Assignment of Perkins Loans
To: COHEAO Members
From: Robert Moran, Jared Solomon, and Jimmy Koch
All,
On August 27th, the Department of Education issued an electronic announcement regarding the assignment of Perkins Loans that have been in default for two or more years. COHEAO is aware that the Department is continuously following up on this announcement through direct outreach to campus individuals.
Further, the August 27th announcement appeared to be a more aggressive policy than previously pursued by the Department. COHEAO continues to review the August 27th letter coupled with other existing guidance and current regulation. The August 27th announcement is sub-regulatory guidance, which is not law, but important direction and information by the Department. Thus, a review of other existing guidance, such as the Handbook, regulations, and underlying law is also important for broad context.
In the meantime, COHEAO has provided guidance over the years to institutions on managing their portfolio with regard to the assignment of loans. While COHEAO continues analyzing next steps, this guidance is prudent for all institutions to take in advance of further institutional action.
What Can Institutions Do Now:
- Review your portfolio, especially older loans
- Develop a plan and put it in writing
- Assign your oldest, non-performing loans to ED.
- Strategically examine loans that are 5-7 years in default as historically they prove to have successful repayment opportunities.
- Do not neglect loans that are 2-5 years in default – they can also be fruitful.
- Think about how to attack younger loans in default. There are many successful strategies for returning borrowers to repayment status before getting close to the 2-year default mark.
- Utilize your third-party collection agencies to assist with getting borrowers into a successful repayment plan, rehabilitation or consolidation.
- Perkins Borrowers who consolidate are eligible for the Direct Loan payment moratorium and zero percent interest until January 31, 2022, as well as being eligible for Income Repayment Plans not offered to Perkins Borrowers.
As COHEAO reviews this material for possible future action and clarification by the Department, please continue to follow the steps outlined above as it is just good practice. Members will be updated with any additional information as it becomes available. Should you have any questions, please do not hesitate to contact COHEAO Executive Director, Robert Moran, by email at rmoran@bosepublicaffairsgroup.com.
You may also be interested to know
COHEAO sent Federal Student Aid (FSA) a number of questions in order to clarify and better guide institutions. For your reference, they are presented here followed by the FSA’s response.
1. In the past, ED identified those schools with a particular percentage of loans (75% in 2020 and 50% in 2021) that are in default status for two or more years and required these loans be assigned to ED. The 8/27 notice is a substantial departure from this policy so would you please explain why this change has occurred?
There has not been a policy change as it has always been the intent of the Department to ultimately require all schools submit their 2+ years defaulted loans for assignment. The Department began the process of notifying institutions with the highest percentage of their total portfolio in default, we then decided to publish an Electronic Announcement informing institutions of their obligation to assign loans that have been in default for two or more years, and the deadline of June 30, 2022 that the institution should assign these loans.
2. Under the policy of identifying schools referenced in the previous question, the Department would send a letter to the institution requesting the loans. Why has this policy changed?
The Secretary has required all Perkins Loans that have been in default for two or more years be assigned to the Department. The process of providing a deadline in stages, on the basis of the highest percentage of defaulted loans, was an operational implementation of the policy. This August 27, 2021 Electronic Announcement serves as updated guidance on operational implementation as well as notification to all schools to fulfill the assignment of the defaulted loans as indicated.
3. The 8/27 notice indicates that ED will assess schools’ situations early in 2022. When exactly will this occur? Schools will be more successful in complying if they have sufficient time to try to meet the Department’s requirements.
The Department will assess each school’s activity and determine if a good faith effort is being made to assign their loans by the deadline. We will be monitoring progress and will be reviewing cumulative reporting information of defaulted loan activity as reported on an institution’s FISAP. This is an on-going requirement and an on-going process. Therefore, we will communicate specifically with institutions should we determine an institution is not assigning defaulted loans as required. Since our assessment is data driven and every institution is different, there is not a specific date. We believe that by notifying schools in August 2021 to assign by the end of June 2022 is sufficient time for an institution to begin this process and show a good faith effort of complying with the Secretary’s directive.
4. The 8/27 announcement refers to the term “insufficient effort” by institutions during this process. Would the Department please define what “insufficient effort” is or define what “sufficient effort” would be?
We believe every institution is unique and will determine each institution’s progress on a case-by-case basis. We fully anticipate working with our institutions in this effort and strongly encourage institutions to make a concerted effort to comply with this requirement.
5. Many schools servicing a large number of Perkins Loans will have significant difficulty complying with the June 30, 2022 assignment deadline due to the ongoing pandemic. Many have thousands of loans that will need to be assigned. In some states, schools will need to engage the office of the Attorney General for release of judgments which can take a significant amount of time. The Department has indicated in the past that a school would be in compliance if it had developed a plan and was following that plan. Will that still be the case moving forward? If a school is following a developed plan for assignment, will they still be in compliance?
Any institution with questions or concerns about this process may contact the Department. The Department will consider each institution’s circumstance and communicate directly with them on a case- by-case basis.
6. In developing the timing in the 8/27 notice, to what extent did the Department take into account the delays that the COVID pandemic has caused? In many instances, litigation ground to a halt, Attorneys General stopped the collection process, and institutional staff have been working from home, all factors which have hampered collection processes.
The Department will consider each circumstance on a case-by-case basis to determine if an extended period is needed for assignment. It is the Department’s belief that schools have adapted to the COVID pandemic through operational implementations ensuring their students are well served. The Department believes that sufficient time is given by providing notification in August 2021 to have loans assigned by the end of June 2022.
7. In the past, ED has taken a good faith approach by working with schools and assisting them in compliance. However, this recent notice seems to imply a more punitive approach going forward, is that the case?
The Department will continue to work with institutions on a case-by-case basis. It is our expectation that schools will make a good faith effort to assign these loans by the June 2022 deadline. The Department will consider each institution’s individual situation to determine if an extended period is needed for assignment.
8. Would you please provide the statute and regulatory cite for the legal authority that ED relies on to justify the call for assignments and in determining the two-year non-payment status?
As noted in the August 27, 2021 Electronic Announcement, Section 463(a)(4)(A) of the Higher Education Act of 1965, states that if an institution knowingly failed to maintain an acceptable collection record for a defaulted Federal Perkins Loan, the Secretary may require the institution to assign the loan to the Department of Education without recompense. The Secretary has determined that defaulted Perkins loans that are in a non-payment status for more than two years meet these conditions. Unless a borrower is actively making payments, in a deferment or forbearance, the loan is required to be assigned if it has been in default for two or more years.
