Source:  Two Electronic Announcements from Gary Hopkins, General Manager, Borrower Services, Federal Student Aid dated July 5, 2006.

Effective Date:  Immediately

This policy change announces that the U.S. Department of Education (Department) has approved changes in the handling of credit bureau reporting for total and permanent disability loan assignments to the Department's Conditional Disability Discharge Unit. These changes are the result of recommendations made to the Department by the consumer reporting industry in partnership with the National Council of Education Loan Programs (NCHELP). This guidance pertains to Federal Family Education Loan Program loans.

Non-defaulted loan held by the lender – The consumer data industry recommends that the lender report Status Code ‘05’ and the Payment Rating that is consistent with the current or delinquent status of the account on the date a lender submits a claim to the guarantor or receives payment from the guarantor (i.e., 0, 1, 2, 3, 4, 5 or 6). Status Code ’05’ is defined as ‘Account transferred to another office’ and the Payment Rating indicates that the payment for this month was current or delinquent. Since the account is being transferred to the Department for further processing, this status is applicable. Additionally, any credit history already established by the borrower would be retained for historical credit reporting purposes. No further reporting by the lender would be required, as Status Code ‘05’ is a final status. Since the Department will be responsible for the loan after assignment, it is not necessary to require further reporting by the lender.

In summary, the lender should report Status Code ‘05’, Payment Rating 0, 1, 2, 3, 4, 5 or 6 and a Payment History Profile Grid that represents the accurate account history that should be retained for the account.

The guarantor transfers the account to the Department of Education without reporting.

Defaulted loan held by the guarantor – The lender would have already reported a poor credit history prior to filing the default claim resulting in an Account Status Code of ‘88’. The consumer data industry recommends that the guaranty agency report Status Code ‘DA’, which is defined as ‘Deletes Entire Account’. Since the claim is being filed with the Department and the Department will be responsible for further processing of the loan, as well as credit reporting, the original Collection Account reported by the guaranty agency should be deleted. Otherwise, the borrower will have two Collection Accounts on their credit report: one from the guaranty agency and one from the Department. Since the Department will be responsible for further credit bureau reporting on the loan after the loan has been assigned, only the Department should be reporting on the loan as a Collection Status ‘93’. Once the account is deleted by the guaranty agency, no further reporting would be required.

The Department is recommending deletion of the guarantor tradeline for two reasons. The first is that this follows the current process in place for mandatory assignments to the Department. There are no known issues with the deletion of the guarantor tradelines in this program and they believe this will hold true for the TPD assignment process. Secondly, they support deleting the guarantor tradeline in order to prevent multiple collection accounts representing the same loan on a consumer file. The original lender’s default status will remain on file to reflect a default claim being paid by the guarantor, thus, the borrower’s default status will continue to be reported. When the Department begins its reporting, the “Date of First Delinquency” from the original lender must be used—that date will tie the loan back to the original lender’s tradeline at the time of default purchase. The “Original Loan Amount” must also be reported as the claim amount. Using the same “Date of First Delinquency” and “Original Loan Amount” eliminates any gap in reporting since the time period is accounted for in any declining balance.

New address for Conditional Disability Discharge Unit (CDD) Materials

Also, effective immediately, please send all CDD assignment materials (including tapes, promissory notes, loan discharge applications and supporting medical information, payment histories, etc.) to the CDD Unit at:

U.S. Department of Education
Conditional Disability Discharge
6201 Interstate 30
Greenville, TX 75402

Please ensure that you include “Conditional Disability Discharge” in the mailing address, so that your CDD assignments will not be confused with materials associated with other submissions.

The CDD Unit in Utica, NY, will continue to provide you with technical assistance regarding CDD assignments.

This is the first time that the Department has issued specific guidance about how credit bureau reporting should be handled on loans assigned to the Department due to a Total and Permanent Disability Discharge. The Credit Reporting Resource Guide, issued in conjunction with the Metro II reporting layouts, does have an appendix that addresses reporting on government insured student loans. For the most part, this guidance does not appear to be in conflict with that guide. The one notable difference is that this guidance instructs the lender, when a non-defaulted loan is discharged because of a disability, to report an Account Status Code of ‘05’ (Account transferred to another office) where the prior Metro II guide says to report a status code of ‘13’ (Paid or closed account/zero balance).