11

Federal Perkins Loan Federal Perkins Loan BasicsBasics

Nebraska Association of Student Nebraska Association of Student Financial Aid AdministratorsFinancial Aid Administrators

April 10, 2014April 10, 2014Norfolk, NebraskaNorfolk, Nebraska

Presented by: Mari KragPresented by: Mari KragStudent Loan Service Center, Student Loan Service Center,

North Dakota University systemNorth Dakota University system

22

Session Rules of EtiquetteSession Rules of Etiquette

Please turn off your cell phonePlease turn off your cell phone If you must leave the session early, If you must leave the session early,

please do so as discreetly as possibleplease do so as discreetly as possible Please avoid side conversations Please avoid side conversations

during the sessionduring the session

Thank you for your cooperation!Thank you for your cooperation!

33

AgendaAgenda

What is a Federal Perkins Student Loan?What is a Federal Perkins Student Loan? Perkins Promissory NotePerkins Promissory Note Entrance & Exit CounselingEntrance & Exit Counseling Repayment & BillingRepayment & Billing Forbearance, Deferment, Discharge & Forbearance, Deferment, Discharge &

CancellationCancellation Collection and DefaultCollection and Default AssignmentAssignment COHORT Default RatesCOHORT Default Rates

44

What is a Federal Perkins Student Loan?What is a Federal Perkins Student Loan?

Perkins Student Loans are low-interest, Perkins Student Loans are low-interest, long-term loans made by schools to long-term loans made by schools to assist needy students in paying for assist needy students in paying for school.school.

Federal Perkins Loan Program funds Federal Perkins Loan Program funds are made up of a Federal Capital are made up of a Federal Capital Contribution (FCC) and a non-federal Contribution (FCC) and a non-federal share provided by the school (ICC).share provided by the school (ICC).

55

Perkins Loan LimitsPerkins Loan Limits Annual Maximum Loan: Undergraduate: $5,500 Graduate: $8,000 Aggregate Maximum Loan: Undergraduate Grade levels 1 & 2: $11,000 Grade levels 3 & 4: $27,500 Graduate: $60,000

Perkins Master Promissory Note 34 CFR 674.31 For the paper MPN Go to:

http://ifap.ed.gov/dpcletters/GEN1219.html For the electronic version of the MPN Go to: http://ifap.ed.gov/dpcletters/GEN1223.html

66

Disclosure, Entrance & Exit Disclosure, Entrance & Exit CounselingCounseling

Disclosure, in writing, must be made prior to disbursement or within 30 days after.

Entrance Counseling is not required, however, it can help reduce defaults. Some suggested topics for entrance counseling are: Emphasize repayment obligation Review terms of the loan Stress repayment required Review Rights & Responsibilities Consequence of Default

Additional Contact Information

77

Exit CounselingExit Counseling Exit Counseling is required Exit Counseling is required Required elements of exit counseling are:

Terms & Conditions of the Loan Average anticipated monthly payment amount Debt-Management Strategies Importance of Repayment obligation Types of tax benefits that may be available Options to change repayment plans Use of an MPN Pre-payment options Forbearance, deferment, cancellation & discharge Consequences of Default Obligation to repay full amount Require current borrower information Remind borrower he/she must inform school of contact information changes Ombudsman’s Office NSLDS Loan consolidation

88

Repayment & BillingRepayment & Billing

Maximum Repayment Period is 10 years Minimum monthly payment amount is $40 Options for Monthly, Bimonthly or Quarterly payment plans Grace Periods

Initial Grace Period: 9 months Post-Deferment Grace Period: 6 months Schools must contact borrower 3 times during grace

periods at 90 days, 150 days & 240 days Interest rate is 5% per annum simple interest Interest begins to accrue when the Grace Period ends. Repayment periods may be extended for prolonged

periods of illness, unemployment or low income

99

OPTION’s for billing are by monthly statements, coupons, e-bills or ACH.

Payment Processing Payments the school receives must be applied in the

following order: * Collection Costs * Late charges (or penalty charges) * Accrued interest * Principal

1010

Incentive Repayment ProgramIncentive Repayment Program

Reduce interest rate up to 1% if 48 consecutive monthly payments

Discount up to 5% if loan paid in full before end of repayment

period or

with the Secretary’s approval, establish other incentive options

Incentives costs must be absorbed by the school and the school must reimburse their Perkins fund for income lost as a result of the incentives.

1111

FORBEARANCE, DEFERMENT, FORBEARANCE, DEFERMENT, DISCHARGE & CANCELLATIONDISCHARGE & CANCELLATION

Forbearance is a temporary postponement of payments. Interest continues to accrue during forbearance. May be granted for 1 year at a time with a maximum of 3 years.

