ESC-35-09-00008-A The New York Higher Education Loan Program
11/4/09 N.Y. St. Reg. ESC-35-09-00008-A
NEW YORK STATE REGISTER
VOLUME XXXI, ISSUE 44
November 04, 2009
RULE MAKING ACTIVITIES
HIGHER EDUCATION SERVICES CORPORATION
NOTICE OF ADOPTION
I.D No. ESC-35-09-00008-A
Filing No. 1221
Filing Date. Oct. 21, 2009
Effective Date. Nov. 04, 2009
The New York Higher Education Loan Program
PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following action:
Action taken:
Addition of Part 2200-a to Title 8 NYCRR.
Statutory authority:
Education Law, sections 691(10), 653 and 655
Subject:
The New York Higher Education Loan Program.
Purpose:
Implementation of the New York Higher Education Loan Program.
Substance of final rule:
The New York State Higher Education Services Corporation (Corporation) proposes to add a new Subchapter D, Part 2200-a to title 8 NYCRR Volume B, Chapter XX. The proposal would implement the New York Higher Education Loan Program (NYHELPs). The following summarizes the proposed regulation by section.
Section 2200-a.1 includes thirty-five definitions applicable to this new subchapter.
Section 2200-a.2 outlines borrower eligibility requirements for student and non-student borrowers. In addition, this section establishes aggregate Program loan limits and sponsor limits. Other eligibility criteria are set forth including ineligibility for borrowers with an adverse credit history and an ability for a borrower or co-signer to obtain renewed eligibility in certain situations.
Section 2200-a.3 outlines school eligibility requirements, including the contribution of a fee by the school, and provides for disqualification from participation for just cause.
Section 2200-a.4 outlines lender eligibility requirements and provides for disqualification from participation for just cause.
Section 2200-a.5 provides due diligence requirements in originating, disbursing, and servicing of Program loans. This section establishes required processes, provides for the proper application of payments and sets forth requirements for the sale or transfer of Program loans.
Section 2200-a.6 sets forth application content required for the Program which includes certain disclosure requirements.
Section 2200-a.7 outlines the fixed rate Program loan portion of the Program. In particular, this section sets forth the process governing the establishment of interest rates, notification of such rates and allocation of fixed rate Program loans.
Section 2200-a.8 outlines the variable rate Program loan portion of the Program including provisions related to the establishment of interest rates.
Section 2200-a.9 provides the minimum and maximum Program loan limits available to eligible borrowers. The amount of the Program loan shall not exceed the difference between the cost of attendance less all other New York State aid, Title IV aid (excluding federal PLUS loans), other federal aid, institutional aid, and private aid, as certified by the eligible college.
Section 2200-a.10 outlines issues involved in the calculation and handling of school default fees and borrower default fees.
Section 2200-a.11 establishes Program loan verification requirements.
Section 2200-a.12 covers prohibited transactions and requirements for lenders and schools pertaining to any unfair or deceptive lending practices for educational loans, any conflicts of interest detrimental to the student, and any other prohibited conduct in connection with student lending.
Section 2200-a.13 sets forth school certification requirements related to eligibility for a Program loan.
Section 2200-a.14 outlines requirements for the processing of Program loan proceeds by schools.
Section 2200-a.15 outlines requirements for the processing of Program loan refunds by schools.
Section 2200-a.16 provides disclosure requirements for participating schools as part of its entrance and exit counseling requirements.
Section 2200-a.17 provides disclosure requirements for participating lenders at the time of Program loan approval and consummation. In addition, this section provides a borrower with the right to cancel a Program loan without penalty in certain circumstances and with the right to make prepayment on Program loan balances without penalty.
Section 2200-a.18 provides reporting requirements for participating schools.
Section 2200-a.19 establishes reporting and retention requirements for participating holders.
