Printer-friendly
Adobe .pdf
January 31, 2002
To:Schools, Lenders and
Servicers Participating in the Health Education Assistance Loan (HEAL) Program
Subject:Fiscal Year 2002
HEAL School Default Rate School Policy Memorandum S-2002-1
Lender Policy Memorandum L-2002-3
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Since this is no longer applicable, we are nevertheless making the default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, 2001 the overall total
HEAL default rate is 3.2% 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, HEAL
Program default prevention activities, and aggressive efforts by the Department
to collect from borrowers after default or bankruptcy are the primary reasons
for the decline in the HEAL default rate. Since the outstanding HEAL portfolio
is still approximately $3.2 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, 2001 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, 2001 is defined as the percentage constituted
by the ratio of:
(1) Numerator:
The total principal amount of each school's HEAL loans that entered repayment
status from April 8, 1987 through September 30, 2001, for which claims have
been paid due to default or bankruptcy as of September 30, 2001, exclusive
of those claims:
(a) For which the borrower
has made payments to the Secretary for 12 consecutive months or the equivalent
in accordance with a repayment agreement; or
(b) 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);
(2) Denominator:
The total principal amount of each school's HEAL loans that entered repayment
status from April 8, 1987 through September 30, 2001.
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.
(Encouragingly, for the reasons already stated, rates have been declining
rather than increasing. Nevertheless, it will take the continued efforts
of all parties to keep this favorable trend from reversing in the future.)
We have attached the
following tables:
(1) 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.)
(2) 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.
(3) 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.
(4) Table 4 -- lists
the following summary information:
(a) The original principal
amount of loans included in your school's numerator (Table 2) and denominator
(Table 1); and
(b) Your school's default
rate as of September 30, 2001 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, 2001, 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 5, 2002.
We hope this information
is helpful. Please contact 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) 443-4568 if you have questions
concerning your Default Management Plan.
Peter Martineau
Acting Branch Chief,
HEAL
Division of Health
Careers Diversity and Development
Attachments
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,
2002 through June 30, 2003 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) 443-4568. Any school subject to this requirement must have
on file, for program review or audit purposes, its default management
plan by August 5, 2002.