Request for Clarification on Application of New Procedures to Other Parties

Transcription

1 The Hnrable Arne Duncan Secretary U.S. Department f Educatin 400 Maryland Avenue, S.W. Washingtn, DC Dear Mr. Secretary: Members f the undersigned assciatins ( the Assciatins ) engaged in student lending share the gal f assuring that every servicemember entitled t benefits under the Servicemembers Civil Relief Act ( SCRA ) receives them, withut having t surmunt unnecessarily burdensme dcumentatin r ther barriers that culd preclude r delay their receipt. Unfrtunately, cnflicting statutes and restrictive regulatry guidance n hw federal student lans are t be handled under the SCRA have wrked t bstruct full achievement f this gal. We are writing t seek yur assistance in addressing this issue and t request a meeting with yu and ther apprpriate fficials t address the issue at yur earliest pssible cnvenience. Request fr Clarificatin n Applicatin f New Prcedures t Other Parties As yu knw, the SCRA prvides a wide range f benefits and prtectins fr servicemembers. It is intended t pstpne r suspend certain financial bligatins f servicemembers during the term f their military service, and includes a six percent (6%) interest rate cap n credit bligatins incurred prir t their service. In a 2011 letter t the Department f Educatin ( Department ), the Assciatins recmmended changes t ease the dcumentatin requirements impsed n servicemembers. The Department s respnse was that fr SCRA benefits t be granted, military rders and a separate written ntice must be received, and that ther frms f dcumentatin were nt acceptable. Recently, the Cnsent Order in the case f United States v. Sallie Mae Inc., et.al in the U.S. District Curt, District f Delaware ( Cnsent Order ) seems t indicate that the Department f Justice and the Department recgnize the dcumentatin prblems created by the Department s plicy and seek t prvide greater flexibility. Unfrtunately, it is nw nt clear whether the Cnsent Order alters the Department s lngstanding plicy and published standard fr determining eligibility fr SCRA benefits. The Cnsent Order prvides several ptins, beginning n page 16, fr supplying a lender/servicer with written ntice f eligibility fr SCRA-required reduced interest rates: Written military rders transmitted by facsimile, mail r vernight delivery; Servicemembers requests fr a military deferment r frbearance; r, An nline intake frm t be develped by the lender/servicer.

2 The Cnsent Order states that, in lieu f the military rders, the lender/servicer must accept any letter n fficial letterhead frm a servicemember s cmmanding fficer that includes cntact infrmatin fr cnfirmatin and: Sets frth the full name and Scial Security number r date f birth f the servicemember; and, Sets fr the perid f military service f the servicemember and, as may be applicable, that the military service f the servicemember is indefinite, r the date n which the military service f the servicemember ended r is scheduled t end. In additin, we nte that in Appendix C f the Cnsent Order, Department f Educatin Statement, Department Chief Operating Officer James Runcie states, The Department f Educatin greatly appreciates the sacrifices made by the men and wmen wh serve ur cuntry, and is therefre authrizing greater flexibility in prviding SCRA benefits t military servicemembers. The Statement cntinues in part: (The) Department authrizes Sallie Mae Bank, Navient Slutins, Inc., and any ther servicers wh service under these servicers' Cnsent Orders with the Department f Justice r the Federal Depsit Insurance Crpratin ("FDIC") (such servicers shall be identified as the "Navient Servicers") t apply the SCRA's interest rate benefit t Department-wned r Department guaranteed lans cnsistent with the requirements f the Department f Justice's r FDIC's Cnsent Order with Sallie Mae Bank, et al. Any Navient Servicer that cmplies with the terms f the Department f Justice's r FDIC's Cnsent Order with Sallie Mae Bank, et.al. will be deemed t be in full cmpliance with the Department f Educatin's regulatins and guidance regarding SCRA benefits. Specifically, Navient Servicers may satisfy the "written ntice" requirement f the SCRA's interest rate benefit and the "written request" requirement f the Department f Educatin's regulatins if the servicer has actual knwledge f the brrwer's military service (e.g., receipt f a request fr SCRA benefits thrugh an nline prtal; a brrwer's ral r written cmmunicatin f active duty status t a call center representative; receipt f Military Orders I; receipt f a certificate frm the Department f Defense's Defense Manpwer Database Center's ("DMDC") SCRA website indicating the brrwer is in active duty; etc.). A Navient Servicer may satisfy the written ntice and written request requirements under this paragraph even if the brrwer has nt requested SCRA benefits. Navient Servicers may vluntarily elect t search the DMDC's SCRA website, and the Department will bear the cst f any SCRA interest rate reductins prvided based upn such a search. Given the flexible dcumentatin standard cntained in the Cnsent Order and the Department f Educatin Statement in the Appendix, we are cncerned that there will be cnfusin by servicemembers and lenders/servicers as t precisely what the required dcumentatin standard is fr SCRA prtectin n their federal student lans - particularly amngst servicemembers whse lans are nt subject t the Cnsent Order. Des the Department cntinue t require that bth military rders and a separate written ntice must be received befre SCRA benefits can be granted n federal student lans nt subject t the Cnsent Order, r can SCRA benefits be applied t such lans using the mre relaxed dcumentatin standards utlined in the Cnsent Order? As stated previusly, the Assciatins supprt simplifying the dcumentatin and ntificatin prcess required s that servicemembers can, withut undue dcumentatin barriers precluding r delaying the servicemember frm receiving benefits under the SCRA, receive the interest rate reductin and ther benefits they are due. The Department has t date, ther that with respect t lans subject t the Cnsent

