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Ask a Fed – Part 1, Federal Register

November 19, 2015

Federal Training Officer David Bartnicki recently shared updates on a variety of topics. To ease your reading process, we have split his update into two blog posts. Look for Part 2 tomorrow.

Recent Title IV Guidance:bartnicki

October 30, 2015 Federal Register – Final Rules (Program Integrity)

On October 30, 2015, ED posted a federal register containing the final rules associated with cash management, clock hour program definitions and repeat coursework. I encourage all schools to thoroughly read the new regulations.

Some key highlights under cash management:

  • Establish two different types of arrangements between institutions and financial account providers: “tier one (T1) arrangements” and “tier two (T2) arrangements,” which require certain reporting of data and disclosures to students depending on the type of arrangement
  • Define a “T1 arrangement” as an arrangement between an institution and a third-party servicer, under which the servicer (1) performs one or more of the functions associated with processing direct payments of Title IV funds on behalf of the institution, and (2) offers one or more financial accounts under the arrangement, or that directly markets the account to students itself or through an intermediary
  • Define a “T2 arrangement” as an arrangement between an institution and a financial institution or entity that offers financial accounts through a financial institution under which financial accounts are offered and marketed directly to students. However, if an institution documents that, in one or more of the three recently completed award years, no students received credit balances at the institution, the requirements associated with T2 arrangements do not apply. If, for the three most recently completed award years, the institution documents that on average fewer than 500 students and less than five percent of its enrollment received credit balances then only certain requirements associated with T2 arrangements apply.
  • Require institutions that have T1 or T2 arrangements to establish a student choice process that: prohibit an institution from requiring students to open an account into which their credit balances must be deposited; require an institution to provide a list of account options from which a student may choose to receive credit balance funds electronically, where each option is presented in a neutral manner and the student’s preexisting bank account is listed as the first and most prominent option with no account preselected; and ensure electronic payments made to a student’s preexisting account are initiated in a manner as timely as, and no more onerous than, payments made to an account made available pursuant to a T1 or T2 arrangement
  • Restrictions on the kind of PII data or access devices that can be shared between students and T1 or T2 providers before student consent is provided
  • Mitigate fees incurred by student aid recipients by requiring reasonable access to surcharge-free automated teller machines (ATMs), and, for accounts offered under a T1 arrangement, by prohibiting both point-of-sale (POS) fees and overdraft fees charged to student account holders, and by providing students with the ability to conveniently access Title IV, HEA program funds via domestic withdrawals and transfers in part and in full up to the account balance, without charge, at any time following the date that such Title IV, HEA program funds are deposited or transferred to the financial account
  • Require that contracts governing T1 and T2 arrangements are conspicuously and publicly disclosed
  • Require that cost information related to T1 arrangements is conspicuously and publicly disclosed
  • Require that cost information related to T2 arrangements is conspicuously and publicly disclosed when on average over three years, five percent or more of the total number of students enrolled at the institution received a Title IV credit balance or the average number of credit balance recipients for the three most recently completed award years is 500 or more
  • Ensure that Title IV funds are not part of any account sweeps
  • Schools on reimbursement or on heightened cash monitoring must pay any credit balances due to the students for whom it seeks payment prior to seeking reimbursement or requesting funds and cannot hold credit balances even with student authorization
  • Require interest-bearing accounts to the extent practicable under OMB guidance in 2 CFR 200.305(b)(8). Interest-bearing account not required if:
    •  School receives less than $120,000 annually
    • Best available account would not be expected to earn more than $500 on Federal cash balances
    • The bank would require an average or minimum balance so high that it would not be feasible in light of Federal and non-Federal cash resources
    • A foreign government or banking system prohibits or precludes interest-bearing accounts
  • Any interest earned over $500 must be remitted to the Department of Health and Human services no later 30 days after the award year
  • School may credit a student’s account with Title IV funds to pay only for charges associated with the current payment period. A school that charges upfront for the entire cost of a program (or that charges for more than a payment period) must prorate the charges.
  • Modified the definition of current year under prior year charges to include (at the school’s discretion) either the current loan period or award year if the student receives a DL and other Title IV aid in a payment period
  • Providing books and supplies by the seventh day of the payment period (if certain funding criteria is met) is now for all Title IV recipients, not just Pell recipients
  • School may include the cost of books and supplies as part of tuition and fees under three circumstances:
    • Has an arrangement with book publisher or other entity that enables the school to make books and supplies available to students for prices below competitive market rates, and provides a way for students to obtain the books and supplies by the seventh day of the payment period and has a policy permitting students to opt out;
    • The books and supplies, including digital and electronic course materials, are not available elsewhere or accessible by students from sources other than those provided or authorized by the school; or
    • The school documents there is a compelling health or safety reason
  • Third-party servicer also responsible for confirming student eligibility if engaged by the school to conduct activities or transactions that lead to or support a disbursement

