Letter to the Department of Education on Proposed Loan Programs NPRM
August 13, 2007
August 13, 2007
Ms. Gail McLarnon
U.S. Department of Education
1990 K Street, NW Room 8026
Washington, DC 20006
Dear Ms. McLarnon:
I am writing on behalf of the National Association of College and University Business Officers (NACUBO) to provide comments on the notice of proposed rulemaking covering the Federal Perkins Loan program, the Federal Family Education Loan program, and the William D. Ford Direct Loan program published in the Federal Register on June 12. NACUBO represents more than 2,100 public and independent colleges and universities, and is dedicated to sound fiscal and administrative management of institutions of higher education. We appreciate the opportunity to comment on this rulemaking.
Federal Perkins Loan Program
*674.8 - Mandatory Assignment of Perkins Loans
NACUBO objects to ED’s proposal to require colleges and universities to assign, without recompense, certain Perkins loans to ED if they have been in default for seven years or more. We believe that this runs counter to statutory provisions in Sec. 463(a)(4) and (a)(5) of the Higher Education Act which sets out quite different parameters for assignment of loans to ED. Most importantly:
- The statute does not contemplate the loss to the Perkins program of funds collected by ED on assigned loans, but suggests that at least 70 percent of all recoveries be reallocated to institutions participating in the program, or to the institution that made the loan.
- The Perkins Loan program is designed as a partnership between the federal government and institutions of higher education. At least 25 percent of the funds in the revolving loans funds are contributed by the institution.
- When Congress appropriated funds for the Federal Capital Contribution (FCC) to the Perkins revolving funds, it clearly expected the funds to be used continually to provide aid to students, so ED’s plan to return collected amounts to the Treasury contradicts Congressional intent and will deplete resources available to students.
On a practical level, NACUBO notes that institutions do, in fact, have success in collecting Perkins loans that have been in default for more than seven years. Many borrowers are then reaching a point in their lives where they are settling down, finding career success, and often need copies of their transcripts or want to improve their credit ratings. We expect that, under this proposal, ED would probably be quite successful in collecting on many of these loans - but so would the institutions. One large university’s collects better than 10 percent each year of the amount owed on loans in default over seven years. Needy students benefit far more from allowing institutions to continue to attempt collection on these loans than they would if the loans were assigned to ED.
We understand that ED is disappointed in the number of Perkins loans that institutions voluntarily assign to the department. As long as ED refuses to consider returning any of the funds collected to the referring institution or the Perkins program, institutions have no rational reason to do so. We find ED’s rationalization that a referral program was tried in the past "with very little success" and that no system is "in place" for reallocation of net proceeds of assigned loans disingenuous. Given the vast improvement in information technology since the earlier attempt at the referral program, we believe it is worth another try. Nor do we believe that the need to develop a reallocation system is an insurmountable barrier.
Although we do not agree with ED’s rationalization for this proposed provision, NACUBO supports the compromise offered by the Council of Higher Education Assistance Organizations that, at the very least, the criteria for mandatory assignment should be:
- Principal balance greater than $1,000
- Loan has been in default for more than ten years,
- For more than 10 years, the loan has not had any repayment or other activity
- No judgment has been obtained
*674.19 - E-signature Certification and Retention of Disbursement Records
ED proposes to allow institutions only 10 working days to respond to a request from ED for records, affidavits, or other evidence that may be needed to resolve a dispute with a borrower on a loan that has been assigned to ED. This may be too short a period to allow for retrieval of data that may be a more than a decade old. At a minimum, 15 working days would be more reasonable. Further, institutions do not currently have a reliable source of information on when loans assigned to ED are "satisfied."
*674.38 –Simplification of Deferment Process
NACUBO supports the proposal to allow institutions holding Perkins loans to rely on deferment determinations of an FFEL lender or the department for Direct loans. This is a sensible approach that will eliminate repetitive processing that is confusing to borrowers and inefficient for lenders.
*674.45 - Cap on Collection Costs
ED proposes to replace the current requirement that collection costs charged to the borrower be "reasonable" with specific percentage ceilings. NACUBO believes that it is important to balance the interests of borrowers who, for whatever reason, fail to repay their loan as agreed, and current and future students who need a Perkins loan to get through school. We appreciate that the department has proposed rates that are considerably higher than first suggested, but believe that for cases in litigation and for borrowers living abroad, the ceiling should be raised to 50 percent.
