U. S. Department of Education; Office of Postsecondary Education; Title IV, Part I, Section 499 of the Higher Education Act of 1965, as Amended--Competitive Loan Auction Pilot Program; Notice inviting eligible lenders to participate in the Competitive Loan Auction Pilot Program for the right to originate PLUS loans to parent borrowers under the Federal Family Education Loan (FFEL) Program [OPE]

FR Doc E9-4447[Federal Register: March 3, 2009 (Volume 74, Number 40)]
[Notices]               
[Page 9232-9234]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03mr09-39]                 
 


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DEPARTMENT OF EDUCATION

 
Office of Postsecondary Education; Title IV, Part I, Section 499 
of the Higher Education Act of 1965, as Amended--Competitive Loan 
Auction Pilot Program

AGENCY: Office of Postsecondary Education, U.S. Department of 
Education.

ACTION: Notice inviting eligible lenders to participate in the 
Competitive Loan Auction Pilot Program for the right to originate PLUS 
loans to parent borrowers under the Federal Family Education Loan 
(FFEL) Program.

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SUMMARY: Through this notice, the Secretary of Education (the 
Secretary) invites eligible lenders to participate in the Competitive 
Loan Auction Pilot Program (Auction Program) for the rights to 
originate PLUS loans to parent borrowers under the FFEL Program. 
Through the Competitive Loan Auction (Auction), the Secretary will 
award the rights to originate PLUS loans to new parent borrowers under 
the Federal PLUS Program authorized by section 428B of Title IV of the 
Higher Education Act of 1965, as amended (HEA), for loan periods 
beginning on or after July 1, 2009 and ending June 30, 2011. This 
notice establishes the dates for submission of information to 
participate in the Auction, describes the information that lenders must 
submit and the auction process, and describes the statutory 
requirements a lender must meet if it is selected as a winning bidder 
in the Auction.

DATES: Deadline for Submission of Pre-Qualification Information: FFEL 
Program eligible lenders that wish to bid in the Auction must submit 
the required prequalification information to the Secretary at the 
address provided in the ADDRESSES section of this notice by April 1, 
2009.
    Deadline for Submission of PLUS Lender of Last Resort Applications: 
FFEL Program eligible lenders interested in serving as a PLUS lender of 
last resort must submit their applications to the Secretary at the 
address provided in the ADDRESSES section of this notice by April 1, 
2009.
    Date of Auction: The Auction will be conducted on April 15, 2009. 
Bids for origination rights must be submitted on the date of the 
Auction to the Secretary at the address provided in the ADDRESSES 
section of this notice. Bids will only be accepted during the time 
period the Auction is open on that date, as designated by the 
Secretary. The time period the Auction will be open will be included in 
an Auction Information Sheet that will be sent to those eligible 
lenders meeting the prequalification requirements to participate in the 
Auction. The Auction Information Sheet will: (1) Describe the 
procedures for submitting bids, (2) provide the Web address of the on-
line Auction, and (3) assign eligible bidders a password to submit a 
bid during the period the Auction is open. When the Auction is 
complete, the Secretary will notify winning bidders and announce the 
winning bidders for each State no later than April 24, 2009. Further 
information on the Auction procedures is in the SUPPLEMENTARY 
INFORMATION section of this notice.

ADDRESSES: Pre-qualification information, PLUS Lender of Last Resort 
applications, and bids should be sent by e-mail to: plus-auction@ed.gov.

FOR FURTHER INFORMATION CONTACT: For information about the Auction 
Program go to http://www.ed.gov/ope/plus-auction or contact: Donald 
Conner, U.S. Department of Education, 1990 K Street, NW., room 8030, 
Washington, DC 20006. Telephone (202) 502-7818, or by fax to (202) 502-
7873. You may also e-mail your questions about the Auction to: 
donald.conner@ed.gov.
    If you use a telecommunications device for the deaf (TDD), call the 
Federal Relay Service (FRS), toll free, at 1-800-877-8339.
    Individuals with disabilities can obtain this document in an 
accessible format (e.g., braille, large print, audiotape, or computer 
diskette) by contacting the program contact person listed in this 
section.