Borrower must request forbearance. Schools may process forbearance based on a verbal request from the borrower and document the request and terms of the forbearance in the borrowers file & send the borrower confirmation.

1212

DefermentDeferment• During deferment no payment is due and interest does not accrue. Deferments are followed by a 6 month Grace Period. • Deferment for in-school, graduate fellowship, rehabilitation training, unemployment, economic hardship, military service and active duty student may be granted based on verification from the holder of another FSA loan that they have granted a deferment for the same reason and same time period on a Perkins, Direct, FFEL Stafford or Plus loan.

1313

Deferment and DefaultDeferment and Default A borrower is NOT entitled to deferment on a defaulted

loan. May grant deferment if the borrower signs a new repayment agreement & school may require borrower to pay late fees, collection costs and some or all of the past due amount.

• Deferments for all Perkins LoansIn – School –

Graduate Fellowship - Rehabilitation Training - Seeking full-time employment – 3yrsEconomic hardship – 3 yrsMilitary Service In a war, military operation or national emergency13 month Post-Active Duty deferment

1414

DISCHARGING PERKINS LOANSDISCHARGING PERKINS LOANS You must discharge the remaining balance of the loan if the

borrower qualifies for one of the following:

Death Total and Permanent Disability (non-veterans)http://ifap.ed.gov/eannouncements/

070313TPDDischargeInformationImpofTPDDischargeChanges.html Discharge for Service-Connected Disability (veterans) New on-line process for TPD through NelNet

http://www.disabilitydischarge.com/home// U.S. Department of Education

P.O. Box 87130Lincoln, NE 68501-7130

Closed School Spouses of 9/11 victims Bankruptcy Discharge

1515

CancellationCancellation

Borrower must submit cancellation formConcurrent deferment must be processed

during period of serviceNo cancellation allowed for services before the

loan was disbursed or during the enrollment period covered by the loan

May cancel a defaulted loan if the only reason for default was borrower’s failure to file cancellation request on time. If loan was accelerated only service performed PRIOR to date of acceleration can be cancelled.

No cancellation for AmeriCorps recipients of a national service education award.

1616

Cancellation Rates:Cancellation Rates: Military, Teachers/Public ServantsMilitary, Teachers/Public Servants 1st & 2nd Years = 15% 3rd & 4th Years = 20% 5th Year = 30% Early Childhood EducationEarly Childhood Education

15% each year Volunteer ServiceVolunteer Service

Up to 70% = 1st & 2nd Yrs = 15% 3rd & 4th Yrs = 20%

A year of service consists of 12 consecutive months of service,

except for teaching service, where a borrower must be full-time for a full academic year or its equivalent.

1717

Summary Listing of Cancellations:Summary Listing of Cancellations:• Elementary and Secondary Teachers in a public or

nonprofit elementary or secondary school system in a:

Low-Income School or Low-Income Educational Service Agency Teacher in a Shortage Field ie: math, science,

foreign languages or bilingual education or other field determined by the state as a teacher shortage field.

Special-Education Teacher including teachers of infants, toddlers, children or youth with

disabilities.• Military Service Cancellation

- for a full year of active duty in an area of hostilities or an area of imminent danger.

1818

• Public Service CancellationsPublic Service Cancellations Nurse or Medical Technician

- Nurse is a licensed or registered nurse- Medical Technician is an allied health professional who is certified, registered or licensed.

Firefighter Cancellation - Must be employed full-time by a federal, state or local fire fighting agency. Early Intervention (for disabled infants/toddlers Child or Family Services Faculty Member at a Tribal college or university Speech Pathologist (at Title 1 School) Librarian (at Title 1 School) Law Enforcement Public Defender

1919

• Early Childhood EducationIncludes Pre-Kindergarten, Child Care, Head Start

• Volunteer Service Cancellation70% cancellation allowed for service as a volunteer in Peace Corps or AmeriCorps VISTA (Americorps does not qualify unless service is with VISTA andborrower elects NOT to receive a National Service Education Award.

2020

Collection and DefaultCollection and Default

• Notices of Overdue Payments 1st past due notice = 15 days after payment due date 2nd past due notice = 30 days after payment due date Final Demand letter = 45 days after payment due date

- must include amount of any late charge

• Default Reduction Assistance Program DRAP assists schools by contacting defaulted borrowers by

letter All functions of the DRAP process are accessed via the

eCampus- Based (eCB) website. https://cbfisap.ed.gov

• RETURNED MAIL or NO RESPONSEYou must take steps to locate the borrower.

