PERKINS 101. Karen Reddick National Credit Management Jan Hnilica Wheaton College

Transcription

1 PERKINS 101 Karen Reddick National Credit Management Jan Hnilica Wheaton College 1

2 History of the Perkins Program Soviet s launch Sputnik I Satellite on October 4, 1957 during Cold War President Eisenhower and Congress pass the National Defense Education Act on September 2, 1958 to help solidify US economic shortcomings in the areas of math, science and technological expertise Originally called the National Defense Student Loan Program In 1972, it was renamed as the National Direct Student Loan Program Renamed in 1987 in honor of Carl D. Perkins, a former Kentucky Congressman (In Office from ) It was the 1st Federal Financial Aid Program specifically designed for disadvantaged, low-income students Do you know anyone famous that had a Perkins Loan? 2

3 Making A Perkins Loan General Regulations for Perkins is 34 CFR Part 674 School must participate in the Federal Perkins Loan Program and complete a PPA per 34 CFR Revolving Fund that needs to be monitored closely to ensure no excess cash and proper Level of Expenditure (LOE) (FCC + ICC + collections + cancellation reimbursements + cash on hand = LOE) Matching ICC and FCC Schools Receive Administrative Cost Allowance to Administrate the Program Complete Annual FISAP Keep Subsidiary Records to enforce the loans and retain up to 3 years Update NSLDS Schools need to comply with FTC Red Flag Rules on Identity Theft and Perkins Loans (E- Announcement June 14, 2010) 3

4 Making A Perkins Loan Student must demonstrate financial need 75% of loan recipients had a combined family income less than $60,000 per year 1 Student must be enrolled at least half-time and must maintain good grades Eligible undergraduate students can receive up to $5,500 per year ($27,500 total) Graduate students can receive up to $8,000 per year ($60,000 total Average loan amount if $2,166 per student Interest rate is fixed at 5% No Origination Fees for receiving a Perkins Loan Repayment does not start until 9 months after graduation/separation Borrowers have up to 10 years to repay the balance and interest Loans can be forgiven if the student pursues a public service career 4

5 Making A Perkins Loan Master Promissory Note (MPN) Multi Year (1o years) Single Year Disbursement Notification to the student 30 days prior to or 30 days after account has been credited Amount Date Right to cancel Disclosure Requirements 34 CFR (a) Rights and responsibilities prior to disbursement 5

6 Promissory Note A Promissory Note is the legally binding document per 34 CFR Paper or Electronic Evidence of a borrower s indebtedness to a school. Includes information about: Loan s Interest Rate Repayment Terms Fixed Monthly Payment Entitlement Provisions Credit Bureau Reporting Penalty / Late Charges Consequences of Default Collection Costs Etc. 6

7 Annual Disclosure Before making the first Perkins Loan or NDSL disbursement for an award year, the school must inform the student of his or her rights and responsibilities under the Federal Perkins Loan Program and must disclose all information to the student in writing. Remind the student that the loan may be used only for educational expenses Loan must be repaid Review all of the repayment terms in the Promissory Note 7

8 Annual Disclosure Provide following information to the student Name and address of the school to which the debt is owed Name and address of the official or servicing agent to whom communications should be sent Maximum annual and aggregate amounts the student may borrow Effect that accepting the loan will have on the borrower s eligibility for other types of student aid Statement of the total cumulative balance owed by the student to that school and an estimate of the monthly payment amount needed to repay that balance Options the borrower may have to consolidate or refinance Brief notice about the Department of Defense program for repaying loans based on certain military service Complete list of charges connected with making the loan, including whether those charges are deducted from the loan or whether the student must pay them separately Notice that the school will report the outstanding balance of the loan to a national credit bureau at least annually 8

9 Entrance and Exit Counseling Entrance and Exit Interview Counseling are Federal Requirements 34 CFR (a) and 34 CFR (b) It is designed to facilitate the borrower s understanding of the financial assistance that has been extended by the School (i.e. Financial Literacy) and reduce default It must also provide detailed information concerning the borrower s Rights and Responsibilities Options include: Print & Mail Within 30 day of separation Face-To-Face 3 rd Party Websites School s Website Your Current Student Loan Servicer 9

