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JUN 2 1997

To: Lenders Participating in the Health Education Assistance Loan (HEAL) Program

Subject: New HEAL lender contracts and initial insurance authority allocations for the period of July 1, 1997 - September 30, 1997
Lender Policy Memorandum L-1997-5
School Policy Memorandum S-1997-8

A new lender contract cycle will begin July 1, 1997 and extend for 12 months through June 30, 1998. Four lenders will participate in the HEAL program during this period-­Pennsylvania Higher Education Assistance Agency, Mellon Bank, Star Bank (as trustee for Brazos), and Vermont Student Assistance Corporation.  Rhode Island Higher Education Assistance Authority dropped out since we released our March 13, 1997 policy memorandum first announcing participating lenders.

Many lenders currently have used almost all available discipline specific fiscal year (FY) 1997 insurance authority and can no longer make loans to certain disciplines. The HEAL program cannot further redistribute the FY 1997 insurance authority between lenders before July 1 because there is simply no more insurance authority available for these disciplines. Consequently, financial aid administrators will have problems finding lenders with insurance authority for dentistry, optometry, veterinary medicine, clinical psychology, and health administration prior to July 1. Please contact your current HEAL lender, especially if it is not continuing after June 30, prior to sending your HEAL loan applications to determine if your applications can or will be funded. You may wish, instead, to send your applications to one of the four participating lenders mentioned above. In an effort to ease discipline shortages, we will redistribute remaining FY 1997 insurance authority by discipline on July 1 consistent with our practice last year. This will give all disciplines at least limited access to remaining FY 1997 insurance authority prior to the start of FY 1998.

On July 1, remaining FY 1997 insurance authority (estimated to be $10.0 million) will be redistributed by discipline based on the proportionate discipline usage during the period October 1, 1996 through June 30, 1997. A lender will receive an initial discipline specific allocation determined by the dollar amount of disbursements it has scheduled for the period July 1 through September 30, 1997, plus the amount of applications in process reported to the HEAL program, plus a proportion of (remaining) discipline specific insurance authority. For example, if a lender has $500,000 of dental disbursements scheduled and/or applications in process for the period July 1 through September 30, 1997 that lender would receive $500,000 plus a proportionate share of remaining dental insurance authority. The proportionate shares listed on the attached table are based on an estimate that $10 million FY 1997 insurance authority will be remaining July 1. This does not take into account the dollar amount of scheduled disbursements and applications a lender may have in process, since it is too early to determine these amounts.

We have been informed that the lenders continuing in the HEAL Program July 1 will process loan applications on a first-come first-serve basis by discipline. Please act early, but even that may not ensure that your students will get loans prior to October 1, 1997. It depends on demand for, and availability of, insurance authority by discipline.

It is also important to remember that initial allocations serve only as a starting point and that lenders are allowed to use up to 10% of their total allocation to fund any HEAL disciplines. Thus, a student at a school in a discipline that does not have a stated allocation for the period July 1 through September 30 (chiropractic, public health, and health administration) can, nevertheless, have his/her application funded by a lender. Lenders that are receiving applications and scheduling disbursements may request additional insurance authority (if available) from the HEAL program as needed. Re-allocations among lenders will be made as quickly as possible.

Educational institutions are advised that the lenders' new rates will be effective for new loans issued July 1, 1997 through June 30, 1998. In contrast, the lenders that will continue to participate after June 30, second and third disbursements (scheduled after June 30) will carry the terms on the original promissory note. Lenders that are not continuing after June 30, 1997 will not make any second or third disbursements that were scheduled after June 30, 1997. Lenders are informing educational institutions which borrowers are being affected. In these cases, a new loan application must be completed to fund any remaining borrowing needs.

We will keep the lending community and educational institutions apprised of insurance authority availability especially through September 30, 1997. Appropriate notifications will be made if and when FY 1997 insurance authority is fully disbursed by discipline. Insurance authority allocations for FY 1998, which begins October 1, 1997 will be based on congressional appropriation action. Absent HEAL reauthorization, our best estimate, at this time, is that $85 million will be available for continuing borrowers in FY 1998 which would be the last year of HEAL loan making activity. Therefore, as in the past 2 years, only continuing HEAL borrowers are eligible --disbursements cannot be made to first-time HEAL borrowers.

Thank you for your continued support of the HEAL program. During this uncertain time, it is our goal to provide you with prompt and effective service. Please contact Ms. Terri Ehrenfeld of the HEAL Branch at (301) 443-1540 if you have any questions.

Stephen  J. Boehlert
Associate Division Director, HEAL
Division of Student Assistance

1. Estimated discipline breakout for the remainder of FY 1997 insurance authority
2. March 13, 1997 policy memorandum