### New Rules for Loan Rehabilitation and AWG

```New Rules for Loan Rehabilitation and
Fred Lundquist, Windham Professionals
Susan High, Texas Guaranteed
Dwight Vigna, U.S. Department of Education
Doug St. Peters, Sallie Mae, Inc.
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
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
3
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
4
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
5
Rehabilitation continued- Example
Necessary information
• Family size = 2
• HSS poverty guideline =
\$15,510
\$26,530
Calculation steps
1.
2.
3.
4.
\$15,510 X 150% = \$23,265
\$26,530 - \$23,265 = \$3,265
\$3,265 X 15% = \$489.75
\$489.75 ÷ 12 = \$40.81
Monthly payment amount
2013 Knowledge Symposium
November 5-7, 2013 ● St. Pete, Florida
6
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
8
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
9
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
11
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 Symposium
November 5-7, 2013 ● St. Pete, Florida
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Questions?
2013 Knowledge Symposium
November 5-7, 2013 ● St. Pete, Florida
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