10 Entrance Counseling Entrance Interview Counseling Suggested Elements Repayment Obligations Review Terms and Conditions Consequences of Default Effects of Acceptance-Program Specific Master Prom Note NSLDS Info Budgeting Updating Contact Info Refund Policies Keeping Loan Records Requirements of Existing Counseling 10

11 Exit Interview Counseling - Required Elements Terms and Conditions Average Anticipated Monthly Payment Debt Management Repayment Obligations Tax Benefits Change Repayment Plans MPN Options to Prepay Forbearance Cancellations Consequences of Default Obligation to pay in full Current Information Student Loan Ombudsman NSLDS Loan Consolidation Exit Counseling 11

12 Credit Bureau Reporting As of 7/23/92, Credit Bureau Reporting must be initiated on all accounts from the Date of Disbursement to at least one National Credit Bureau. All Credit Bureau Updates must be made within (30) days of any account status change. 34 CFR (a)(1) and (b) National Credit Bureaus: Trans Union Corp. Experian (formerly TRW) Equifax 12

13 Repayment Grace Periods 34 CFR 674.2, 34 CFR and 32 Initial Grace Period 9 months Post Deferment 6 months Terms 10 years 5% interest on loans after July 1, 1981 Disclosure terms before student drops to less than ½ time enrollment Monthly/Bimonthly/Quarterly Calculation of payment Multiply the principal by the constant multiplier Monthly (120 payments) Bimonthly (60 payments) Quarterly (40 payments) Incentive Repayment Plan 34 CFR (f) 1% reduction after 48 consecutive payments Discount up to 5% of the balance owed if paid in full by repayment period With Secretary approval establish repayment options that reduce default All costs need to be repaid to the fund 13

14 Repayment Calculating Payments 34 CFR (a) $5000 Perkins Loan with monthly payments 5000 x = $53.03 Payment would be $55 $3500 Perkins Loan with monthly payments 3500 x = $37.12 Payment would be $40 Minimum payment requirement of $40 Establish Repayment Dates Most prefer fixed repayment date Extension of Repayment 34CFR (c) 14

15 Repayment Posting Payments Order of Posting 1. Collection Cost 2. Late Charges 3. Accrued Interest 4. Principal Payments applied to the oldest past due dollars first 15

16 Forbearance 34 CFR Temporary postponement of payment Doesn t have to be in writing Period of 1 year not to exceed 3 Types Hardship Loans = 20% of Total Income Poor Health AmeriCorps Volunteer National military mobilization National emergency 16

17 Deferments 34 CFR No interest accrues Post grace period of 6 months Grant deferments based on other FSA Loans Reaffirm yearly Types: In school Graduate fellowship VR training program Unemployment Economic hardship Military service and active duty 17

18 Cancellations 34 CFR Law Enforcement and Public Defender Early Childhood Education (Pre K, Child Care, and Head Start) Public Service Firefighter Early Intervention Child or Family Services Speech Pathologist at Title 1 School Librarian at Title 1 School Faculty Member at a tribal college Military Service Different schedule prior to August 2008 Elementary/Secondary Teacher Low income school or education service agency Teaching in teacher shortage field Special Ed Volunteer Service Cancellation (Peace Corps or AmeriCorps) Only 70% Forgiveness 18

19 Cancellations All cancellations except for volunteer service are at 100% forgiveness Requires 12 months of consecutive service Cancellation calculations: 1 st and 2 year 15% 2 nd and 3 rd year 20% 5 th year 30% No funds appropriated - Dept has calculated what they owe school 19

20 Discharging Loans 34 CFR Total and permanent Disability - Department of Ed handles Physician needs to certify within 90 days of application Veterans disability VA determines disability School closing Bankruptcy discharge Undue hardship 9/11 Spouse Victims Closed school Due to death Original or certified copy of death certificate CFO can approve without death certificate 20