Section 2200-a.20 sets forth the terms of Program loan repayment. The repayment period shall begin sixty days after the date the last disbursement is made on the Program loan. Interest shall begin to accrue starting the day of disbursement by the lender to the Corporation. This section provides for in-school deferment, grace period, return to school, repayment terms, minimum payments and an income sensitive repayment option for delinquent Program loans. This section provides for certain forbearances, deferments and Program loan discharges for the death or total and permanent disability of the student. Program loan interest rate reduction and co-signer release options are also established in this section.
Section 2200-a.21 provides due diligence requirements for Program loan delinquency. Holders, or entities servicing Program loans, shall perform required due diligence activities against a borrower and co-signer based on the timeframes and requirements set forth in this section.
Section 2200-a.22 establishes procedures, applicable to holders or entities servicing Program loans, regarding default claims.
Section 2200-a.23 provides for Program loan collection efforts to be set forth in the Program's Default Avoidance and Claim Manual.
Section 2200-a.25 references the Program's Default Avoidance and Claim Manual for the procedures to be followed by holders, or entities servicing Program loans for any borrower filing bankruptcy on a Program loan.
Section 2200-a.26 provides for the annual review and determination by the Corporation of the availability of Program loan consolidations.
Section 2200-a.27 provides for Program audits to be performed on lenders, servicers, holders and eligible schools for Program compliance.
Section 2200-a.28 incorporates certain Program manuals by reference.
Final rule as compared with last published rule:
Nonsubstantive changes were made in sections 2200-a.1, 2200-a.5 and 6, 2200-a.9 and 10, 2200-a.13, 2200-a.16 and 17, 2200-a.20, 2200-a.24 and 2200-a.28.
Text of rule and any required statements and analyses may be obtained from:
George M. Kazanjian, NYS Higher Education Services Corporation, 99 Washington Avenue, Albany, New York 12255, (518) 473-1581, email: regcomments@hesc.com
Revised Regulatory Impact Statement
A revised regulatory impact statement is not required as there were no substantial revisions to the proposed rule. The revisions to the proposed rule provided clarification and did not materially alter the purpose of the proposed rule. The previously submitted RIS is accurate and the revisions to the proposed rule do not necessitate modification of the RIS.
Revised Regulatory Flexibility Analysis
A revised regulatory flexibility analysis is not required as there were no substantial revisions to the proposed rule. The revisions to the proposed rule provided clarification and did not materially alter the purpose of the proposed rule. The previously submitted RFA is accurate and the revisions to the proposed rule do not necessitate modification of the RFA.
Revised Rural Area Flexibility Analysis
A revised rural area flexibility analysis is not required as there were no substantial revisions to the proposed rule. The revisions to the proposed rule provided clarification and did not materially alter the purpose of the proposed rule. The previously submitted RAFA is accurate and the revisions to the proposed rule do not necessitate modification of the RAFA.
Revised Job Impact Statement
A revised job impact statement is not required as there were no substantial revisions to the proposed rule. The revisions to the proposed rule provided clarification and did not materially alter the purpose of the proposed rule. The previously submitted JIS is accurate and the revisions to the proposed rule do not necessitate modification of the JIS.
Assessment of Public Comment
HESC received comments following both the September 2, 2009 publication of the ‘Notice of Proposed Rulemaking’ in the State Register and the September 9, 2009 public hearing, and throughout the public comment period, which ended with the close of business on October 19, 2009. All substantive comments received are considered and discussed in detail at www.hesc.com. A summary is provided below.
Comment: The regulation needs to protect borrowers from undue and burdensome wage garnishment. Federal regulations allow for a garnishment of the lesser of fifteen percent of a borrower's disposable pay or the amount by which a borrower's disposable pay exceeds thirty times the federal minimum wage.
Response: HESC has amended this section to include such a limit, consistent with federal regulations.
Comment: NYHELPs does not have a hardship defense like federal regulations. The regulation should be amended to provide for flexibility in cases where a borrower may need to object to a withholding and claim financial hardship.