3 Order, indicated that fr SCRA benefits t be granted, military rders and a separate written ntice must be received. This requirement precludes a federal lan servicer frm prcessing the SCRA benefit, and the servicemember frm receiving the benefit, ntwithstanding cmpletely reliable infrmatin, such as a military status validatin reflected n the Defense Manpwer Data Center database, cnfirming the brrwer s eligibility fr benefits. Our member rganizatins already apply a mre flexible SCRA dcumentatin standard t their private student lan prtflis and are mre than willing t assist the servicemember cmmunity by applying a streamlined dcumentatin standard t their federal student lan prtflis as sn as we receive guidance frm the Department stating that applying these new standards is permissible under Department regulatins and prcedures. In light f the Department s recgnitin f the benefits t servicemembers prvided by greater flexibility in dcumentatin, we are again requesting the Department prvide fficial guidance prviding that the mre flexible dcumentatin standard may be used, prspectively, by servicers nt subject t the Cnsent Order, in determining SCRA eligibility n federal student lans. Such guidance shuld clearly articulate the revised SCRA eligibility dcumentatin standards and assure lenders/servicers that applying these new standards will be deemed t be fully in cmpliance with Department requirements, that the affected lans are eligible fr special allwance payments, and that insurance fr Federal Family Educatin Lans will remain fully in place. We urge yu t address this issue, immediately and equitably, assuring servicemembers receive the benefits they are eligible fr, withut undue burden r delay, while nt penalizing lenders/servicers fr cmplying with the Department s previus guidance. Servicemembers Civil Relief Act / Higher Educatin Act Cnflict with Regard t Reservists Anther area f cncern fr ur members is the cnflict that arises between sectin 106 f the SCRA, which expressly grants benefits t reservists wh have been rdered t reprt fr duty as f the date f their rders, and prvisins f the HEA and the Department s regulatins, which recgnize SCRA benefits fr active duty persnnel, but nt fr reservists wh have been called t duty. Sectin 207 f the SCRA caps interest rates at six percent during perids f military service. Sectin 106 extends eligibility t reservists beginning n the date f the member s receipt f the rder [i.e., the ntificatin date ] and ending n the date n which the member reprts fr military service [i.e., the date f active duty, cvered by sectin 207 f the SCRA]. Hwever, Sectin 428(d) f the HEA nly recgnizes the SCRA benefits fr active duty persnnel, as prvided fr under SCRA sectin 207. Specifically, Sectin 428(d) f the HEA prvides as fllws: N prvisin f any law f the United States (ther than this Act and sectin 207 f the Servicemembers Civil Relief Act) r f any State (ther than a statute applicable principally t such State s student lan insurance prgram) which limits the rate r amunt f interest payable n lans shall apply t a [federal student] lan. (Emphasis added.) 1 N exceptin r prvisin is made fr SCRA sectin 106, allwing such benefits t be affrded t reservists with federal student lans beginning n the reservist servicemembers receipt f their rders. 1 Similarly, FFEL Regulatin (a) (8), Applicability f the Servicemembers Civil Relief Act (50U.S.C. 527, App. sec. 207), prvides that Ntwithstanding paragraphs (a)(1) thrugh (a)(4) f this sectin, effective August 14, 2008, upn the lan hlder s receipt f the brrwer s written request and a cpy f the brrwer s military rders, the maximum interest rate, as defined in 50 U.S.C. 527, App. sectin 207(d), n FFEL Prgram lans made prir t the brrwer entering active duty status is 6 percent while the brrwer is n active duty military service. (Emphasis added).