21 Total & Permanent Disability Individuals seeking a TPD discharge will submit a single TPD discharge application directly to the Department of Education (the Department) rather than to their individual loan holders. Throughout the new TPD discharge process, there will be several points when the Nelnet Total and Permanent Disability Servicer will notify loan holders of actions the loan holder must take related to a borrower s account. The Nelnet Total and Permanent Disability Servicer will notify loan holders of the following: o That a loan holder must suspend collection activity on a borrower s loans for up to 120 days while the borrower completes and submits the TPD discharge application. o That a loan holder must suspend collection activity on the borrower s loans indefinitely while the Department reviews TPD discharge application to determine whether the borrower qualifies for discharge. o That the TPD discharge application has been rejected, including the reason that the application has been rejected. o That the TPD discharge application has been approved. The Department will implement the notifications to loan holders described above through the use of the TPD LHN File that the Nelnet Total and Permanent Disability Servicer will send to loan holders in a comma separated values (*.csv) file. 21

22 Total & Permanent Disability IFAP May 24, 2013 Electronic Announcement for TPD: nning html. For additional information about the new TPD discharge process that is effective July 1, 2013, please see the June 20, 2013 Electronic Announcement on this subject. The announcement is available at ctchangetpddischargeregulations.html. Servicer: Nelnet US Department of Education 3015 South Parker Road, Suite 400 Aurora, CO

23 Billing Procedures Requirements at end of enrollment Exit Interviews 34 CFR (674.42(b) Disclosure of Repayment 34 CFR (a) Contact information to get copy of prom note Name and address of school Contact information on where to send payments Estimated balance Total interest charges Repayment schedule Due date Rate of interest Number of payments Amount of payments Frequency of payments Grace Period Contact 9 month initial grace period 90 days 150 days 240 days (first billing notice) 6 month grace period 90 days 150 days (first billing notice) 23

24 Billing Procedures Statements 30 days prior to 1 st payment 15 days prior for all subsequent payments Coupon Books 30 days before 1 st payment 24

25 Collection Procedures Overdue payments 1 st notice-15 days 2 nd notice-45 days 3 rd notice-60 days (final demand) Late charges Not to exceed 20% Optional Telephone contact No response within 30 days of final demand At least two attempts Loan acceleration Entire amount due Written notification -30 days prior (final demand) Written notification when the loan was accelerated total amount due 25

26 Collection Procedures Credit Bureau Reporting 34 CFR Two efforts to collect 1 st Effort - In house or outside collection agency, if not returned to regular payment status by 12 months and does not qualify for benefits you need to either litigate or make a second effort 2 nd Effort - If 1 st effort is your own personnel, then you need to send to an outside collection agency Collection agency 34 CFR (c) - Attestation Audit Required to return account at 12 months if there is no cure 26

27 Collection Procedures Yearly attempt Bi-Yearly Address Searches Can cease collections under $200 Litigation Minimum $500 and review every 2 years Compromise Waive collection cost Up to 10% of principle balance Write Off Balances $25 or less $50 or less after two years of billing 27

28 Collection Procedures Collection Cost 34 CFR and 34 CFR (e) Required to charge reasonable cost 1 st Referral - Up to 30% 2 nd Referral, subsequent referrals including litigation-up to 40% Rehabilitation - capped at 24% Rehabilitation 9 month consecutive on time payments (Neg Reg) Sufficient to satisfy outstanding balance Can not require the balance paid in full if causes an undue hardship Within 30 days of last payment Return borrower to regular repayment status(decelerate) Treat 1 st payment as the 1 st payment of a new 10 year payment schedule Remove default status from credit bureaus Borrower regains benefits Can only complete one time, but can try as many times as needed 28

29 Assignments 34 CFR Assignments 34CFR Balance of $25 or more Unable to collect after completing the proper due diligence Loan is accelerated Recall 60 days from agencies and withdraw from credit bureaus Send notification 90 days prior Required Assignment Documents: 1.Submission Package Manifest 2. Perkins Assignment Form 3. Original Promissory Note and Certification/Audit of E-Signature Process 4. Judgment Information (If Applicable) 5. Bankruptcy Information (If Applicable) 6. Due Diligence Documentation (If applicable) 7. Complete Repayment History 29

