Vol. 4, Issue 3 Spring 2006
  Full Circle Award
  HERA impacts
  Single Holder Rule repealed
  Struggling borrowers rejoice
  Enrollment Services
  Successful default prevention
  Scholarship Month
  Eastern region news
  Rocky Mountain region news
  Southern region news
  Southwestern region news
  Western region news
  2006 Race for Education
  HERA changes impacting schools and borrowers  
  – Nelnet Policy Services
 
 

By now, details about the Higher Education Reconciliation Act of 2005 (HERA) have flooded inboxes and listservs across the country, and July 1, 2006, a general effective date for many of the changes, looms in our collective future. Weeding through the mounds of information can be daunting, so to assist you in quickly identifying the major provisions impacting schools and borrowers, we have prepared two high-level matrices, one outlining borrower changes, the other, school changes. Both matrices are designed to assist you in tracking the provisions impacting your institution as the industry moves forward in its implementation of the HERA.

Below is a brief summary highlighting a few of the major school and borrower provisions. More details on these and other provisions are included in the aforementioned matrices.

PLUS Grad

  • Effective for loans certified on or after July 1, 2006, the PLUS loan program is expanding to allow graduate and professional students to borrow a PLUS loan. These loans will be made under the same terms and conditions which apply to parents in the existing PLUS program.
  • PLUS graduate/professional borrowers must complete the Free Application for Federal Student Aid (FAFSA) and schools must certify the maximum amount for which the student is eligible in Stafford loans. However, the borrower need not apply for, and the school must not require the student receive, any Stafford loan in order to be eligible for the PLUS loan.

Interest rates

  • The HERA refrains from interfering with the scheduled switch to fixed rates for both Stafford and PLUS loans (6.8% and 7.9%, respectively); however, HERA increases the to-be fixed PLUS loan interest rate to 8.5%. Interest rate provisions are effective for all new Stafford and PLUS loans disbursed on or after July 1, 2006.
  • Borrowers with variable rate loans made prior to July 1, 2006, retain the variable rate while newer loans will be made at a fixed rate, per above.

Federal Default Fee

  • Effective for loans guaranteed on or after July 1, 2006, guarantors will be required to deposit a 1% Federal Default Fee (previously Guarantee fee) which may be deducted from the loan proceeds or paid by non-federal sources (e.g., lenders).

Borrower Origination Fee

  • Beginning with loans first disbursed on or after July 1, 2006, the maximum origination fee drops from 3% to 2%. Each year thereafter, the maximum percentage declines until the origination fee is eliminated in 2010.
  • PLUS borrowers (parents and graduate/professional students) must still be charged a 3% origination fee.

School as Lender (SAL)

  • Only schools which would have met the SAL requirements in effect as of February 7, 2006, and who disbursed a SAL loan on or before April 1, 2006, may continue to participate in the program.
  • Effective July 1, 2006, SAL provisions change as follows:
    • Cohort Default Rate cannot exceed 10% (used to be 15%).
    • Schools must submit an annual SAL compliance audit.
    • All earnings, including those from special allowance, interest payments, and any proceeds from the sale of loans – except for reasonable reimbursement of direct administrative expenses – must be used for need-based grant programs.
    • SALs can only make subsidized and unsubsidized Stafford loans to graduate or professional students enrolled at the school (i.e., no PLUS loans or loans to undergraduates).
    • The SAL must offer loans with origination fees, interest rates, or both that are lower than those authorized to be charged under the Higher Education Act.
    • SALs must award contracts for financing, servicing, or administration on a competitive basis.

Disbursement rules

  • Effective for any disbursement made on or after February 8, 2006, waivers of the multiple disbursement requirement and the 30-day delayed delivery requirement for first-time, first-year students are available to schools with a cohort default rate of less than 10% for the three most recent fiscal years.
    • Foreign schools must have low cohort default rates to qualify for the waivers, effective for loans with loan periods beginning on or after July 1, 2006.
 

The Nelnet School e-newsletter is created quarterly by Nelnet and designed to serve as a valuable information resource and communication tool for the post secondary campus. Highlighting industry and regional news from the Department of Education, financial aid facts and figures, and specific regional events, the Nelnet eUpdate offers a wide range of pertinent educational services information at your fingertips.

Please send all correspondence to:
Nelnet Sales Support
Attn: Communications
121 South 13th Street, Suite 201
Lincoln, Nebraska 68508
Or e-mail: nelnetschoolnewsletter@nelnet.net
Kevin Sheen, Editor : Jason Callahan, Web developer

 

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