OCTOBER 2005

Lender Liaison Report
 Submitted by Paul Mittelhammer

Now that the 91-day Treasury Bill auction of May 31, 2005 is completed the interest rates for Federal Stafford, Federal PLUS and Federal Consolidation Interest rates for the period of July 1, 2005- June 30, 2006 are set announced to the schools, students and parents.

Stafford Interest rates
  In school, grace and deferment periods 4.70% (91-day T-Bill + 1.70%)
  In repayment 5.30% (91-day T-Bill + 2.30%)
PLUS Interest rate 6.20% (91-day T-Bill + 3.10%)

Consolidation Loan
The interest rate is the weighted average of the interest rates on the loans being consolidated, rounded to the nearest higher 1/8th of one percent. The interest rate may not exceed the maximum rate.

House committee has started the markup process of HR 609. Here is a summary of student loan provisions and the proposed changes:

  • Guaranty Fee – The bill requires that guaranty agencies collect and deposit in their Federal reserve funds a 1.0 percent fee (a federal default fee), obtained by deduction from the loan proceeds, for loans first disbursed on or after July 1, 2006. Further the bill prohibits the Secretary of Education from waiving this requirement as part of a Voluntary Flexible Agreement.
  • Origination Fees – The bill accelerates the reduction of the up front fees in FFEL and Direct Loan Programs. Fees under the two programs fall in tandem, with FFEL origination fees 1.0 percent below direct loan fees. Taking into account the mandatory 1.0 percent federal default fee, total fees under the two programs are the same at any point in time. FFEL origination fees are phased out altogether, and direct loan fees are reduced to 1.0 percent, for loans first disbursed on or after July 1, 2010.
    For loans made on or after July 1, 2006, the Secretary is prohibited from waiving any of the origination fee as a repayment incentive for direct loans and from providing any such incentive before the borrower enters repayment.
  • Consolidation – The bill changes the requirements for reconsolidation to permit a borrower to receive a direct consolidation loan for the purpose of refinancing a consolidation loan (FFEL or Direct), provided the borrower agrees to repay the loan under an income contingent repayment plan. Revises the current requirements to provide that the Secretary must offer a Direct Consolidation Loan to a FFEL borrower if a FFEL lender denies the applicant’s consolidation loan application or denies an application for such a loan with income sensitive repayment terms (under current law, a FFEL borrower’s opportunity to consolidate in the Direct Loan Program is broader, also covering situations where the borrower cannot get a FFEL consolidation “acceptable to the borrower”). The bill eliminates the ability of borrowers to consolidate their loans while they are still in school.
  • Special Allowance payments – Bill eliminates the payments for loans made or purchased after October 1, 2005.
  • Teacher loan forgiveness – The Bill extends eligibility for loan forgiveness to private school teachers who demonstrate that they are highly qualified by passing competency tests.
  • Consolidation of Defaulted Loans – The bill requires guaranty agencies to establish procedures to preclude consolidation from becoming an excessive proportion of their recoveries. Beginning October 1, 2006, the bill limits collection costs on these loans to 18.5 percent and requires that 8.5 percent be remitted to the Secretary. Beginning October 1, 2009, it requires remitting the full amount of collection costs for loans paid off with “excess consolidation proceeds” – those that exceed 45 percent of an agency’s total collections on defaulted loans.

Now that the Senate committee has started work on the Higher Education bill (S.1614) we can look for interesting discussions to occur between the conference committees. Items in (S.1614) that impact student loans:

  • Loan Limits – Senate bill presents same loan limits as the House bill (First year limits increase from $ 2,625 to $ 3,500; Second year limits increase from $ 3,500 to $ 4,500 and aggregate limits remain at $ 23,000). Senate bill offers changes in Graduate–Profession students in wanting to provide PLUS to graduate and professional students and Unsubsidized limits increase from $ 10,000 to $ 12,000.
  • Interest Rates – maintains the scheduled 2006 change to a fixed interest rate and increase PLUS fixed interest rate from 8.5% to 7.9%.
  • Consolidation – Senate bill proposes no changes to consolidation loan interest rate and strikes the single holder rule.
  • Guaranty Fee – Senate bill proposes mandatory 1.0% guaranty agency origination fee and no changes to FFELP origination fees.

School as Lender Programs Senate bill proposes a moratorium on school as lender participants and would require school lenders to hold each loan until loan enters grace period.


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