Response: HESC has not amended this section to include such a hardship defense, as borrowers are eligible to apply for economic hardship forbearances and other payment modifications in certain instances. Further, the regulation authorizes the hearing officer to consider the borrower's documented financial circumstances, including the overall circumstances of the borrower's household, when deciding the amount of a wage garnishment.
Comment: In order to best protect borrowers, the regulation should establish a reasonable interest rate cap. The current rate cap of twenty-five percent is too high.
Response: HESC has amended the regulation to cap interest rates on loans made under the Program at 16.5 percent.
Comment: The NYHELPs regulation should expressly forbid forbearance fees.
Response: Consistent with regulatory authority, HESC has amended the regulation to forbid the charging of forbearance fees.
Comment: The NYHELPs regulation should allow for unemployment and economic hardship deferments.
Response: Borrower repayment periods are established based on the total amount of loans outstanding, and also consider the average starting salary of a recent New York State graduating student and are designed to be affordable. Borrowers who have not made principal payments while in school are provided a 6 month grace period upon completion of their education, during which no principal payments are due or owing. Given the front end efforts to ensure the affordability of the loan repayment under any circumstances, HESC has not amended this section to extend longer term relief than currently offered in the regulations. The regulation provides for economic hardship forbearances as well as modified payment plans.
Comment: The regulations should allow an option for extended repayments when a student or a borrower uses forbearance or income sensitive repayment option. The regulations should provide for an ability to extend the repayment period especially in some situations such as unemployment.
Response: As a new Program with no prior history, any extension in the repayment period for a few borrowers will add to the costs for all borrowers. HESC seeks to minimize costs to the maximum number of New York State students and families.
Comment: The NYHELPs regulation should bring discharges for death and permanent total disability in line with the federal law/regulations by allowing for death and disability discharge at any point within the repayment period. Currently, under NYHELPs, death and disability discharge only extends to enrolled students. Borrowers should be covered for the life of the loan.
Response: As a new Program with no prior history, the terms that are currently in place allow HESC to maximize the number of constituents served. As the Program becomes established with a history of success, it is anticipated that additional allowances that benefit all borrowers will follow.
Comment: NYHELPs regulation will harm low income New Yorkers who receive a loan and later become disabled or have difficulty finding employment.
Response: New York has a history of providing needs-based financial aid to low income New Yorkers. As a new Program with no prior history, the terms that are currently in place allow HESC to maximize the number of constituents served. As the Program becomes established with a history of success, it is anticipated that additional allowances that benefit all borrowers will follow.
Comment: NYHELPs loan repayment and cancellation options do not mirror the federal student loan program and that borrower protections will be provided in the regulation.
Response: Unlike the federal student loan program, NYHELPs is designed to take a relatively small pool of available funds and lend it to as many constituents as possible at a favorable interest rate. The terms that are currently in place allows for the establishment of a Program that maximizes the number of constituents served.
Comment: The NYHELPs regulation should allow students to rehabilitate defaulted loans as is provided for in federal programs.
Response: Unlike the federal student loan program, NYHELPs is designed to take a relatively small pool of available funds and lend it to as many New York State constituents as possible at a favorable interest rate. At this time, the use of funds for loan rehabilitation would diminish the number of new loans that could be made to students.
Comment: NYHELPs provides limited forbearance and income sensitive payment options and none of these options extend the terms of the loan. Other public loan programs offer a wider array of consumer protections to borrowers including loan rehabilitation and flexible payment options.
Response: As a new Program with no prior history, the terms that are currently in place allow HESC to maximize the number of constituents served. As the Program becomes established with a history of success, it is anticipated that additional allowances that benefit all borrowers will follow.
Comment: Federal programs provide for closed school, false certification and unpaid refund discharge of student loans. NYHELPs should offer school based loan discharge as is provided for in the federal programs.
Response: The Program restricts school eligibility to expressly address concerns regarding traditionally predatory schools. Education Law § 690(3) defines "eligible college".