30 Assignments Procedures: School Contact Information: ECSI Servicer (415) Borrower Contact: US Department of Education ECSI Federal Perkins Loan Servicer PO Box Atlanta, GA (866)

31 COHORT Default Rate 34 CFR 674.5(b) 30 or fewer borrowers The percentage of those current and former students who entered in repayment on loans received for attendance at the school in any of the three most recent years and who defaulted on those loans before the end of the award year immediately following the year in which they entered in repayment 30 or more borrowers The percentage of those current and former students who enter in repayment in that award year on loans received for attendance at the school and who default before the end of the following award year Sample 25 defaulted loans/1000 borrowers = 2.5% default rate Penalties 25% or higher no FCC 50% or higher no funding 31

32 COHORT Default Rate How to Reduce Cohort Default Rate 6 monthly consecutive payments Bring loan current PIF Consolidation Deferment/Forbearance Utilize NSLDS Rehabilitation Default management DRAP 32

33 Advantages Up to 30 years for repayment (depending on your loan balance) Loan Consolidation Disadvantages Extending the term beyond the 10 years increases total interest paid One monthly payment May lower the interest rate on some or all of your loan debt (Extending the term beyond the 10 years increases total interest paid) Interest rates on consolidation loans are fixed rates that do not change over time rather than variable rates that do change over time. Loss of certain deferment and forbearance options Loss of all Perkins Loan cancellations provisions Loss of Perkins 9 month grace period 33

34 Loan Consolidation New Process Implemented as of January 2, Four Direct Loan Servicers (TIVAS): PHEAA Great Lakes Nelnet Sallie Mae Processing Options: TIVAS Portals Files Via or Secure FTP Paper or Fax??? Outsource 34

35 FISAP- Fiscal Operations Report Annual report that the school is required to submit to Department of Education by September 30 th, and then an update on October 31 for cash on hand for Perkins FISAP in PDF Format, 154KB, 12 Pages Financial Aid completes FSEOG and FWS part. Business office completes the Perkins part. 35

36 FISAP: Continued Perkins portion of FISAP, what do you need before you start? FISAP directions : Instructions for FISAP in PDF Format, 436KB, 77 Pages Perkins Balance sheet from school s General Ledger. If a 3 rd party servicer is used, a FISAP report dated 6/30. All accounting adjustments and entries should be complete. Reconciliation should be complete between 3 rd party servicer and school s General Ledger. This report should be done in August, early September. 36

37 FISAP: Continued FISAP step by step for Perkins: Part III section A Cash on Hand as of 6/30: GL Balance Sheet Principal/Interest Collected Loan Advances Cancelations Collection Costs ACA 37

38 FISAP: Continued Part lll Section A Continued: Numbers 2-57: Combination of FISAP report and GL numbers. Remember to use CULMATIVE numbers, not just past fiscal year. If properly reconciled from the past year, this is mostly a plugging in numbers from GL and Fisap report. Line 58: Two columns from the above numbers need to match. If they do not match, your FISAP cannot be submitted! 38

39 FISAP : Continued Part III Section B Highlights: Advance Loans from the past award year. ACA from past award year. Your FISAP report has these numbers. Part III Section C: Status of Borrowers: FISAP Report Cohort Default Rate: FISAP Report 39

40 FISAP : Continued Completed Perkins part goes to school administrator who submits FISAP to Department of Education. Updated Cash on Hand for 10/31: Principal and Interest Collected (July-October) Loans Advanced (July-October) During A-133 audit the following year, Auditors check FISAP for accuracy. Ensure that your numbers are correct and you have proper source documentation. 40

41 CONTACT INFORMATION Karen Reddick Jan Hnilica IFAP Website FSA Ombudsman contact info: US Department of Education 830 First St NE Washington, DC