4 Rather, as a result, the HEA wrks t preclude prviding SCRA interest rate benefits t reservists prir t the cmmencement f their active duty perid, ntwithstanding the prvisins f Sectin 106 f the SCRA. The Department further reiterated this psitin in its Dear Clleague Letter GEN-08-12, as fllws: The HEOA [Higher Educatin Opprtunity Act] amends the HEA t specify that the requirement f the Servicemembers Civil Relief Act, which limits the interest rate n a brrwer s lan t six percent during the brrwer s active duty military service, applies t FFEL lans. (Emphasis added.) 2 The Department s psitin in this regard was als clarified in 2010, in respnse t an inquiry frm a FFELP lender/servicer. In that respnse, the Department stipulated that, fr reservists, the start date fr the 6% interest rate cap n FFELP lans shuld be the same as it is fr all ther military - the date active duty begins. Varius rganizatins assciated with federal student lans, including the Student Lan Servicing Alliance and the Natinal Cuncil f Higher Educatin Resurces, have raised this issue previusly with the Department, but what lenders see as the necessary, prspective, regulatry clarificatin has nt been frthcming. Instead, we understand that the Department s Office f General Cunsel, when pressed by a lender n this issue, wrte [DOE s] view is that sectin 106(a) is irrelevant t the applicatin f the change made by the HEOA and that ur regulatins and the preamble t thse regulatins are crrect. We are hpeful yu will persnally intervene t secure issuance f prspective guidance that clearly and cnclusively addresses this situatin. Specifically, the Assciatins request the ability t extend, and be credited fr, SCRA benefits fr reservists t begin n the brrwer s ntificatin date. We nte that while the Department has prvided fr applicatin f SCRA benefits as f the first day f eligibility, including the date f receipt f rders fr reservists 3 fr lans subject t the Cnsent Order, it has nt prvided any such clarificatin with respect t federal student lans nt subject t the Cnsent Order. Under the clarificatin we seek, lenders wuld be explicitly authrized t bill the Department fr any Special Allwance Payments (SAP) during the perid frm a reservist brrwer's ntificatin date up t their active duty date and cnfirmatin that such applicatin f the SCRA wuld nt be deemed incnsistent with the HEA r its implementing regulatins. Cnclusin When recnsidering existing guidance, the Assciatins ask that any changes be prspective in nature. Lenders/servicers that have cmplied with existing guidance frm the Department shuld nt be adversely impacted by the issuance f this much-needed clarificatin. Please knw that the Assciatins stand ready t wrk with yu and thers in the student lan cmmunity t assist the Department in develping and issuing clarificatins as sn as pssible. We believe that time is f the essence, bth t ensure the maximum benefits under SCRA are available t servicemembers and 2 See als [HEOA] SEC FEDERAL PAYMENTS TO REDUCE STUDENT INTEREST COSTS. (g).applicability OF USURY LAWS. Similarly, FFEL Regulatin (h), Calculatin f special allwance payments fr lans subject t the Servicemembers Civil Relief Act (50 U.S.C. 527, App. sec. 207), prvides: Fr FFEL Prgram lans first disbursed n r after July 1, 2008 that are subject t the interest rate limit under the Servicemembers Civil Relief Act, special allwance is calculated in accrdance with paragraphs (c) and (f) f this sectin, except the applicable interest rate fr this purpse shall be 6 percent. (Emphasis added). 3 See Paragraph 35, subsectin (e) f the Cnsent Order.

5 t help lenders and servicers avid inadvertent vilatins f specific Department f Educatin regulatins and guidance. Thank yu fr yur interest in this imprtant matter. We lk frward t hearing frm yu. Cc: James Runcie Pamela Mran Hlly Petraeus, CFPB Members, CBA Educatin Funding Cmmittee Sincerely, Cnsumer Bankers Assciatin Educatin Finance Cuncil Student Lan Servicing Alliance