 |
|
|
|
|
|
|
|
 |
|
||||||
 |
 |
 |
 |
 |
|
||
 |
|
||||||
 |
|
||||||
 |
|
||||||
 |
||
 |
||
 |
||
|
||
 |
||
 |
||
 |
||
 |
||
 |
||
 |
||
 |
||
 |
||
 |
||
 |
||
 |
||
 |
DEPART MENT OF HEALTH & HUMAN SERVICES
AUG 12 1988 Rockville MD 20857
To: Officials of Schools and Lenders Participating in the Health
Education Assistance Loan (HEAL) Program
Subject: HEAL School Policy Memorandum Number Seven; Lender Memorandum
Number 88 10 Follow Up Questions From the HEAL Update '88 Conferences
This memorandum addresses specific questions and concerns raised during
the HEAL Update 188 Conferences that required further clarification. The
questions are organized according to subject matter as follows:
|
Topic |
Page |
|---|---|
| Need Analysis/Congressional
Methodology Student Budgets Entrance and Exit Interviews Multiple Disbursements Repayment Deferment Miscellaneous |
1 |
Need Analysis
Q. For the HEAL program, do schools have authority, when using the Congressional Methodology (CM), to change base year income to projected year income using professional judgment?
A. For the HEAL program, schools are authorized to make adjustments to CM that are consistent with the Department of Education's guidance for the financial aid programs authorized by Title IV of the Higher Education Act.
Student Budgets
Q. Can the living costs associated with a student's dependents be considered an allowable budget item for the HEAL program? If so, can they be included as part of the standard budget or must they be treated as a budget adjustment which requires documentation and the use of professional judgment?
A. The HEAL regulations require schools to use a standard student budget when determining the amount of HEAL funds for which a student qualifies. This requirement precludes a school from using a budget for the HEAL program which differs from the budget it uses for its other financial aid programs, including programs administered by the Department of Education (ED). There has been some confusion regarding
2
whether the budget used for funds administered by ED can include, as part of the dependent care allowance, living costs associated with a student's dependents. It is our understanding that ED recently has determined that schools can interpret the dependent care allowance to include costs that would offset a negative available income for independent students with dependents, on an across the board basis. In these cases, the school's policies and procedures would need to indicate that the establishment of a standard allowance may include the deficiency in the student's income. This would allow the institution to include the additional costs in the dependent care allowance without requiring documentation under professional judgment. Schools with additional questions regarding how to include living costs associated with dependents in the standard budget should contact ED.
Q. Are the costs associated with travel to residency sites an allowable budget item? Can they legitimately be considered a necessary educational cost?
A. Reasonable costs associated with travel to residency sites are allowable as a standard budget item or as an exception to the standard budget. These can be considered a necessary educational cost since the residency site visits must occur during the final academic year and are directly related to the borrower's educational program. However, as with other budget items, schools are responsible for developing modest but reasonable allowances for this item, and must maintain documentation to support their determination of the amount of this budget item.
Q. Can HEAL interest be included in the student budget?
A. Since April 8, 1987, the effective date of the most recent HEAL regulatory amendments affecting budgets, HEAL interest cannot be included in the student budget.
Entrance and Exit Interviews
Q. Is a school required to mail entrance interview information to the lender?
A. A school should mail a copy of the entrance interview information to the lender only if it is unable to obtain exit interview information from the borrower. This would assure that, in the absence of exit interview information, the lender has the entrance interview information to assist with skip-tracing activities if necessary.
Q. Can/do lenders provide standard exit interview forms?
A. Lenders can, and some lenders do, provide standard exit interview information. Schools should check with individual lenders to find out toe specific information each one provides. In addition, schools may use the entrance and exit interview materials provided in Policy Memorandum Number Two.
3
Q. Are schools required to send exit interview information to the original lender or the current holder of the loan?
A. Schools are required to send exit interview information to the current holder of the loan.
Q. Is the school responsible if exit interview documentation gets lost in the mail?
A. The school is not responsible if exit interview documentation gets lost in the mail. However, the school is responsible for maintaining documentation of the exit interview (or documentation of the date that the school mailed exit interview materials to the borrower if the borrower failed to report for the exit interview) as part of its HEAL records, even after copies of the exit interview documents have been mailed to the lender. Accordingly, it should be possible for a school to send the lender a second copy of the exit interview documentation if the first copy is not received by the lender.
Schools may also request that students who fail to report for the exit interview return the exit interview information to the school. The school would then send the information to the lender. This would allow the school to follow up on those borrowers who fail to return the exit interview information, and also would give the school a record of wnen the information is mailed to the lender.
Multiple Disbursements
Q. Can something be done to assure that schools and lenders coordinate better in establishing and meeting requested disbursement dates?
A. The Department encourages schools and lenders to inform each other of any problems they are having with requested disbursement dates, and to attempt to resolve these problems on an individual basis. If problems persist after these attempts, the Department should be notified so that it can determine whether more specific policy guidance or a regulatory amendment is necessary.
Q. What should a school do if it requests three disbursements and the lender refuses to make the third one (combines the second and third disbursement into one)?
A. Lenders are expected to comply with the disbursement dates and time frames requested by schools. If a lender fails to comply with the school's requested dates, the school should contact the lender to determine the reason for the noncompliance. If a school is unable to resolve problems with a particular lender, the school may wish to consider discontinuing the use of this lender and should notify the Department of the problem.
4
Q. Is the lender responsible for questioning the school's timing of multiple disbursements?
A. The lender is expected to question the timing of disbursements if the dates or time frames appear, in the lender's judgment, to be unreasonable. While the final responsibility for the timing of the disbursements rests with the school, a lender who is unable to resolve with the school its concerns regarding the timing of disbursements should notify the Department, and may refuse to process the application.
