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Department of Education Offers Loan Program Guidance

March 16, 2006

Changes to several federal student loan programs as a result of the Higher Education Reconciliation Act of 2005 have prompted the Department of Education to issue a Dear Colleague letter (GEN-06-062). HERA changed portions of the Higher Education Act that impact Title IV federal student loan programs:  the William D. Ford Federal Direct Loan Program, the Federal Perkins Loan Program, and the Federal Family Education Loan (FFEL) Program.

Some of the modifications are primarily of interest to lenders and guaranty agencies. Others affect the terms of loans, including interest rates, repayment plans, and rules governing consolidation. The effective dates of various changes differ, with a few taking effect upon enactment. The following provisions may be of particular interest to business officers:

  • Disbursement of FFEL loans to students attending foreign institutions or study-abroad programs (page 4-5). 
  • The reinstatement of two waivers for institutions with default rates under 10 percent in the FFEL or Direct Loan programs that will allow a single disbursement for some loans and earlier disbursement for first-time, full-time students (page 5).
  • A new military deferment for borrowers in all three loan programs (FFEL, Direct, and Perkins) serving on active duty during a war or other military operation (page 7-8).
  • Restrictions on the eligibility of institutions to join the school-as-lenders program (page 9-10).

A subsequent Dear Colleague letter (FP-06-03) reinstated the single holder rule for FFEL and Direct Loan consolidation loans. This rule had been temporarily suspended in light of anticipated congressional action last September.

Guidance from the Department of Education will be distributed in the near future on additional changes to the HEA by the HERA affecting other Title IV programs. Of primary importance will be rules implementing two new grant programs enacted by HERA that are scheduled to be operational by July 1.