If no response within 30 days of Final Notice you must try tocontact the borrower by phone. Make at least two attempts on

different days at different times.

2121

Late ChargesLate Charges

The assessment of late charges is optional. Must assess on all overdue payments if adopts a late charge

policy Charge is based on either actual costs or on average costs Charge may not exceed 20% of the installment payment Must inform borrower of the assessment of the late charge May not charge late fees once collection action begins May waive any late charges if borrower repays full past-due

amount

Loan Acceleration Acceleration is an option not a requirement. Must accelerate

prior to assigning loan to Department. Acceleration immediately makes payable the entire outstanding

balance You may accelerate if borrower misses payment, deferment,

forbearance or cancellation filing date. Marks serious stage of default. Must send written acceleration

notice at least 30 days in advance. Must send another notice to inform borrower of the date of

acceleration including total amount due.

2222

Collection ProceduresCollection Procedures

First collection effort Use your own personnel or hire a collection firm. If

cannot collect by the end of 12 months you may litigate or

make a second collection effort.

Second collection effortIf first used own personnel must refer to collection firm

(unless state law prohibits).If first used a collection firm, use your own personnel or

use adifferent collection firm or assign to the Department.

If 2nd collection attempt is unsuccessful you must continue to make yearly attempts to collect until – the loan is paid through litigation the loan is assigned to the Department the loan is written off

2323

Credit Bureau ReportingCredit Bureau Reporting

Must report defaulted loan to credit bureausMust report any changes in the statusMust respond within one month to any inquiries

National Credit Bureaus that the Department has agreements with are:

Trans Union Corporation 1-800-888-4213Experian 1-888-397-3742Equifax 1-800-685-1111

Credit bureaus charge fees for their services, which the school or servicer are responsible to pay to use the credit bureau’s services.

2424

Writing off AccountsWriting off Accounts

You may write off a defaulted account with a balance of less than $25 (including outstanding principal, accrued interest, collection costs and late charges).

You may write off a defaulted account with a balance of less than $50 (including outstanding principal, accrued interest, collection costs and late charges) IF, for a period of two years, you have billed the borrower as required.

34 CFR 674.43(a) and 674.47(h)

2525

AssignmentAssignment A defaulted loan may be assigned to the Department if the school

has not been able to collect and… all due diligence procedures have been followed The total amount of the loan is $25 or more The loan has been accelerated.

• A loan may NOT be assigned if…. Borrower has received a discharge in bankruptcy If there is a judgment (unless the judgment has been entered

and assigned to the United States The loan has been discharged because the borrower has died

http://ifap.ed.gov/eannouncements/attachments/PerkinsAssignmentProceduresApril2013.pdf

2626

Required Documentation for AssignmentRequired Documentation for Assignment

A school may be required to submit the following A school may be required to submit the following documents for assignmentdocuments for assignmentOne original and one copy of assignment formOriginal promissory note or certified copy of the original noteCopy of Repayment scheduleCopies of all deferment and cancellation requestsCopy of the acceleration notice to the borrowerDocumentation the loan has been withdrawn/returned from collectionCopies of any bankruptcy pleadingsCertified copy of judgment orderDocumentation that the school has complied with all due diligence requirements if school COHORT default rate at 20% 2 years prior to submission.

Assignments are to be sent toAssignments are to be sent to: ECSI Federal Perkins Loan Servicer 181 Montour Run Road Coraopolis, PA 15108

2727

COHORT Default RatesCOHORT Default Rates

For any award year in which 30 or more borrowers enter repayment COHORT default is calculated on a percentage of those borrowers who default before the end of the following award year.Example: 33 borrowers enter repayment4 are 8 months delinquent by the end of the following award yearCOHORT DEFAULT RATE = 12%

If the school’s COHORT default rate is …25% or higher, the school’s FCC will be reduced to zero50% or higher for the 3 most recent years, the school is ineligible to participate in the Federal Perkins Loan Program and must liquidate its loan portfolio.

ORANGE BOOK: http://ifap.ed.gov/perkinscdrguide/1112PerkinsCDR.html

2828

Reference:Reference:

www.ifap.ed.govwww.ifap.ed.gov

2929

THANK YOU!THANK YOU!

Mari KragMari KragStudent Loan Service Center, NDUSStudent Loan Service Center, NDUS

Dept. 3190 PO Box 6050Dept. 3190 PO Box 6050Fargo ND 58108-6050 Fargo ND 58108-6050 Tel: 701-231-9545Tel: 701-231-9545

mari.krag@ndsu.edu mari.krag@ndsu.edu