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To: Schools,
Lenders and Servicers Participating in the Health Education Assistance
Loan (HEAL) Program
Subject: Fiscal
Year 2001 HEAL School Default Rate for the period July 1, 2001 through
June 30, 2002
School Policy Memorandum S-2001-1
Lender Policy Memorandum L-2001-3
Authority to
make new HEAL loans expired September 30, 1998. In the past, school
default rates were used to determine school risk-based insurance
premiums on new HEAL loans. Since this is no longer applicable,
we are nevertheless making the default rates available to schools,
lenders, and associations for monitoring default performance. Rates
are also provided to commercial lenders who use school and discipline
default rates to set interest rates and determine eligibility of
disciplines and schools within disciplines.
Default rates
have been published since September 30, 1993. At that time the
overall total HEAL default rate was 5.1%. As of
September 30, 2000 the overall total HEAL default rate is 3.9%,
the lowest it has ever been. We thank the schools for your diligent
efforts in helping to assure good repayment practices of HEAL borrowers
and assisting delinquent borrowers in returning to repayment. These
efforts, as well as, lender assistance to borrowers, and HEAL Program
default prevention activities are the primary reasons for the decline
in the HEAL default rate. Since the outstanding HEAL portfolio
is still approximately $3.5 billion, these activities must continue
so we can minimize future defaults and reduce taxpayer liability.
The individual
school default rate report as of September 30, 2000 is attached
for each school. A summary report by school is attached for participating
lenders and servicers. In accord with section 719(5) of the HEAL
statute, the HEAL "default rate" as of September 30, 2000
is defined as the percentage constituted by the ratio of:
- Numerator:
The total principal amount of each school's HEAL loans that entered
repayment status from April 8, 1987 through September 30, 2000,
for which claims have been paid due to default or bankruptcy as
of September 30, 2000, exclusive of those claims:
- For which
the borrower has made payments to the Secretary for 12 consecutive
months or the equivalent in accordance with a repayment agreement;
or
- Which
have been discharged due to bankruptcy. (Schools should note
that bankruptcy claims, which previously were submitted for
payment when a borrower filed for bankruptcy, are different
from bankruptcy discharges, which occur only if a bankruptcy
court rules that the borrower is not obligated to repay the
HEAL loan. HEAL loans are rarely discharged in bankruptcy,
due to provisions in the HEAL statute which restrict discharge
to cases of only the most severe financial hardship. When
a borrower files for bankruptcy, and the bankruptcy court
does not discharge the HEAL loan(s), the Department is authorized
to resume collection of the debt, and the debt is subject
to the same collection procedures as a default claim. For
purposes of Tables 1 and 2 attached, "bankruptcy"
refers to claims paid because the borrower filed for bankruptcy,
and does not refer to loans discharged in bankruptcy);
- Denominator:
The total principal amount of each school's HEAL loans that entered
repayment status from April 8, 1987 through September 30, 2000.
IT SHOULD BE
NOTED THAT OVER TIME THE DEFAULT RATES MAY INCREASE BECAUSE
THE AMOUNT OF NEW LOANS THAT ENTER REPAYMENT EACH YEAR WILL NOT
ADD SUBSTANTIALLY TO THE DENOMINATOR, WHILE DEFAULTED LOANS WILL
CONTINUE TO BE ADDED TO THE NUMERATOR.
We have attached
the following tables:
- Table 1 --
lists the social security number, borrower's name, and principal
amount of the loan, for all HEAL loans made to students at your
school that entered repayment after April 7, 1987. This reflects
all loans that are included in the denominator of your school's
default rate. (Table 1 specifically identifies those loans that
have been paid by the Department as default claims or bankruptcy
claims, and which appear again in Table 2 or 3, as described below.)
- Table 2 --
lists those loans from Table 1 that are included in the numerator
of your school's default rate, based on payment by the Department
of a claim due to default or bankruptcy by the borrower.
The addresses included in your borrower lists are the last known
addresses we have for each borrower. If you know of a more current
address, please advise us. The Department has contacted/attempted
to contact these borrowers numerous times. Despite these efforts,
we have been unable to get them into repayment. We encourage
you to contact defaulted borrowers and encourage them to establish
repayment agreements with and make regular payments to the Department.
