New Rules for Loan Rehabilitation and Administrative Wage Garnishment

Fred Lundquist, Windham Professionals

Susan High, Texas GuaranteedDwight Vigna, U.S. Department of

EducationDoug St. Peters, Sallie Mae, Inc.

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Basics

• Package 2 – Includes other regulations beyond Rehabilitation and AWG

• Effective July 1, 2014• Agencies may implement early as

of Nov 1, 2013 for some of the regulations

• Changes amend FFELP, DLP, and Perkins

2013 Knowledge Symposium

November 5-7, 2013 ● St. Pete, Florida

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Basics Continued

• Focus today on Rehabilitation and AWG

• SRA – Satisfactory Repayment Arrangements– If Borrower paying towards

rehabilitation and has made 6 payments, Borrower does not use one-time opportunity for SRA of Title IV Reinstatement and does not receive additional Title IV assistance prior to defaulting on that loan again

– Six on-time payments is now 20 days of due date instead of 15 days

2013 Knowledge Symposium

November 5-7, 2013 ● St. Pete, Florida

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Rehabilitation

• STEP ONE – Calculate R&A Payment using the “15 Percent Formula”– 15% of amount of Borrower’s AGI (Adjusted Gross Income) that exceeds 150% of poverty guideline applicable to family size and state, divided by 12

• NOT considered an IBR payment plan

• MUST be at least $5 monthly payment

• MUST be calculated first in all cases for rehabilitation

2013 Knowledge Symposium

November 5-7, 2013 ● St. Pete, Florida

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Rehabilitation continued

• Determine appropriate poverty guideline (http://aspe.hhs.gov/POVERTY/13poverty.cfm)

• Multiply poverty guideline by 150 percent• Subtract borrower’s adjusted gross

income• Multiply by 15 percent• Divide result by 12 to determine

borrower’s monthly payment amount

2013 Knowledge Symposium

November 5-7, 2013 ● St. Pete, Florida

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Rehabilitation continued- Example

Necessary information

• Family size = 2• HSS poverty

guideline = $15,510

• Adjusted gross income = $26,530

Calculation steps1. $15,510 X 150% =

$23,2652. $26,530 - $23,265 =

$3,2653. $3,265 X 15% =

$489.754. $489.75 ÷ 12 =

$40.81Monthly payment amount

2013 Knowledge Symposium

November 5-7, 2013 ● St. Pete, Florida

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Rehabilitation Continued

• Can NOT:– Be a required minimum payment,

except as described under the “15 Percent Formula”

– Be a percentage of Borrower’s total loan balance

– Be an amount based on other criteria unrelated to financial circumstances

2013 Knowledge Symposium

November 5-7, 2013 ● St. Pete, Florida

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Rehabilitation Continued• CAN:– Offer payment amount orally – Discuss other payment arrangements such as PIF or

Consolidation – Borrower objects the offer

• MUST:– If Borrower agrees to payment amount, provide

documentation required to calculate the “15 Percent Formula”- such as, Tax Return, ADOI (Alternative Documentation of Income)

– Provide Borrower with written rehabilitation agreement within 15 business days of determination of R&A payment amount

2013 Knowledge Symposium

November 5-7, 2013 ● St. Pete, Florida

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Rehabilitation Continued• MUST continued:– Agreement must include comprehensive

description of rights, terms (including amount of payment), conditions, and collection costs

– Include a prominent statement that Borrower can object orally or in writing to amount, terms, conditions

– If Borrower does NOT provide documentation required within a reasonable time, Rehabilitation Agreement for amount agreed upon is null and void

– Require Borrower to sign Rehabilitation Agreement

2013 Knowledge Symposium

November 5-7, 2013 ● St. Pete, Florida

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Rehabilitation Continued

• CAN:– Request updated contact information

including references on agreement– Contact Borrowers to communicate

support for Rehabilitation • Reminder of payment coming due• Missed payment

2013 Knowledge Symposium

November 5-7, 2013 ● St. Pete, Florida

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Rehabilitation Continued• STEP TWO – If Borrower objects

to initial payment amount, calculate amount based on Borrower, and Spouse if applicable, current disposable income, family size, R&A expenses on approved form –

“Financial Disclosure For Reasonable and Affordable Rehabilitation Payments”

• Can request supporting documentation

2013 Knowledge Symposium

November 5-7, 2013 ● St. Pete, Florida

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Rehabilitation Continued• Flexibility of expenses allowed; no national

standards required• Borrower may choose which payment amount

to accept – from Step One or Step Two• Provide Borrower with written rehabilitation

agreement within 15 business days of determination of R&A payment amount ; other agreement requirements apply

• Borrower may request payment amount be adjusted due to change in financial circumstances

2013 Knowledge Symposium

November 5-7, 2013 ● St. Pete, Florida

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AWG Rehabilitation

• Borrowers in AWG making payments toward Rehabilitation – Agency Must Suspend AWG after 5 qualifying monthly payments

• Borrowers may request that AWG continue

• Borrower has one opportunity to comply

• If missed payment, suspension lifted on AWG 2013 Knowledge

SymposiumNovember 5-7, 2013 ● St. Pete,

Florida

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Questions?

2013 Knowledge SymposiumNovember 5-7, 2013 ● St. Pete, Florida