NASFAA National Conference

Seattle, Washington -- July 5 - 8, 2006

Washington State Convention

& Trade Center
Loan Forgiveness, Cancellation
and Discharge

Gail McLarnon
U.S. Department of Education
 Today’s Agenda
• Teacher loan forgiveness in the Federal
Direct Loan and the Federal Family
Education Loan (FFEL) Programs
• Teacher loan cancellation in the Federal
Perkins Loan Program
• Permanent and total disability loan
discharges in the Title IV Loan Programs
 Teacher Loan Forgiveness in the
FFEL and Direct Loan Programs
• FFEL and DL loan forgiveness of up to $5,000
adopted in the Higher Education Amendments of
1998
• Taxpayer-Teacher Protection Act of 2004
(TTPA) increases loan forgiveness to up to
$17,500 until September 30, 2005
• TTPA requires all teachers to be “highly
qualified”
 Teacher Loan Forgiveness in the
FFEL and Direct Loan Programs

• Higher Education Budget Reconciliation Act

(HERA) makes up to $17,500 in loan
forgiveness permanent (retroactive to October 1,
2005)
• HERA extends loan forgiveness to certain
private school teachers effective 7/1/06
 Teacher Loan Forgiveness in the
FFEL and Direct Loan Programs
• Resources:
– FFEL Program regulations: §682.215
– Direct Loan Program regulations: §685.217
– Dear Colleague Letter GEN-04-14 summarizes
teacher loan forgiveness provisions of TTPA
http://ifap.ed.gov/dpcletters/GEN0414.html
– Dear Colleague Letter GEN-06-02 summarizes
HERA changes to teacher loan forgiveness http://ifap
.ed.gov/dpcletters/GEN0602.html
 Teacher Loan Forgiveness in the
FFEL and Direct Loan Programs
• Resources (cont.)
– Teacher loan forgiveness application and forbearance
forms
http://ifap.ed.gov/dpcletters/GEN0502Revised.html
– Look for Interim Final Regulations with Comments
in late July implementing TTPA and HERA changes
to teacher loan forgiveness on http://ifap.ed.gov
 Teacher Loan Forgiveness in the
FFEL and Direct Loan Programs

• TTPA changes to teacher loan forgiveness

– Loan forgiveness of up to $5,000 if a teacher teaches
five years in an elementary or secondary school with
a population of 30% of more low-income children
– Teacher must be “highly qualified”
 Teacher Loan Forgiveness in the
FFEL and Direct Loan Programs
• A “highly qualified” teachers is:
– Fully certified or has passed a state licensing exam;
licensed by the State in which he or she teaches
– A new teacher who holds a B.A. and passes a rigorous
State test demonstrating knowledge and teaching skills;
secondary teachers also must complete major, graduate
degree, or coursework equivalent to a major in teacher
areas
– Any other teacher who demonstrates competence in
subject areas in which he or she teaches based on uniform
State standards
 Teacher Loan Forgiveness in the
FFEL and Direct Loan Programs
• TTPA authorizes loan forgiveness up to $17,500
if a teacher
– Meets the previous requirements AND
– Teaches special education in elementary or
secondary school OR
– Teaches mathematics or science in secondary school
 Teacher Loan Forgiveness in the
FFEL and Direct Loan Programs
• Teachers who began qualifying service before
the new law was enacted:
– Do not have to meet the new requirements to
get the $5,000, but
– Must meet the new requirements to get the
$17,500
 Teacher Loan Forgiveness in the
FFEL and Direct Loan Programs
• All Bureau of Indian Affairs Schools
are considered low-income schools
• Statutory interpretation of “highly
qualified” changed—No longer tied to
NCLB date of enactment
 Teacher Loan Cancellation in the
Federal Perkins Loan Program
• Higher Education Act authorizes up to 100% loan
cancellation over a five year period for:
– Full-time teachers in a school serving students from low-
income families
– Full-time special education teachers, including teachers of
infants, toddlers children or youth with disabilities
– Full-time teachers of mathematics, science, foreign languages,
bilingual education of any other field of expertise determined
by a State education agency to have a shortage of qualified
teachers
 Teacher Loan Cancellation in the
Federal Perkins Loan Program

• Cancellation Rates
– 15% of principal and interest for first and second
years of teaching
– 20% of principal and interest for third and fourth
years of teaching
– 30% of principal and interest for fifth and final year
of teaching
 Teacher Loan Cancellation in the
Federal Perkins Loan Program

• Borrowers placed in deferment during periods of

teaching service in anticipation of loan
cancellation
• The Department of Education does not approve
or supply Perkins Loan cancellation and
deferment forms.
 Teacher Cancellation in the Federal
Perkins Loan Program
• Resources:
– Perkins Loan Program regulations: Subpart D of 34
CFR 674
– Volume 6, Chapter 4 Financial Aid Handbook:
http://ifap.ed.gov/sfahandbooks/030106Vol6FSAHandbook.
– Campus-Based Program Materials

http://ifap.ed.gov/IFAPWebApp/currentCBPMaterialsPag.js
 Requirements for FFEL, Direct and
Perkins Loan Forgiveness
• Borrowers cannot receive benefits for qualifying
teaching service under both HEA and National &
Community Service Act
• Loan holders do not refund payments received during a
period when borrower qualified for loan
forgiveness/cancellation
• Directory of Designated Low-Income Schools for
Teacher Cancellation Benefits used across Title IV loan
programs-All BIA schools are low-income
Total and Permanent Disability (TPD)
Discharge of Title IV Loans
• June 1999 – Department of Education’s Inspector
General issues Report identifying weaknesses in the
TPD process
• November 1999 – Dear Colleague Letter GEN-99-36
strengthens process
http://ifap.ed.gov/dpcletters/doc0625_bodyoftext.htm
• November 2000 – Final regulations issued changing
eligibility for post-TPD discharge
http://www.ifap.ed.gov/fregisters/1101200010.html
 Overview of TPD Discharge Process