*674.61 - Total and Permanent Disability Discharge
In general, NACUBO supports the proposed changes to the process for canceling a loan due to disability of the borrower. We question, however, the equity in using the date that ED makes an initial determination as the start date for the three-year conditional discharge period. The key date in the rest of the process is the date that the physician signs the certification, and it should also serve as the start of the conditional period. Whether ED takes a week or six months to make a determination should not affect the outcome for the disabled borrower.
Federal Family Loan Program
Events over the last few months have, in many ways, overtaken the rulemaking process. With Congress now close to finalizing the reauthorization of the Higher Education Act including, in all likelihood, a number of changes governing the relationships and interactions between institutions, lenders, and guaranty agencies, NACUBO urges ED to consider delaying finalization of those parts of these regulations. While the proposed rules are similar in many respects to provisions in the House and Senate bills, we run the risk of confusing all parties by issuing rules that may well be out-of-date before they take effect. In the meantime, we support the approach that the Secretary has taken in urging all parties to voluntarily adhere to the intent of the rules.
*682.200 - Prohibited Inducements
NACUBO is concerned about unintended consequences of the proposed rules on prohibited inducements, and cautions the department to consider the wide range of relationships between colleges and universities and financial institutions. Colleges are multi-million dollar operations that use depository accounts, lock box services, credit cards, debt financing, and many other services offered by banks. In addition, as institutions of higher education have sought to reduce expenses, increase efficiency, and operate in a more "business-like" manner, they have increasingly turned to outsourcing many non-core functions.
At the same time, financial institutions - most of which participate in the FFEL program as lenders - have expanded into conglomerates providing a variety of services to colleges and universities. Further, many financial institutions are actively engaged in philanthropic endeavors in their communities and are strong supporters of higher education, providing much needed donations. They are also "customers" of universities as employers "consuming" educated workers.
Definitions. The definition of a "school-affiliated organization" in the proposed regulations is quite broad and all-encompassing and, frankly, not very helpful. How far does "indirectly related" reach? Do you mean to include only campus-based organizations or national membership associations as well?
Will the definition of "lender" be interpreted so broadly to include subsidiary companies that provide software solutions, consulting, or third-party services? Some of the larger financial services companies that focus on the higher education market provide a myriad of services to colleges and universities. For instance, the web site of Sallie Mae Business Office Solutions offers tuition payment plans, e-commerce and billing solutions, receivables management, statement processing, tax reporting, and refund disbursement processing. Nelnet offers software to help schools administer everything from scholarships and student employment to budgeting.
Increasingly, smaller companies that provide key services to institutions have been acquired by financial institutions. For instance, NACUBO recently learned that one of the primary companies offering tuition payment plans and billing services has been purchased by a bank that is an FFEL lender. Additional guidance on which entities are considered lenders would help ease anxieties for those responsible for procuring the goods and services that best meet their institutions’ needs.
NACUBO was pleased to note in Secretary Spellings’ August 9 letter to colleges and universities, an important distinction included in her fifth point addressing staffing services provided by lenders or guaranty agencies: “unless they do so at fair market value.” This caveat is missing from the proposed regulatory language which may lead to worries that many legitimate outsourcing to subsidiaries of financial institutions which provide services to institutions as their primary line of business will be construed as being somehow related to FFEL loan activity.
Rebuttable Presumption. We believe that the rebuttable presumption in the proposed rules could have a chilling effect on the legitimate relationships, particularly in the development arena, between colleges and universities and financial institutions. ED summarily dismisses these concerns and asserts in the preamble that this approach is necessary because of the difficulty to ED of proving the motive behind certain actions. This leaves the institution and financial institution in the position of having to prove a negative, an equally challenging proposition. The uncertainty may lead financial institutions to the decision that it is safer to turn to other charitable causes rather than risk allegations of wrongdoing.
Emergencies. ED asks whether the definition of an emergency in which lender or guaranty agency personnel would be allowed to assist an institution should be restricted to a federal or state-declared disaster. NACUBO suggests that emergency be allowed to take on a broader meaning, given that the rules already state that it cannot be an annual or recurring event. A prolonged power outage, a water main break that floods the student financial aid office, or the sudden death or illness of key staff at a small institution might all constitute an emergency during peak enrollment periods when temporary, knowledgeable assistance might be required.
NACUBO thanks the Department of Education for this opportunity to comment on this notice of proposed rulemaking. Please feel free to contact me if you have any questions at 202.861.2544 or firstname.lastname@example.org.
Anne C. Gross
Vice President, Regulatory Affairs
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