SUPPLEMENTARY INFORMATION: The Secretary announces his intention to 
conduct and invites eligible FFEL lenders to participate in the Auction 
for the rights to originate PLUS loans to parent borrowers under the 
FFEL Program. Through the Auction, the Secretary will award the rights 
to originate PLUS loans to new parent borrowers under the Federal PLUS 
Program authorized by section 428B of Title IV of the HEA, for loan 
periods beginning on or after July 1, 2009 and ending June 30, 2011. 
The right to originate PLUS loans to parent borrowers under the Federal 
PLUS Program will be determined through a competitive, sealed bid, one-
round auction to be conducted for each State, the District of Columbia, 
Guam, the U.S. Virgin Islands, the Commonwealth of the Northern Mariana 
Islands, and Puerto Rico (State). Loans to borrowers attending schools 
outside of these areas are not included in the Auction Program and may 
be made by any eligible FFEL Program lender.
    Two winning bidders will be identified for each State and will be 
the only eligible lenders authorized to originate Federal PLUS loans to 
parent borrowers who are borrowing on behalf of a dependent student who 
will be enrolled in an eligible postsecondary educational institution 
in that State and who are new borrowers on or after July 1, 2009. 
Parents currently borrowing on behalf of a dependent student enrolled 
prior to July 1, 2009 may continue with their current lender or secure 
a loan from another eligible FFEL Program lender. Loans to graduate and 
professional student borrowers under the PLUS Program are not included 
in the Auction process.
    All eligible Federal PLUS Program loans originated under the 
Auction will be insured by a guaranty agency against losses. The 
insurance rate shall be in an amount equal to 99 percent of the unpaid 
principal and interest due on the loan. The Secretary will not collect 
a loan fee with respect to eligible Federal PLUS Program loans 
originated under this program.
    To see a listing of the PLUS loan volume by State for Award Years 
2006-07 and 2007-08, go to: http://www.ed.gov/ope/plus-auction/.

Auction Requirements

Prequalification Requirements

    All eligible FFEL Program lenders that want to participate in the 
Auction for PLUS loans to parent borrowers in a State under the Federal 
PLUS Program must meet the following prequalification requirements:
    Required Agreement: A lender with a winning bid is obligated to 
enter into an agreement with the Secretary in accordance with section 
499(b)(3)(G)(i) of the HEA, to make PLUS loans to all

[[Page 9233]]

eligible new parent borrowers in the State(s) for which it has the 
winning bid.
    Borrower Benefits: The statute requires the Secretary to establish 
the borrower benefits lenders must provide to participate in the 
Auction Program. The only permitted borrower benefit for PLUS loans to 
parents made under the Auction Program is a reduction in interest rate 
of 0.25 percent that is contingent on the borrower's use of an 
automatic payment process for any payments due. This benefit is 
required to be offered to all parent PLUS borrowers whose loans are 
made under the Auction Program in all States for which the lender is 
the winning bidder.
    States in which a bid will be made: An eligible lender 
participating in the FFEL Program must identify the State(s) in which 
the lender intends to bid. The listing of a particular State(s) does 
not limit the lender's ability to bid in an additional State(s) and it 
does not bind the lender to bid in the State(s) indicated. The listing 
will provide the Secretary with information necessary to assess the 
ability of the lender to originate, service and raise the capital 
necessary to make PLUS Loans in the State(s) in which the lender has 
indicated an interest in bidding.
    Origination of PLUS Loans: The lender must describe its capacity to 
originate loans in compliance with existing FFEL Program requirements 
in the State(s) for which it intends to bid. A lender must explain and 
provide any supporting documentation that demonstrates its ability to 
originate the number and dollar volume of loans in each State based on 
the number and volume of new PLUS loans to parents made in that State 
in the last complete award year for which data is available.

    Note: As the winning bidder, a lender will be one of only two 
lenders originating all new PLUS loans to parents in each State. The 
lender should provide any relevant information to assist the 
Department in determining its capacity to originate loans timely and 
efficiently in the State(s) for which it intends to bid, including 
the technological compatibility with the institutions in the 
State(s) and, the State-designated or other guaranty agency with 
which the lender may not have previously participated.