Repeat Coursework highlights:

  • Allow an institution offering term-based programs to count, for enrollment status purposes, courses a student is retaking that the student previously passed, up to one repetition per course, including when a student is retaking a previously passed course due to the student failing other coursework
  • Applies to undergraduate, graduate and professional students

Clock hour program definition under the clock to credit hour conversion regulations highlights:

  • Eliminates the provisions in 34 CFR 668.8(k)(2) that otherwise require a program to be measured in clock hours if:
    • Receives Federal or State approval or licensure to offer the program
    • Completing clock hours is required for graduates to apply for licensure or practice the occupation
    • The credit hours awarded do not comply with the definition of a credit hour
  • Eliminates the provision in (k)(3) relating to a component of a program includes a minimum number of clock hours

At this time most regulations under the 10/30/15 federal register are effective July 1, 2016. A few regulations are effective later including: posting of contracts for T1 and required T2 arrangements (9/1/16); contract cost information for T1 and required T2 arrangements (9/1/17); and financial account costs associated with T1 and required T2 arrangements in an established format (July 1, 2017). ED is currently considering early implementation for certain regulations and if approved, any new timeframes will be shared on IFAP.

October 30, 2015 Federal Register – Final Rules (Federal Loan Programs)

On October 30, 2015 ED posted another federal register containing final rules associated with Cohort Default Rates appeals using participation rate index (PRI), Servicemembers Civil Relief Act (SCRA) assistance and a new income contingent repayment plan, called the Revised Pay As You Earn repayment plan (REPAYE plan). I, again, encourage all schools to thoroughly read the new regulations.

Some key REPAYE repayment plan highlights –

  • Provide that, for each year a borrower is in the REPAYE plan, the borrower’s monthly payment amount is recalculated based on income and family size information provided by the borrower. If a process becomes available in the future that allows borrowers to give consent for the Department of Education (the Department) to access their income and family size information from the Internal Revenue Service (IRS) or another Federal source, the regulations will allow use of such a process for recalculating a borrower’s monthly payment amount.
  • In the case of a married borrower filing a separate Federal income tax return, use the adjusted gross income (AGI) of both the borrower and the borrower’s spouse to calculate the monthly payment amount. A married borrower filing separately who is separated from his or her spouse or who is unable to reasonably access his or her spouse’s income is not required to provide his or her spouse’s AGI.
  • Limit the amount of interest charged to the borrower of a subsidized loan to 50 percent of the remaining accrued interest when the borrower’s monthly payment is not sufficient to pay the accrued interest (resulting in negative amortization). This limitation applies after the consecutive three-year period during which the Secretary does not charge the interest that accrues on subsidized loans during periods of negative amortization.
  • Limit the amount of interest charged to the borrower of an unsubsidized loan to 50 percent of the remaining accrued interest when the borrower’s monthly payment is not sufficient to pay the accrued interest (resulting in negative amortization)
  • For a borrower who only has loans received to pay for undergraduate study, provide that the remaining balance of the borrower’s loans that have been repaid under the REPAYE plan is forgiven after 20 years of qualifying payments
  • For a borrower who has at least one loan received to pay for graduate study, provide that the remaining balance of the borrower’s loans that have been repaid under the REPAYE plan is forgiven after 25 years of qualifying payments
  • Provide that, if the borrower does not provide the income information needed to recalculate the monthly repayment amount, the borrower is removed from the REPAYE plan and placed in an alternative repayment plan
  • Allow the borrower to return to the REPAYE plan if the borrower provides the Secretary with the income information for the period of time that the borrower was on the alternative repayment plan or another repayment plan. If the payments the borrower was required to make under the alternative repayment plan or the other repayment plan are less than the payments the borrower would have been required to make under the REPAYE plan, the borrower’s monthly REPAYE payment amount will be adjusted to ensure that the excess amount owed by the borrower is paid in full by the end of the REPAYE plan repayment period.
  • Provide that payments made under the alternative repayment plan will not count as qualifying payments for purposes of the Public Service Loan Forgiveness Program, but may count in determining eligibility for loan forgiveness under the REPAYE plan, the income-contingent repayment plan, the income-based repayment plan, or the Pay As You Earn repayment plan (each of these plans may be referred to as an ‘‘income-driven repayment plan’’ or ‘‘IDR plan’’) if the borrower returns to the REPAYE plan or changes to another income-driven repayment plan

