CHAPTER 3 WRITE-OFF PROCEDURES
CHAPTER 3 WRITE-OFF PROCEDURES
The sections in this chapter identify the policies and procedures for write-off review of uncollectible loans. Schools are reminded that when write-off approval is granted for a loan, the school still has the authority to collect the loan if it finds that collection is possible at a later time. The school is required to notify the Division of Student Assistance, through the reporting process, of subsequent collections on loans approved for write-off.
Regulations governing write-offs of uncollectible loans require the following:
[42 CFR Part 57210 and 42 CFR Part 57310]
The regulations define default as the failure of a borrower to make an installment payment when due, or comply with any other terms of the promissory note, except that a loan shall not be considered to be in default if the loan is discharged in bankruptcy, the borrower's repayment schedule has been renegotiated and the borrower is complying with the renegotiated schedule, or the loan is in forbearance.
A flowchart, External Loan Review Process, is presented at Exhibit A, which details the process the school should follow for its annual review of collectibility of loans.
When a loan has been determined to be uncollectible, the school must document the date of final determination as part of the borrower's record. Final determination is made when a loan is considered uncollectible based on the earliest of the following: (1) when due diligence has been completed and the prospects of future collections are not promising or (2) when the repayment period has expired. If the school determines the loan should be written off, it must either submit it for write off review or follow the procedures outlined under Alternate Uncollectible Loan Audit when a borrower's balance exceeds $3000 (principal, interest, and penalty charges). See Exceptions to the Policies for account balances less than $3000. The fund must be reimbursed for uncollectible loans not written off. Submission procedures are subject to the following requirements:
[42 CFR Part 57210 and 42 CFR Part 573101
A school must comply with the following requirements for loans submitted for write-off review:
[42 CFR Part 5 7 21 0 and 42 CFR Part 5 7 31 0]
When requesting write-off review, an authorized official must certify, for each loan submitted, that the documentation provided is true, complete, and correct to the best of his or her knowledge. Any person who knowingly makes a false statement or misrepresentation in the documentation is subject to penalties which may include fines and imprisonment under Federal statute.
Prior to submitting loans for write-off, the school should ensure the documentation shows timely attention to the collection of the debt and that all due diligence steps have been documented. In addition, the school should clearly define its billing and collection procedures and identify any changes as they apply to each borrower account. Explanations of the billing system codes and collection agent codes, etc., should be included.
Exhibit C includes the Due Diligence Check List developed to assist schools in identifying and assembling appropriate documentation when requesting a write-off. Schools are strongly encouraged to use the Check List for submitting loans for write-off review or, at a minimum, follow its format. If you do not use the check list when submitting documentation for write-off review, then your package must contain written certification, signed by an authorized official, guaranteeing all submitted documentation is true, complete, and correct.
Schools should also review the due diligence requirements in Chapter 2 to ensure they are submitting documentation to evidence compliance. Although there is no required format for submission of loans for write-off, copies of the following documentation should be included for each loan:
Documentation to evidence grace period, deferment contacts, billing and follow-up, etc. can be in the form of a computer printout of the borrower's history.
Once the school submits documentation on its billing and collection procedures, the information will be retained for future write-off reviews. Subsequent submissions need only reference the procedures that are on file.
If the Division of Student Assistance determines due diligence is still not evident to support write-off approval, the school will be given an opportunity to submit further documentation or to appeal the decision. The Division of Student Assistance's write-off review process is also flowcharted at Exhibit B, DSA Write-off Review Process. Additional documentation or reason(s) for an appeal must be postmarked within 60 days of the date of the Division's letter (no extensions will be granted) or the school must reimburse the fund by the full amount of principal, interest, and penalty charges that remains uncollected on the loan, in accordance with the timeframe in Chapter 3, Section A1 above.
For those schools that have exercised due diligence in the collection of loans in accordance with the requirements in this book, Part II, Chapter 2, the school may use the Alternate Uncollectible Loan Audit in lieu of the procedures described in Chapter 3, Section 1A, if it complies with the following requirements:
Once the requirements listed above have been met, the school may elect to use the Alternate Uncollectible Loan Audit process to write-off uncollectible loans. For loans written off under this process, the school will be permitted to reduce its accounts receivable for the fund by the full amount of principal, interest, and penalty charges that remain uncollected and will not be required to return the Federal share of the loss to HHS.
A school must comply with the following requirements for loans written off under the Alternate Uncollectible Loan Audit process:
All loans written off must be reviewed during the school's biennial audit. In addition, the Department will periodically conduct its own review to confirm that the school exercised due diligence in its collection efforts. If the findings of the above reviews indicate that due diligence was not followed, the write-off will be disallowed and the school must immediately reimburse the fund for the full amount of the unpaid balance, including principal, interest, and penalty charges that would have accrued up to the date that reimbursement actually occurs. Failure to comply with the requirements established for the Alternate Uncollectible Loan Audit process may subject the school to the noncompliance provisions of the loan program.
A school is not subject to the write-off policies and procedures listed in Sections 1 and 1A above for:
The loans are governed by the provisions of Public Law 100-607 and are not subject to any dollar amount.
In these cases, the school will be permitted to reduce its accounts receivable for the fund by the full amount of principal, interest, and penalty charges that remains uncollected on the loan and will not be required to return the Federal share of the loss to the Department. The school should also remove these loans from its default category and place them in the fully retired category when calculating its default rate.
In making uncollectible loan determinations, a school should consider as uncollectible only loans on which payments were two years or more past due as of the specified date. Where a loan was less than two years past due as of the specified date, the school should consider it uncollectible only when the school has evidence to support this determination. The recommended two-year standard is based on the criteria used by the Department's Office of the Inspector General in conducting cash management audits at participating schools.
To be considered as uncollectible, the loan, at a minimum must have been in default for at least 120 days, in accordance with the default formulas in Section 721(c)(3) and Section 835(c)(3) of the Public Health Service Act on which schools' participation in the programs is based.
Schools' determinations of uncollectible loans will be reviewed during the biennial audit and
Departmental reviews.
There is nothing to prevent a school from further pursuing the collection of a loan that has been determined to be uncollectible in accordance with the guidelines above, when the school has knowledge of changes in a borrower's situation. Any such amounts recovered must be deposited in the program fund and reflected in subsequent reports (Annual Operating Reports).
[42 CFR Part 57210 and 42 CFR Part 57310]
Effective September 30, 1997, a school may also write-off a borrower's balance that does not exceed $3,000 (principal, interest, and penalty charges) without requesting write-off review, provided the school has exercised due diligence, in accordance with the requirements in Fiscal Management, Collections, Chapter 2 in its attempts to collect the loan. For loans written off under this provision, the school must:
Loans written off by a school under this provision will be reviewed during the school's biennial audit and Department program reviews. In addition, the Department of Health and Human Services will periodically require that the due diligence documentation for randomly selected loans be submitted for review to verify that the school exercised due diligence in its collection efforts. If the findings of the above reviews indicate that due diligence was not followed, the write-off will be disallowed and the school will be required to reimburse the fund for the fullamount of the unpaid loan balance, including principal, interest, and penalty charges that would have accrued up to the date that reimbursement actually occurs.
Finally, schools are allowed to adjust the balance of a loan (principal, interest, and penalty charges) for both overpayment and underpayment of $10.00 or less. Report these adjustments as Other Costs on the Annual Operating Report.
