ECASLA ProgramsParticipation Program

PUT Program

SLGFA Annual ConferenceCrowne Plaza Hotel

March 10th, 2009

Wanda Hall Theresa McDuffeeEdfinancial Services SLGFA

GOALS

• Ensure that eligible students and parents continue to receive FFEL Program loans

• Support the FFEL Program as a successful private/public partnership

• Protect taxpayer interests at no additional cost to the government

Legislative Overview

• Solution– ECASLA signed by President on May 7, 2008• Covers the 2008/2009 academic year

– Extension signed by the President on Oct 8, 2008• Covers the 2009/2010 academic year

– Does not authorize the Department to make advances or to otherwise “lend” money to FFEL lenders

– Resource link http://federalstudentaid.ed.gov/ffelp

Eligible Loans

• Stafford (subsidized and unsubsidized), PLUS and GradPLUS– Excludes LLR loans from Participation and PUT

programs– Excludes consolidation loans– Excludes loans 210 days or more delinquent

• Borrower benefit limitations in some cases– 0.25% generally accepted benefit

Eligible Time Periods

• 2008/2009 Academic Year– Loan period includes or begins on or after July 1,

2008 and ends on or before August 31, 2009– First disbursement on or after May 1, 2008 and no

later than July 1, 2009– Will be fully disbursed no later than September

30, 2009

Eligible Time Periods (con)

• 2009/2010 Academic Year– Loan period includes or begins on or after July 1,

2009 and ends on or before August 31, 2010– First disbursement on or after May 1, 2009 and no

later than July 1, 2010– Will be fully disbursed no later than September

30, 2010

Eligible Time Periods (con)

• 2007/2008 Academic Year (Short-Term PUT) – Loan period includes or begins on or after July 1,

2007 and ends on or before August 31, 2008– First disbursement on or after May 1, 2007 and no

later than July 1, 2008

– Last date to request Short-Term PUT was February 25, 2008

Program ComparisonLoan Participation• Provides liquidity as

disbursements are made• Lender, servicer and

guarantor intact• Lender funds first

disbursement, request ED to participate in loan

• ED provides funds to lender for immediate liquidity

• Loans must be bought back or PUT by Sept. 30 of applicable year

Loan Purchase (PUT)• Provides liquidity after fully

disbursed• Lender funds and holds the

loan until sold (PUT)• Guarantor holds guarantee

until sold (PUT)• FFELP loans sold to ED• All FFEL lenders eligible

regardless of size• Holder, servicer and

guaranty move to ED when PUT

Participation Program

• Terms– Sponsor = Originating Lender– Custodian = Lender managing the participation

requests to ED and “holding” the loan disbursements– Facility = The “place” where ED’s participation

interest are held• Holder, Servicer and guarantee retained by the Sponsor and

original guarantor

– Redeem = The Sponsor buys back from ED its participation in the loan that is held in the facility

Participation ProgramHow it works:• Sponsor enters into an agreement with and eligible custodian• Custodian receives an LID from ED• Sponsor originates loan and makes first disbursement, as normal • Sponsor notifies custodian to request the disbursement amount

from ED• Sponsor transfers the first disbursement to the facility• Sponsor continues to make subsequent disbursements and

participates each until fully disbursed• Sponsor transfers LID to custodian once fully disbursed• NSLDS reflects new custodian LID• Sponsor, servicer and guarantor remain in tact, as normal• Sponsor redeems or PUTs loan by Sept. 30 of applicable year

Participation Program –School and Borrower Impact

School Impacts:• Lender, servicer and guarantor remain the same• LID transfer to the custodian after full

disbursement is for Federal reporting purposes and does not impact servicing

• If lender redeems the loan, LID will transfer from custodian back to sponsor/lender

• If lender PUTs the loan, all PUT impacts applyBorrower Impacts: • None unless loan is PUT

Participation Program –Guarantor Impact

Guarantor Impacts:• Loan Guaranty and Agency- the guaranty that was

granted to the lender (now the Sponsor) remains in effect while the loan is in the Participation Facility, without regard to the transfer of title to the Custodian.– Sponsor-Guaranty Agency relationship is maintained.– When removed via a repurchase by the Sponsor, the

guaranty remains;

– When removed by a PUT to ED, the guaranty ends.