Some key Cohort Default Rate highlights include:

  • Permit an institution to bring a timely PRI challenge or appeal in any year in which the institution’s CDR is less than or equal to 40 percent, but greater than or equal to 30 percent, for any of the three most recently calculated fiscal years
  • Provide that an institution will not lose eligibility based on three years of official CDRs that are less than or equal to 40 percent, but greater than or equal to 30 percent, and will not be placed on provisional certification based on two such rates, if it brings a timely appeal or challenge with respect to any of the relevant rates and demonstrates a PRI less than or equal to 0.0625, provided that the institution has not brought a PRI challenge or appeal with respect to that rate before, and that the institution has not previously lost eligibility or been placed on provisional certification based on that rate
  • Provide that a successful PRI challenge with respect to a draft CDR is effective not only in preventing imposition of sanctions upon issuance of the official CDR for that year, but in preventing the institution from being placed on provisional certification or losing eligibility in subsequent years based on the official CDR for that year if the official rate is less than or equal to the draft rate

Some key SCRA highlights include:

  • Require FFEL Program loan holders to proactively use the authoritative database maintained by the DOD to begin, extend, or end, as applicable, the SCRA interest rate limit of six percent
  • Permit a borrower to use a form developed by the Secretary to provide the loan holder with alternative evidence of military service to demonstrate eligibility when the borrower believes that the information contained in the DOD database may be inaccurate or incomplete

Some key loan rehabilitation highlights include:

  • Assist with the transition to loan repayment for a borrower who rehabilitates a defaulted loan, by requiring a guaranty agency to: Provide each borrower with whom it has entered into a loan rehabilitation agreement with information on repayment plans available to the borrower after rehabilitating the defaulted loan; explain to the borrower how to select a repayment plan; and provide financial and economic education materials to borrowers who successfully complete loan rehabilitation
  • Amend § 682.405 with respect to the cap on collection costs that may be added to a rehabilitated loan when it is sold to a new holder and the treatment of rehabilitated loans for which the guaranty agency cannot secure a buyer, to conform with the Higher Education Act of 1965, as amended (HEA)

As far as effective dates, the Secretary is exercising his authority under section 482(c) to implement the new and amended regulations specific to the REPAYE repayment plan included in this document in December 2015. The implementation of the regulations that expand availability of PRI challenges and appeals from the potential consequences of an institution’s CDR is predicated on the automated support that will be provided through the implementation of the Data Challenges and Appeals Solutions (DCAS) system within the Department’s Federal Student Aid office. The DCAS system is slated for implementation in 2017. The remaining final regulations in the 10/30/15 federal register dealing with Federal loan programs are effective July 1, 2016.

 

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