• Borrower applies to the loan holder for a disability

discharge and loan holder makes preliminary
determination of TPD.
• If loan holder determines that borrower does not meet
criteria for TPD, loan is returned to prior status.
• If loan holder determines borrower meets criteria for
TPD, loan is assigned to Department’s Disability
Discharge Unit. For FFEL loans, both loan holder and
GA determine borrower eligibility.
 Overview of TPD Discharge Process
• Department reviews all assigned loans to affirm
borrower eligibility for TPD.
• Loan placed in conditional discharge status and
monitored for 3 years if TPD affirmed.
• Final TPD discharge granted if borrower’s
earnings do not exceed poverty level for family
of two and borrower does not receive any new
Title IV loans during conditional period.
TPD Discharge and Title IV Eligibility
• Title IV eligibility requirements vary depending
upon date of TPD discharge
– Before July 1, 2001
– On or after July 1, 2001 and before July 1, 2002
– On or after July 1, 2002
• Refer to ISIR Codes and comments
TPD Discharge and Title IV Eligibility
• Discharge before July 1, 2001
– Certification from physician that borrower can
engage in substantial gainful activity (i.e., no longer
TPD)
(NOTE: Need one per school)
– Borrower statement acknowledging no discharge of
new loan for pre-existing conditions unless
substantial deterioration
(NOTE: Need each loan)
TPD Discharge and Title IV Eligibility
• Discharge on or after July 1, 2001 and before
July 1, 2002 with new loan request within 3
years of TPD date:
– Physician Certification
– Borrower Acknowledgement Statement
– Reaffirmation of Discharged loan
• After 3 years from TPD date only certification
and borrower acknowledgement required
TPD Discharge and Title IV Eligibility
• Reaffirmation
– If ISIR Discharge Date is within 3 years of
new loan request, contact holder to identify 3
years from TPD date
– If reaffirmed, requires new promissory note or
signed repayment schedule
TPD Discharge and Title IV Eligibility

• Reaffirmation
– Do not certify/originate before holder confirms
reaffirmation
– If defaulted prior to discharge, reaffirmed loan
retains default status and satisfactory repayment
arrangements are required
– Satisfactory repayment arrangements also applies
during conditional period for conditional discharge
 TPD Discharge and Title IV
Eligibility
• Discharge on or after July 1, 2002
– If final discharge granted – same as before 7/1/01
– If “conditional” discharge
• Physician certification and borrower acknowledgement for
new loan
• Borrower acknowledgement that neither new loan nor
conditionally discharged loan are dischargeable now or in
the future based on pre-existing condition unless
substantial deterioration
• Collection resumes on conditional loan/prior status applies
 NSLDS Tracking of TPD Discharges
• NSLDS uses Outstanding Principal Balance in
conjunction with the loan status DS (disability) or DI
(defaulted, then disabled), to distinguish between
conditional and final discharge.
• Borrowers denied final TPD discharge are returned to
repayment status on NSLDS.
• NSLDS May 2005 Newsletter on NSLDS Reporting
http://ifap.ed.gov/nsldsmaterials/Newsletter10.html
Department of Education Conditional
Disability Discharge Unit
• Conditional Disability Discharge Unit Website
– http://www.fsacollections.ed.gov/contractors/ga/cdd/index.a
– Updates and Bulletins
– Forms and Applications
– FFEL Lender Performance Reports
– Dear Colleague Letters and NCHELP Q&A
 TPD Discharge Facts and Figures

• Common reasons TPD Discharge Assignments

are rejected
– Promissory note missing
– Condition begin date missing/incomplete
– Payment history missing/incomplete
– Loan Discharge application missing/incomplete
 TPD Discharge Facts and
Figures (cont.)
• Processing Statistics:
– Of total TPD applications received since inception:
• 50% of borrowers reinstated to prior status on loan
• 20% of borrowers received final TPD discharge
• 30% of borrowers still in conditional discharge period
• Borrowers reinstated to prior status on loan because:
– 37% failed medical review
– 7.8% received a new title IV loan
– 54.6 failed to respond to request for income information
– Less than 1% had income that exceed poverty guidelines
 Upcoming TPD Discharge Dear
Colleague Letters
• Dear Colleague Letter announcing new address for TPD
assignments:
– U.S. Department of Education
Conditional Disability Discharge
6201 Interstate 30
Greenville, TX 75402
• Dear Colleague Letter announcing credit bureau
reporting for TPD Discharge Assignments
• Dear Colleague Letter announcing new TPD Forms
 Thank You !!

Gail.McLarnon@ed.gov
(202) 219 -7048