Loan Participation Commitment Program FAQ
Last Updated August 29, 2008
Most recent questions are italicized
The information presented in this Question and Answer (Q&A) format provides additional information on the new Loan Purchase Programs authorized by the "Ensuring Continued Access to Student Loans Act of 2008" (Pub. Law 110-227) (ECASLA). This set of Q&As relates to the Loan Purchase Commitment Program where the Department offers to purchase from FFEL Program lenders certain FFEL Program loans that were made for the 2008-2009 academic year. Q&As on the Loan Participation Purchase Program, where the Department offers to purchase "participation interests" in FFEL Program loans that were made for the 2008-2009 academic year, can be accessed from the home page of this website.
These Q&As supplement information provided in other documents on this website and through our series of webinars. This information is to be considered interpretive guidance provided by the Department for use with the Loan Participation Purchase Program. This document will be periodically updated, as needed.
GENERAL
Q1 What organizations are eligible to participate in either or both of the FFEL Loan Purchase Programs?
A1 Any entity that is an eligible lender under section 435(d) of the Higher Education Act of 1965, as amended (HEA) and that holds FFEL Program loans (whether directly or through an eligible lender trustee) is eligible to participate in these programs.
Q2 What loan types are eligible for these FFEL Loan Purchase Programs?
A2 Only Stafford (subsidized or unsubsidized) loans and PLUS loans (parent or graduate/professional student) that are made for the 2008-2009 academic year are eligible. Consolidation loans are not eligible.
Q3 What is meant by loans that are "made for the 2008-2009 academic year"?
A3 Made for the 2008-2009 academic year means that the loan was for a loan period that includes, or begins on or after, July 1, 2008, and the first disbursement is made on or after May 1, 2008 but no later than July 1, 2009, and the loan will be fully disbursed no later than September 30, 2009.
Q4 Are loans that have lender provided borrower benefits eligible for the Loan Purchase Programs?
A4 Generally, loans that have lender provided borrower benefits are not eligible for these programs. However, as provided in an Electronic Announcement #1, posted on June 12, 2008, there are two exceptions. First, an otherwise eligible loan remains eligible even if the lender paid, or offers to pay, any or all of the borrower's up-front fees (borrower origination fee and/or borrower default fee). Second, an otherwise eligible loan remains eligible even if the lender promised up to a one-quarter of one percent interest rate reduction if the borrower repays the loan using automatic repayment.
Q5 Are unsubsidized and subsidized Stafford loans for the same borrower for the same loan period, one loan or two?
A5 They are two separate loans for purposes of these programs.
Q6 Must a lender include all of the loans made for a borrower for the same loan period in these programs?
A6 Eligible subsidized and unsubsidized Stafford loans must be coupled. A lender may not include just one loan if the borrower has both loans for the same loan period. However, a PLUS loan, whether for a parent or for a graduate/professional student borrower who also has Stafford loans, does not have to be included with the student's other loans.
Q7 Are eligible loans that are originated by one FFEL lender and sold to another lender or holder, including a secondary market, eligible for these programs?
A7 Yes. Eligible loans that have been transferred from one eligible lender/holder to another retain eligibility for the FFEL Loan Purchase Programs. The current holder of the loan is responsible for submitting the loan(s) for purchase or placement. That holder is also responsible for all agreements, payments, and obligations related to the loan(s). Note that it is the date that the Department received the "Notice of Intent to Participate" from the originating lender that determines the eligibility of the loan to be included in the programs.
Q8 Are otherwise eligible loans that were originated under or held under an eligible lender trustee (ELT) agreement, eligible for the FFEL Loan Purchase Programs?
A8 Yes.
Q9 Both Agreements contain sections providing for a "Commitment to Lend" under the FFEL Program. What does this commitment entail?
A9 The FFEL lender executing either of the Agreements represents that, at some point after the date of execution of the Agreement, and when funds become reasonably available from private sources, it will originate or purchase FFEL Program loans, either directly or through an Eligible Lender Trustee.