Participation Program –Guarantor Impact

Guarantor Impacts:• Requests for Loan Changes- may be delayed in cases

where a loan has been transferred from the Sponsor (originating lender) to the Custodian (managing lender).– A delay in disbursement can also occur if a loan is

transferred prior to being fully disbursed.

PUT ProgramHow it Works• Loan can be PUT anytime after fully disbursed and before Sept. 30 of the

applicable year– August 14 of applicable year is last date to request to PUT

• Lender submits a 45-day intent to sell notice to ED• List of loans (deconversion data file) provided to the ED servicer 9

business days prior to PUT date • 9 business day freeze on loan adjustments before PUT date• Optional: Lender notifies schools and/or guarantor approximately 9

business days before PUT• Notice of PUT loans sent to the original guarantor and NSLDS within 30

days after PUT date by ED servicer– Sent as a loan transfer file with LID 899577 or 898577 (for Short-Term);

Servicer 700577; and Guarantor 577 • Guarantee is transferred to ED

PUT Program Procedures

• ED Servicer processes the sale on the evening of the required loan purchase date

• Ownership of loans transfers to ED as of purchase date– Department’s servicer assumes servicing of all loans

included in sale– ED Servicer notifies borrower, guarantor and NSLDS– Payment is deposited in lender’s account– Lender/servicer forwards any freeze period and post

sale adjustments to ED Servicer

Guarantor Impacts:• Loan Guaranty- the guaranty that was granted

to the lender is transferred to the Department when loan is PUT.– Original guarantor will continue to collect the

Federal Default Fee as long as there are unpaid fees outstanding.

– Post-PUT forms received by the original guarantor should be forwarded to the ED Servicer

PUT Program –Guarantor Impact

PUT Program –Guarantor Impact

Guarantor Impacts:• System Programming Changes- to prevent

certain loan request, loan and/or disbursement changes against a loan that has been PUT.– Also to recognize loans that have been PUT as

related to Aversion efforts.– Adjustments to Guarantor Reporting

PUT Program –Guarantor Impact

Guarantor Impacts:• Guarantee Processing- implications of loan

guarantees being transferred from originating guarantor’s database:– System no longer able to support annual, grade

level and/or cumulative limit calculations for borrowers who have had loans PUT.

PUT Program – Assisting Schools

Plan of Action to Assist School:• Communication of loan changes to ED servicer on PUT

loans– Lender and/or guarantor will communicate those loans

that are PUT– Lender and/or guarantor will work with the school to

ensure that during the freeze period certain loan changes do not occur• Re-certification of PUT loan to reinstate guaranty and/or increase

loan amount, reinstatement, reallocation, etc. – Lender and/or guarantor will work with the school to

provide resources/tools to address borrower questions about PUT loans

PUT Program – Communications to SchoolsOptions:• NCHELP Trading Partner Notification of ECASLA PUT File

– Published November 21, 2008– Sent by lender approximately 9 business days before PUT date– Used to notify guarantors, originators and others of loans that

may be PUT• CommonLine Response File

– Published November 25, 2008– Sent by lender approximately 9 business days before PUT date– Used to notify schools of loans that may be PUT

• Lender, servicer and guarantor may have specific communication tools

PUT Program –Assisting Borrowers

Develop Plan of Action to Assist Borrowers:• Split servicing: In School

– Assist school in communication to borrower on PUT loans and provide general information and direction on split servicing loans

– Set up a communication system with ED servicer to ensure all loans are updated correctly

• Split servicing: In Repayment– Facilitate communication between the borrower and ED servicer– Work to assist borrower in addressing all FFELP loans, even PUT loans– Extend Default Prevention and Financial Literacy programs to PUT

serviced loans– Encourage the use of industry products to locate all loans (NSLDS,

Meteor, etc.)

QUESTIONS???