Repayment
Q. Does the "5 times rule," which limited a lender's flexibility in developing graduated repayment schedules, still apply to old loans? Does the old HEAL promissory note preclude negative amortization?
A. Since April 8, 1987, the effective date of the most recent HEAL regulatory amendments, the "5 times rule" no longer applies to any loans. The old HEAL promissory note does not preclude negative amortization, provided that both the borrower and the lender agree to this.
Q. Does the borrower have the right to request negative amortization?
A. The borrower may request negative amortization at any time. While lenders have discretion in deciding whether to grant negative amortization, lenders are expected to work with the borrower to develop a reasonable and workable repayment arrangement, and should refuse negative amortization only if they believe it is unnecessary or will be ineffective in preventing a borrower's default.
Q. Are graduated repayment schedules required to be offered by lenders?
A. Lenders are required, at the time a borrower enters repayment, to offer the borrower a choice between at least one graduated and one equal payment schedule. Schools should notify borrowers of this option at the time of the exit interview. However, some lenders have expressed reservations about the value of graduated repayment schedules. These lenders have indicated that, because of the high interest payment on HEAL loans, graduated repayment schedules do not significantly lower the payments during the early years of repayment unless negative amortization is used.
Deferment
Q. What is the Department's position regarding a borrower in internship or residency whose request for deferment indicates that he or she is in student status?
5
A. The Department does not consider internships or residencies as eligible for student status deferment, since the HEAL statute and regulations clearly distinguish between internship/residency and student status as two separate types of deferment activities, with different restrictions regarding the length of time for which each can qualify for deferment. As part of the exit interview, schools should counsel borrowers that, for purposes of deferring HEAL loans, internship or residency activities must be identified as such on the deferment form. In addition, lenders should, to the extent possible, attempt to verify the deferment activity of any borrower who requests a student status deferment but appears more likely, based on his or her previous activity (e.g., field of study and date of graduation), to be in an internship or residency.
Q. Is a borrower entitled to a second grace period if he or she obtains an additional HEAL loan during an authorized deferment period (e.g., borrower receives first HEAL loan while enrolled in a school of pharmacy; after entering repayment for the first loan, borrower enrolls in a school of medicine and receives a second HEAL loan)?
A. A borrower would not be entitled to a second grace period on any loans that have already entered repayment status, but would be entitled to a grace period on more recent loan(s) that had not yet entered repayment. This grace period would run concurrent with the repayment period for the earlier loans.
Miscellaneous
Q. Is a second application necessary if the borrower's costs increase? Can an addendum or phone call to the lender suffice instead? Some lender(s) will not disburse on a second application until the first application funding has been completely disbursed.
A. A second application is necessary if the borrower's costs increase, since this would involve a change in the borrower's resources and/or budget Which must be reflected on the application. When submitting a second application, the school may cancel the undisbursed portion of the original application and submit the second application to cover the total amount of the remaining HEAL need, or may submit the second application showing only the amount of the increase in the borrower's need. In the latter case, the regulations do not preclude a lender from disbursing funds approved for a single borrower under two separate applications on a concurrent basis.
Q. Is it possible for a lender to notify the school when a loan is sold, even if the student has graduated?
A. While a borrower is enrolled in school, a holder which purchases a HEAL loan is required to notify the school within 30 days of the time the borrower's loan is purchased. If schools would like to be notified when loans for graduated students are sold, they should
6
discuss this with their lenders. While lenders are not required to do this, most lenders are interested in cooperating with schools when they are aware of a particular need on the part of the school. In addition, the Department provides each school, on a semi annual basis, with information on any HEAL borrowers who have attended the school. This information includes the names of the original lender(s) and the current holder(s) of the borrower's HEAL loans.
Q. Can schools legally share borrowers' addresses and other current information with the lender and the Department?
A. Section 739(b) of the HEAL statute requires an eligible institution to record and make available to the lender and to the Secretary upon request, the name, address, postgraduate destination, and other reasonable identifying information for each student of the institution who has a loan insured under the HEAL program.
Q. Can the Department provide schools with a copy of the "quick reference checklist" used by program reviewers? This would help schools to review the effectiveness of their HEAL administration on an individual basis.
A. The Department is in the process of updating the HEAL "quick reference checklist" used by program reviewers and will mail copies to HEAL schools after the update is completed.
Q. The Department's mailing list for communicating with HEAL schools does not always reach the individuals who actually administer the HEAL program. Can the Department update this listing and/or add a fourth contact point?
A. The Department's mailing list for communicating with HEAL schools is based on the names and addresses of three officials (authorizing official, financial aid administrator, and fiscal officer) provided to the Department by the school. This listing was updated in May. Because some larger university systems have indicated that these three contacts are not adequate for assuring that information reaches the officials who directly administer the HEAL program, the Department also is considering revising the school agreement for the HEAL program to give schools the option of adding the name of a fourth contact person to the mailing list.
The HEAL workshops are necessary to improve communication and dialogue specific to the HEAL program, to provide opportunities for HEAL schools to meet together, to allow interaction on "gray areas," and to focus on the HEAL program in detail. Can they be continued on a regular basis?
A. The Department is unable to make definite plans for future conferences until it has more information on its budget for the upcoming fiscal year(s).
7
We appreciate the participation, interaction, and feedback that the HEAL Update '88 Conferences allowed for schools, lenders, and Federal officials. Questions regarding this policy memorandum should be directed to Mr. Carl Schmieg at 301 443 6094.
Michael Heningburg
Director
Division of Student Assistance