    Servicing of PLUS Loans: The lender must describe its loan 
servicing capability for the PLUS loans to parents to be originated in 
the State(s) for which the lender intends to bid. The lender may 
provide any supporting documentation that demonstrates that capability. 
The lender should advise the Department of any outstanding adverse 
audit findings, or other compliance or performance issues that may 
negatively affect the lender's ability to originate or service PLUS 
loans to parents originated in the State(s) for which it intends to 
bid. If the lender uses a third-party servicer to originate and/or to 
provide ongoing servicing of loans, please also provide this 
information for that servicer(s) and include the organization's name, 
address, and contact information.
    Capital to Make PLUS Loans: The lender must provide any supporting 
documentation necessary to demonstrate that the lender will have or be 
able to raise, as necessary, the capital required to provide for the 
origination and full disbursement of the anticipated new volume of PLUS 
Loans to parents for the period covered by the Auction Program in the 
State(s) for which the lender intends to bid.

Auction Procedures

    Eligible lenders that meet the prequalification requirements will 
be permitted to submit a sealed and confidential bid in a one-round 
auction. A bid must consist of the amount of the special allowance 
payment (SAP), as defined in section 438 of the HEA, that a lender 
proposes to accept from the Secretary for the eligible Federal PLUS 
Program loans that the lender will make pursuant to this program.
    Bids must be submitted on the Auction Date during the time period 
the Auction will be open as designated by the Secretary. The Secretary 
will announce the time period during which the Auction will be open in 
an Auction Information Sheet that will be sent to eligible lenders 
after their prequalification information has been reviewed and 
approved. The Auction Information Sheet will (1) describe the 
procedures for submitting bids, (2) provide the address to which the 
bid must be submitted, and (3) assign eligible bidders a password to 
use to submit the bid during the period the Auction is open. When the 
Auction is complete, the Secretary will post the results of the 
Auction, including the winning bidders for each State, at 
http://www.ed.gov/ope/plus-auction/ no later than April 24, 2009. The winning 
bidders will be the two eligible lenders that submit bids that offer to 
accept the lowest and second lowest SAP from the Secretary on the 
Federal PLUS loans made pursuant to the Auction. The winning bidders 
within each State will be the only FFEL Program lenders permitted to 
originate loans under the Federal PLUS Program for first time borrower 
parents of dependent students at institutions within that State until 
those students are no longer enrolled at an institution in that State 
or they graduate from those institutions.
    Eligible lender bids will remain confidential even after the 
announcement of the winning bidders.

Winning Bidder Requirements

    Each winning bidder in the Auction must enter into an agreement 
with the Secretary under which the eligible lender agrees to originate 
eligible Federal PLUS Program loans to each eligible parent borrower 
that: (1) Seeks an eligible Federal PLUS Program loan to enable a 
dependent student to attend an institution of higher education within 
that State, (2) is eligible for a Federal PLUS Program loan, and (3) 
elects to borrow from the eligible lender. Each winning bidder for a 
State also must agree to accept a SAP from the Secretary for eligible 
loans originated in the amount proposed in the second lowest winning 
bid.
    If a winning bidder fails to enter into the agreement with the 
Secretary as required, or fails to comply with the terms of such 
agreement, the Secretary may sanction the eligible lender in one or 
more of the following ways:
    (1) The Secretary may assess a penalty for any eligible Federal 
PLUS Program loan that such eligible lender fails to originate in 
accordance with the agreement with the Secretary;
    (2) The Secretary may prohibit that lender from bidding in other 
auctions under section 499 of the HEA;
    (3) The Secretary may limit, suspend, or terminate the lender's 
participation in the FFEL Programs; or
    (4) The Secretary may take any other enforcement action authorized 
under Title IV, Part B, of the HEA. Should the Secretary decide to levy 
a penalty on a lender, the collection of those penalties may be sought 
by reducing the amount of any payments otherwise due to the eligible 
lender from the Secretary by the amount of the penalty or by requesting 
that any other Federal agency reduce the amount of any payments due to 
the eligible lender from that agency by the amount of the penalty.