LOAN PURCHASE COMMITMENT PROGRAM
Q1 What is the Loan Purchase Commitment Program?
A1 Under the Loan Purchase Commitment Program, the Department purchases certain FFEL Program loans made for the 2008-2009 academic year. Under the provisions of the Master Loan Sales Agreement, the Department will purchase a loan at a price that is equal to the outstanding principal balance of the loan, plus the total accrued but unpaid interest owed on the loan by the borrower, plus a reimbursement of the one percent lender fee, plus $75 per loan. In general, a FFEL lender must provide the Department with a 45-day notice of its intent to sell eligible loans to the Department. During the 45-day period, the Department and its servicer works with the selling lender (or its servicer) to finalize the roster of loans to be purchased and the purchase price. Therefore, liquidity is provided to the FFEL lender specifically and to the FFEL Program generally.
Q2 Are there certain loan statuses that make a loan ineligible to be purchased under the Loan Purchase Commitment Program?
A2 Except for a loan for which the lender has filed a default or other claim with a guaranty agency; the loan can be in any status (e.g., in-school, grace, deferment, forbearance, delinquent).Q3 Are there timeframes for when a lender may sell loans to the Department?
A3 Lenders wishing to sell eligible loans to the Department may do so at any time after the loan is fully disbursed until September 30, 2009, but no more frequently than weekly. Note, the seller must provide 45-day notice to the Department of its intent to sell loans under this program (and no later than August 14, 2009) and must complete the sale on or before September 30, 2009.
Q4 The Master Loan Sale Agreement (MLSA) contemplates that the Department will send payments to the Seller of the eligible loans. Will the Department pay a third-party upon request of the selling lender?
A4 Yes. The Department will pay amounts owed to the Seller to the party that provided financing to the Seller, upon presentation of a duly executed notice of assignment of that claim and a designation of the account to which payment is to be made.
Q5 Are loans with a life-of-loan servicing contract eligible for the Loan Purchase Commitment Program?
A5 No. Only loans on a servicing-released basis are eligible to be sold to the Department.
Q6 Is there a minimum loan volume required for a lender to participate in the Loan Purchase Commitment Program?
A6 There is no minimum loan volume or loan amount required for a lender to participate in the Loan Purchase Commitment Program. However, under the Loan Participation Purchase Program, the Department will only purchase participation interests from lenders that commit to including, over the period of the program, not less than $50,000,000.
Q7 What are the responsibilities of a guaranty agency for loans sold under the Loan Purchase Commitment Program?
A7 Prior to the sale of any loan, the guaranty agency maintains its responsibilities, obligations, and rights. These include responsibility for issuing the guarantee, reporting to the Department (i.e., NSLDS) and to other entities, and for providing default aversion activities, if required. Once the loan is sold, the Department assumes responsibility and the guaranty agency's obligations end.
Q8 I represent a state authority that provides higher education loans. My state law does not allow me to provide the full indemnity required by the Department under the Agreements. May the state authority still participate in the programs?
A: The Department has learned that a number of states have constitutional, statutory, regulatory, or common law rules prohibiting state authorities from undertaking indemnities as provided under the Agreements. While the Department must be mindful of cost neutrality concerns - and with it, an obligation to mitigate litigation risks related to the Agreements - the Department will entertain proposals for modification of a Sponsor's indemnity for state entities that are making higher education loans. The Department will not approve a modification to the required indemnity that would result in either no indemnity being provided or an indemnity that is less than the collateral being pledged under the Programs. The Department will also not consider any limitations to indemnity that are not specified in a state constitution, statute regulation or in common law, or any other modifications to the Agreements.
To initiate this process, you should contact the Department via email as prescribed in the Agreement. This email shall include citations and copies of the relevant legal authority that prevents the state authority from agreeing to the indemnity as written, and those modifications to the Agreement that the state believes are necessary to account for these legal prohibitions.
