Participation Operations – Part 2 1 FFEL Loan Participation Program Participation Operations – Part 2 August 8, 2008.

1Participation Operations – Part 2

FFEL Loan Participation Program

Participation Operations – Part 2

August 8, 2008


Presenters

• Jeff BakerDirector Policy Liaison & Implementation

Federal Student Aid

U.S. Department of Education

• Jay HurtChief Financial Officer

Federal Student Aid



Introduction

Jeff BakerDirector Policy Liaison & Implementation

Federal

Student

Aid

U.S.

Depart

ment

of

Education


Logistics

• Title: Loan Participation Program• Participation Operations – Part 2

• Date: August 8, 2008

• To Participate You Must –• Logon at URL provided in registration confirmation email;

and• Dial in to 1-888-324-6476

Confirmation number: MGERHARD• Additional information on the Loan Purchase Programs at:

www.federalstudentaid.ed.gov/ffelp


Webinar Objectives

• Purpose: To provide a high level overview of the operational processes involved in monthly reporting and to answer questions from Participation Operations Webinar – Part 1

• Target Audience: Personnel at servicers, lenders and custodians who are responsible for record keeping

• Limitations: Will not include operational details of the Auditing requirements or winding down the participation, specifics regarding legal documents or any matters concerning the Loan Purchase (PUT) Commitment Program. This information will be provided in other formats, including in subsequent Webinars

• Loan Participation Operations Webinar - Part 3 will be held on August 15, 2008


Legal Authorities

• Ensuring Continuing Access to Student Loans Act of 2008 (P.L. 110-227)• HR 5715• Signed by the President on May 7, 2008• Strengthened GA Lender of Last Resort Program• Provided Secretary authority to purchase FFEL loans.• Cannot provide advanced funding to lenders

• Federal Register Notice• Required by statute• Draft Posted to IFAP on June 24, 2008• Official Publication July 1, 2008


Program Objectives

• Ensure that eligible students and parents receive federal student loans for the 2008-2009 academic year

• Support the FFEL Program as a successful private/public partnership

• Ensure no net cost to the federal government


Two Programmatic Components

Loan Purchase Commitment Program

• Commitment by ED to purchase eligible 2008-2009 FFEL loans through September 30, 2009

• Called “put”• Any FFEL lender/holder• Loans must be fully disbursed to be purchased• 45 day advance notice of loans to be sold • ED’s commitment has value in financial markets


Two Programmatic Components

Loan Participation Purchase Program

• Commitment by ED to purchase “participation interests” in eligible 2008-2009 FFEL loans through September 30, 2009

• ED’s purchase will provide immediate liquidity• To terminate ED’s participation interest lender

repays ED with defined yield.• Loans can be re-purchased by lender• Loans can be sold (put) to ED


Loan Participation Purchase Program Process Overview

Jay Hurt

Chief Financial Officer

Federal Student Aid



Agenda

• Custodian Approval Process• Changes to Funding Request Process• Monthly Reporting

– Monthly Rolling Forecast– Monthly Settlement Date Report– Monthly Loan Schedule

• Change Control Procedures• Previous Questions/Issues• New Questions


Process Overview

• New Processes– Initial Approval Package – EA #10– Custodian Approval Process – EA #14– Pre-Approval Steps– Funding Requests – EA #16 & #13– Monthly Reporting & Cash Sweep

• EA #15, #17, & #18

– Audits

• Existing Processes– 799 Billing– Form 2000 Reporting


Custodian Approval Process• Custodian Approval Submission Process posted to

website as EA #14– Added the address and delivery instructions

• List of ED-approved custodians posted today by 4PM and updates added everyday by 4PM

• Sponsor submission may include –– Previously approved custodian– New proposed custodian, who must submit an approval

package.


Changes to Funding Request Process

• No weekday assignments– Still only one submission allowed per week– Will process in order that Loan Schedule is received in SAIG

mailbox

• Rejected files may not need to wait until the next week for re-submission, at the discretion of the Department operations staff– Transactions with hard edits still excluded from submission

and must be re-submitted following week.

• New Security Release Certification form and process in EA #16

• Header Field 6 (Form799PaymentReceived) has been deleted

• Loan Level Field definitions have been clarified


Monthly Reporting & Cash Sweep

• Monthly Rolling Forecast in EA #15– Treasury cash flow planning – helps to reduce risk of payment delays– Credit Reform Act accounting– Must provide prior to first funding request payment

• Monthly Settlement Date Report in EA #17– Reconciles to Loan Schedule– Supports reconciliation of Department’s Yield and Class A Participation Certificate

balance by ED– Use Participant Yield Rate through 9/30/2008 as published in EA #18 = 3.25%– Provides status of delinquency/default– Supports cash activity relating to loans

• Monthly Loan Schedule supporting Monthly Settlement Date Report

• All cash is swept from the Collection Account and applied first to the Department’s Yield and then to the Class A Certificate Balance

– May be swept via Pay.Gov more frequently if Settlement Date Report & Loan Schedule is provided as of that date


Monthly Reporting - MatrixForm Exhibit

WhoExecutes Frequency When Due Process Flow

Monthly Settlement DateReport

Section 8b(1)

Custodian Monthly 7 BusinessDays after the 1st

of the month

• The two reports must be sent as Excel files via e-mail to FSA web email address. Loan Schedule will be sent as an electronic file via SAIG.

• ED will send acknowledgement of receipt e-mail to Custodian.

• ED to verify Monthly Rolling Forecast aggregates to more than $50mm over the life of the Participation Agreement.

• ED to verify that all three pieces to the submission are as of the same date.

