Consolidation loans, FISL, Perkins, Health Professions Student Loans (HPSL), including Loans for Disadvantaged Students (LDS), Nursing Student Loans (NSL), and Health Education Assistance Loans (HEAL) are included in the types of federal education loans that may be consolidated.

If a borrower with a Federal Consolidation loan chooses to consolidate again and meets the eligibility requirements, the borrower can include any combination of the following into the new Consolidation loan: (1) any loans made prior to the original consolidation loan and not included in that consolidation, (2) the original Consolidation loan, and (3) any new loans obtained after the original Consolidation loan. However, the borrower is not required to include the new loans made after the original Consolidation loan even though it was those loans which qualified him or her for the subsequent consolidation.

A Consolidation loan may be consolidated only if the borrower, or either spouse of a married couple who are co-consolidating, obtained a new eligible loan after the date the original Consolidation loan was made.

A borrower may add to any outstanding Consolidation loan any eligible loans received before or after the date of the consolidation, provided the borrower, or either spouse in a co-consolidating couple, makes a request within 180 days of the date the Consolidation loan is disbursed. After the 180-day period, the borrower may not include additional loans into the Consolidation loan.

Consolidation Loan Interest Rate

Subsection 9.4.D. of the Common Manual will be revised to incorporate an interest rate table and to reflect the Consolidation loan interest rate effective for loan applications received by the lender on or after October 1, 1998.

 

CONSOLIDATION LOAN INTEREST RATES

Loan Characteristic

Annual Interest Rate

Applications received by the lender on or after 10/1/98  

Portion attributable to FFELP, FDLP, FISL, Perkins, HPSL, or NSL loans

Portion attributable to HEAL loans (if applicable)
   

Fixed

Weighted average of the interest rates on the non-HEAL loans being consolidated, rounded up to the nearest one-eighth of one percent, not to exceed 8.25%

[HEA 427A(k)(4)]

 

Variable1

Average of the bond equivalent rates of the 91-day Treasury bills auctioned for the quarter ending June 30, plus 3.0%, with no cap.

[HEA 428C(d)(2)(A) and (B)]

Applications received by the lender between 11/13/97 and 9/30/98, inclusive  

Portion attributable to FFELP, FDLP, FISL, Perkins, HPSL, or NSL loans

Portion attributable to HEAL loans (if applicable)
   

Variable1,2

Bond equivalent rate of the 91-day Treasury bills auctioned at the final auction prior to the preceding June 1, plus 3.1%, not to exceed 8.25%

[HEA 427A(k)(4)]

 

Variable1

Average of the bond equivalent rates of the 91-day Treasury bills auctioned for the quarter ending June 30, plus 3.0%, with no cap.

[HEA 428C(c)(2)(A) and (B)]

Loans made on or after 7/1/94, from applications received by the lender before 11/13/97  

Fixed

Weighted average of the interest rates on the underlying loans being consolidated, rounded up to the nearest whole percent.

[HEA 428C(c)(1)(C)]

 

Loans made before 7/1/94

Fixed Greater of 9% or weighted average of the interest rates on the underlying loans being consolidated, rounded to the nearest whole percent.

[HEA 428C(c)(1)(B); ยง682.202(a)(4)

 

1All variable interest rates are adjusted annually on July 1.

2Lenders who initially calculated the interest rate using the weighted average were required, no later than April 1, 1998, to recalculate the loans at the variable rate retroactively to the date the loans were disbursed and apply any credits to the borrower’s account.

 

Calculating the Weighted-Average Interest Rate

With the exception of any outstanding balance representing a HEAL loan, the outstanding balance of all eligible loans to be consolidated are included in the weighted-average interest rate calculation. A weighted-average interest rate is calculated as follows:

The following exemplifies a weighted-average interest rate calculation for a loan application received by the lender on or after October 1, 1998:

Step 1

Multiply the outstanding balance of each loan to be consolidated by that loan’s current interest rate. A variable rate loan should be included in the calculation at the rate at which it is currently accruing.

Example: Outstanding loan balances are $3,500, $3,200, and $5,500, respectively—for a total of $12,200. The current interest rates for the loans are 7%, 5%, and 9% respectively.

$3,500 X .07 = $245
$3,200 X .05 = $160
$5,500 X .09 = $495

Step 2

Add the results of all calculations made under Step 1. Then divide this sum by the outstanding balance of all loans being consolidated.

Example:            

                    $245 + $160 + $495 = $900

$900 ) $12,200 = .07377 or 7.377%

Step 3

Round the result of Step 2 up to the nearest one-eighth of one percent, not to exceed 8.25%:

Example:    7.377% is rounded up to 7.50%

A lender may charge the borrower a rate that is less than the statutory maximum. If a lower rate is charged, the lender must ensure that reports issued to the Department (such as the ED Form 799) are adjusted. See appendix A for more information on ED Form 799 reporting.

A lender must notify a borrower, at the time a lower interest rate is offered, that the lower-rate interest ends on the date a default or ineligible borrower claim is purchased by the guarantor. The lender may provide this information in any format. Documentation of the notice must be maintained in the borrower’s file. A lender is encouraged to include the documentation (showing that the borrower was informed that the lower interest rate expires upon claim purchase) with default and ineligible borrower claim files. The lender will be required to provide this documentation if a borrower challenges the guarantor or the Department for charging the applicable statutory maximum interest rate during postclaim interest accrual. If the issue goes to court and the decision is in favor of the borrower such that the loan is unenforceable at the statutory maximum interest rate, the lender will be required to repurchase the loan and the guarantee will be withdrawn permanently. The lender may be required to reimburse the guarantor for any court costs or court-imposed fines or penalties.

Interest Benefits on Consolidation Loans

Sections 9.7 and A.1 will be revised to provide new provisions regarding extension of interest benefits for Consolidation loans.

A Federal Consolidation loan made from an application received by the lender on or after November 13, 1997 is eligible for interest subsidy during authorized periods of deferment on any portion of the Consolidation loan that paid an underlying subsidized Federal Stafford loan or an underlying subsidized Direct Stafford loan. The borrower is responsible for interest payment during periods of authorized deferment on any Consolidation loan, or any portion of a Consolidation loan, that paid any loan type other than a subsidized Federal Stafford loan or a subsidized Direct Stafford loan.

 

 

 

 

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