- Table 3 --
lists those loans from Table 1 for which the Department has paid
a claim due to default or bankruptcy, but which are not included
in your numerator because the borrower has been in repayment with
the Department for 12 consecutive months or the equivalent or
the loan has been discharged due to bankruptcy.
- Table 4
-- lists the following summary information:
- The
original principal amount of loans included in your school's
numerator (Table 2) and denominator (Table 1); and
- Your
school's default rate as of September 30, 2000 calculated
using the data from Table 1 and Table 2.
Low volume
schools: If your school had a total HEAL loan volume of 50 loans
or less enter repayment status from April 8, 1987 through September
30, 2000, Table 4 indicates that the school has been placed in the
low-risk category due to a small volume of HEAL activity. This
is in accord with section 708(d)(2) of the HEAL statute, which provides
that the Department may waive the medium-risk and high-risk requirements
if it determines that the school's default rate is not an accurate
indicator because the volume of HEAL loans made by the school has
been insufficient. Note: The medium and high risk requirements
in section 708(d)(2) are not applicable at this time since new loans
are not authorized.
Annual default
management plan: An attachment entitled "Default Management
Plan Outline" provides guidance on the content of these plans.
Any school with a HEAL default rate greater than 5 percent is subject
to this requirement and must have on file at the school, for program
review or audit purposes, its default management plan by August
3, 2001.
We hope this
information is helpful. Please contact Ms. Sylvia Brown of the
HEAL Program at (301) 443-1540 if you are questioning specific borrower
information as it appears on your report and the Office for HEAL
Default Reduction at (301) 443-1173 if you have questions concerning
your Default Management Plan.
Stephen J.
Boehlert
Associate Division Director, HEAL
Division of Student Assistance
DEFAULT MANAGEMENT
PLAN OUTLINE
Section 708(b)
of the HEAL statute requires any school with a default rate above
5 percent to develop an annual Default Management Plan for reducing
its Health Education Assistance Loan (HEAL) default rate.
The Default
Management Plan for the period July 1, 2001 through June 30, 2002
must address the three areas and the three required elements
identified below. We encourage you to consider the suggested elements
listed in each category, not necessarily addressing each one, but
evaluating and possibly including some of the suggestions offered
by other HEAL schools into your school's plan.
NOTE: The Pre-Entrance
Counseling and Entrance Interview are no longer applicable for the
HEAL Program since new loans are not being made.
1. IN-SCHOOL
PERIOD
Required Element
- Schools must provide detailed information on how they are complying
with the requirement to conduct an annual HEAL Workshop.
There is ongoing
contact between students and the Financial Aid Office during the
time students are in school.
Schools conduct
workshops/seminars about financial planning, setting up a practice,
budgeting for the early years. Attendance is required.
Debt Management
Counseling - students are informed of their mounting debt. Students
receive ongoing printouts of actual and projected debt.
Financial Planning
Counseling - students continue to be counseled about debt management
and financial planning. Certified Financial Planners meet with
students to discuss future planning.
Students are
encouraged to use the Debt Management Workbook (or similar procedure)
during their in-school period.
2. EXIT INTERVIEW
Required Element
- Schools are required to outline initiatives they have developed
or will develop to assure that current borrowers are aware of the
availability of HEAL Refinancing.
The exit interview
is a requirement for graduation. There are "holds" against
student records whenever students fail to schedule or appear for
exit interviews.
Spouses/parents
are included in the exit interview.
Individual
student information updated for school files. Deferment forms are
distributed.
Students evaluate
the exit interview.
3. POST-GRADUATION
FOLLOW-UP
Required Element
- Schools are required to outline initiatives they have developed
or will develop to assure that previous borrowers are aware of the
availability of HEAL loan refinancing.
There is ongoing
contact regarding deferment, forbearance, refinancing, etc. Newsletters
and phone calls are part of the communication after graduation.
Contact is initiated and maintained by the Financial Aid Office,
Alumni Office, Fiscal Office.
Students are
contacted and counseled when their name appears on the list of HEAL
borrowers in delinquency.
HEAL borrowers
currently in repayment are thanked for their diligence.
If you have
questions, contact the Office for HEAL Default Reduction at (301)
443-1173. Any school subject to this requirement must have on file,
for program review or audit purposes, its default management plan
by August 3, 2001.
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