• ED to initiate Monthly Reconciliation procedures * Ending Balances to current Loan Schedule * Beginning Balances to previous Loan Schedule * No loans delinquent over 255 days. * Reconcile the custodian’s calculation of Participation Principal and Participation Yield to ED’s.

Monthly Rolling

Forecast

Section 8a(1)

Loan Scheduleas part of theMonthlySettlementReport

In supportof theabove


Monthly Rolling Forecast - ExampleAS OF DATE: August 30, 2008

Month Loan Type Originations DisbursementsLoans

Redeemed Loans Put

August 2008 $ Amount

Loan Count $ Amount $ Amount $ Amount

Stafford/Undergraduate $5000 1

Stafford/Graduate

Unsubsidized Stafford

PLUS/Parents

PLUS/Graduate Students

Total

Monthly rolling forecast covers May 2008 through September 2009

Disbursements, Loans Redeemed, and Loans Put information will also include unit counts




Redeemed Loans Put

September2008 $ Amount


Stafford/Undergraduate $2500

Stafford/Graduate


PLUS/Parents


Total






Redeemed Loans Put

January 2009 $ Amount



Stafford/Graduate


PLUS/Parents


Total






Redeemed Loans Put

September 2009 $ Amount



Stafford/Graduate


PLUS/Parents


Total




Monthly Rolling Forecast - ExampleAS OF DATE: September 30, 2008


Redeemed Loans Put

September 2009 $ Amount



Stafford/Graduate


PLUS/Parents


Total




Monthly Rolling Forecast

• Historical information will replace projections as factual information overrides forecasts as each month passes.


Monthly Settlement Date Report

• Information for each Servicer ID– Borrower Principal and Accrued Interest balances

• Information aggregated for the Custodian ID– Delinquency status (# and $)– Participant (i.e., Department’s) Yield Calculation

• Using Yield Rate as published in EA #18 = 3.25%

– Collection Activity• Ties to CashCollections field on Loan Schedule• 799 Payments• Investment Income

– Distribution Summary• Pay Participant Yield, Participant Principal, then Sponsor

– Class A Participant Principal Rollforward


Monthly Loan Schedule

• Loan Schedule in the same form as submitted on the Participation Purchase Request– See EA #16 for updated details on Loan Schedule

preparation/submission

• Must support information included in the Monthly Settlement Date Report

• Loan Schedule Edits – EA#13– File vs. Transaction Edits– Hard vs. Soft Edits


Change Control Procedures

• Forms and instructions will be updated via Electronic Announcement (EA) postings.

• Loan Schedule changes will be coordinated with you– Proposed Loan Schedule layout & edit

modifications will be announced via EA– EAs will include schedule for implementation– Schedule will allow for testing with the Department– Schedule will specify mandatory cutover date– First change to occur within next 30 days


Loan Participation Purchase Program

Previous Questions/Issues


Loan Guaranty• Loan Guaranty and Agency - the guaranty that was

granted to the lender (now the Sponsor) remains in effect while the loan is in the Participation Facility, without regard to the transfer of title to the Custodian.– Sponsor-Guaranty Agency relationship is maintained. – When removed via a repurchase by the Sponsor, the

guaranty remains;– When removed by a put to ED, the guaranty ends.


Loan Defaults• No defaulted loans may be placed in the facility.

• When a loan becomes 255 days past due, it must be removed by the Sponsor from the facility, either by re-purchase or put to ED.

• If loan then defaults –– Normal school CDR calculation will apply.– If loan had been repurchased normal GA CDR will apply.– If loan had been put, no GA CDR.


Security Release• What happens if substantiation of security release

upon settlement of first Participation Purchase Request is not provided to ED?– ED will withhold approval of subsequent Participation

Purchase Requests until security release is demonstrated (i.e., custodian provides Security Release Certification form)


Consolidation of Loan• What happens if the borrower includes a loan that

is in the participation program in a new consolidation loan?– The loan must treated as if it were repaid by the

borrower. When funds from the consolidating lender (including the DL Program) are received by the Sponsor, they must be remitted to the Custodian for deposit in the Collections Account.

– Custodian will make appropriate adjustments to loan balance.


Legal Title and 799• When does 799 reporting change in relation to the

date title in the loan goes from Sponsor to Custodian?– Title transfers on the same day that funding transfers – Sponsor reports through date of title transfer– Custodian reports beginning day after title transfer– Note: Slides from previous webinar were incorrect.


Eligible Loans• Under clause (xv) of Eligible Loan in the MPA, all of

the Borrower’s other Stafford Loans must be transferred, how will this work for loans originated before the May 1, 2008 cut-off period?– Per clause (xv), only the Borrower’s other “Eligible

Loans” are required to be participated. Originations before May 1, 2008 are not Eligible Loans and may not be participated.


Notice of Intent• Suppose there are 3 holders of a loan, both the

originating lender and current holder timely filed Notices of Intent to Participate but the intermediate holder did not. Is this loan an Eligible Loan?– Yes, only the original lender and current holder must file

the Notice of Intent to Participate in order to establish loan eligibility.


Notice of Intent• Participation Operations Webinar 1 indicated a

confirmation of a Notice of Intent to Participate would be sent within 2 business days. If I have submitted my Notice of Intent to Participate, but have not received confirmation from ED, what should I do?– You should contact the FFEL Agreement Process Team

at [email protected]


Questions• Questions may be asked

now or submitted to the following e-mail address, starting Monday, for consideration in next week’s webinar

[email protected]

Participation Operations – Part 2 1 FFEL Loan Participation Program Participation Operations – Part 2 August 8, 2008.

Documents

eds participation

participation interests

reporting slide

ed slide

department of education

custodian approval process

federal government slide

ffel program