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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
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Page |
Need Analysis/Congressional
Methodology
Student Budgets
Entrance and Exit Interviews
Multiple Disbursements
Repayment
Deferment
Miscellaneous
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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
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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.
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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.
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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?
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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
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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).
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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 |