Plus Lender of Last Resort

    In the event that there are not two winning bids in a given State, 
borrowers and institutions of higher education in that State will be 
served by a PLUS Loan Lender of Last Resort (PLUS-LLR), as determined 
by the Secretary, in accordance with section 499 of the HEA.
    Eligible lenders that wish to be considered as the PLUS-LLR for a 
given State(s) must (1) prequalify by submitting the prequalification 
material described in this notice, (2) submit a letter not less than 14 
days prior to the

[[Page 9234]]

start of the Auction indicating that they want to be considered as a 
PLUS-LLR and list the State(s) they will service, and (3) commit to 
making PLUS loans to all eligible new parent borrowers in the State(s) 
they have indicated until the dependent student graduates or is no 
longer attending an institution in that State. The Secretary will not 
identify the PLUS-LLR for a State until after the Auction is completed 
and only if needed. A prequalified lender that requests to be a PLUS-
LLR may still participate as a regular eligible lender in the Auction.
    The Secretary is authorized to set a SAP payable to a PLUS-LLR for 
a State. That SAP will be kept confidential, both before and after the 
announcement of the winning bidders. To determine the SAP payment to a 
PLUS-LLR the Secretary will take into account the lowest bid that was 
submitted in the auction for the State and the lowest bid that was 
submitted in a similar State in terms of PLUS dollar volume and number 
of loans.

Additional Auction Program Information

    All eligible Federal PLUS Program loans originated under the 
Auction Program will be insured by a guaranty agency with which the 
lender currently has an agreement against losses. The insurance on 
default claims on these loans will be in an amount equal to 99 percent 
of the unpaid principal and interest due on the loan.
    The Secretary will not collect a loan fee with respect to eligible 
Federal PLUS Program loans originated under this program.
    If the parent borrower with FFEL PLUS loans made under the Auction 
Program requests to consolidate those loans, the FFEL Program eligible 
lender who made those loans may consolidate the borrower's Federal PLUS 
Program loans made under this program into one loan under certain 
conditions, as described in section 499(L)(i)-(iii) of the HEA. 
Similarly, an eligible lender with a winning bid may consolidate a 
Federal Direct PLUS Program loan or a loan made to the parent borrower 
under section 428B of the HEA under conditions described in section 
499(L)(iv)(I) and (II) of the HEA. For Federal Direct PLUS Program 
loans, the Auction Program eligible lender must agree within 10 days to 
match the terms and conditions available under the Federal Direct 
Consolidation Loan Program.
    The SAP paid to Auction Program eligible lenders on FFEL Program 
Consolidation loans is the lesser of the weighted average of the SAP on 
the loans consolidated (excluding Federal Direct PLUS Program loans) or 
the average of the bond equivalent rates of the quotes of the 3-month 
average commercial paper rate plus 1.59 percent.
    An Auction Program lender who consolidates a PLUS Program loan 
under this program is not required to pay the interest payment rebate 
fee on the Consolidation loan under Section 428C(f) of the HEA.
    Electronic Access to This Document: You can view this document, as 
well as all other documents of this Department published in the Federal 
Register, in text or Adobe Portable Document Format (PDF), on the 
Internet at the following site: http://www.ed.gov/news/fedregister. To 
use PDF, you must have Adobe Acrobat Reader, which is available free at 
this site. If you have questions about using PDF, call the U.S. 
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in 
the Washington, DC area at (202) 512-1530.


    Note: The official version of this document is the document 
published in the Federal Register. Free Internet access to the 
official edition of the Federal Register and the Code of Federal 
Regulations is available on GPO Access at: 
http://www.gpoaccess.gov/nara/index.html.


    Delegation of Authority: The Secretary of Education has delegated 
authority to Daniel T. Madzelan, Director, Forecasting and Policy 
Analysis for the Office of Postsecondary Education to perform the 
functions of the Assistant Secretary for Postsecondary Education.

    Dated: February 25, 2009.
Daniel T. Madzelan,
Director, Forecasting and Policy Analysis.
[FR Doc. E9-4447 Filed 3-2-09; 8:45 am]

BILLING CODE 4000-01-P