Comment: Structure of NYHELPs has a built-in problem with conflict of interest between the bond issuers and investors and borrowers. Funding a state-sponsored student loan program with annual bond issues carries a high risk of unfriendly loan terms. NYHELPs should provide for a more equitable balance between borrowers and investors.
Response: There are more provisions that are in line with federal law than not. Where differences do exist, they are the result of differences in the newness of the program as well as how the programs are financed. As a new Program with no prior history, HESC has implemented the maximum protections that will allow for a Program that utilizes a relatively small pool of funds to lend to as many constituents as possible at a favorable interest rate. As the Program becomes established with a history of success, it is anticipated that additional allowances that benefit all borrowers will follow.
Comment: Proposed regulations heavily influenced by HESC's efforts to court the bond rating agencies. The few consumer protections in the regulation are subject to the approval of the public benefit corporation.
Response: NYHELPs offers New York students and families the only currently available fixed-rate private education loan. Maximum flexibility is needed to build a Program that will serve the maximum number of constituents utilizing the limited available funding. As a new Program with no prior history, HESC has implemented the maximum protections that will allow for a Program that utilizes a relatively small pool of funds to lend to as many constituents as possible at a favorable interest rate. Details concerning credit criteria are specified in the Program Underwriting Manual. The interest rate can not be established until the bonds have been sold and will be published on HESC's web site.
Comment: Concern that regulatory protections may be undone and are subject to approval by the public benefit corporation.
Response: NYHELPs is designed to offer students and families an affordable alternative option to a variable rate private education loan. Measures will continue to be taken to maximize the benefits available to borrowers as the Program builds a history of success.
Comment: HESC is urged to ensure that the proposed low-cost loan program becomes a reality for eligible New York State residents as such a program would benefit an enormous number of students.
Response: HESC is working to construct a Program that will provide the lowest fixed-rate interest rates for students and families in need of a private education loan.
Comment: The regulation would limit eligibility to co-sign to no more than three loans per academic year unless there is a parental relationship. HESC should include language allowing the three-loan limit to be waived in compelling circumstances.
Response: As a new Program with no prior history, the terms that are currently in place allow HESC to maximize the number of constituents served at a favorable interest rate. Expanding the loan limit, even in such compelling circumstances, poses a risk to loan recovery that would compromise this objective. As the Program becomes established with a history of success, it is anticipated that additional allowance that benefit all borrowers will follow.
Comment: Concerns raised regarding the cosigner requirement for those students that are independent students, perhaps exceptions should be made.
Response: Cosigners are necessary to ensure the lowest interest rates for all students. The Program is designed to take a relatively small pool of available funds and lend it to as many constituents as possible at a favorable interest rate.
Comment: Concern raised regarding the expected volume of student participation and level of advertising will be done. Concern that students who do not otherwise take out traditional loans will see the advertisements and apply.
Response: All public information regarding NYHELPs informs borrowers that they must first apply for and exhaust all available state, institutional and federal aid, excluding PLUS. Additionally, an eligible school must certify a student's remaining need prior to disbursement of a Program loan. Information on PLUS loans are also made available through the sole application portal, Marketplace; and students must complete a financial literacy education course prior to receiving a NYHELPs loan.
Comment: Hope expressed that HESC can get a low fixed interest rate. Regulations should spell out when the fixed rate will be established.
Response: HESC is working to construct a Program that will provide the lowest fixed-rate interest rates for New York students and families in need of a private education loan to support their college costs. The regulation provides that the fixed interest rate will be set upon the sale of bonds and will be posted on HESC's web site.
Comment: Regulations should make it clear that excess payments by a borrower be applied to principal rather than simply "future installments."
Response: HESC has clarified the regulation.
Comment: Amend regulation to require that lender give notice to borrower of borrower's ineligibility before cancelling remaining disbursements.
Response: HESC has amended § 2200-a.17(e)(ii) to require that a lender provide notice to a borrower of such borrower's ineligibility prior to cancelling any remaining disbursements.
Comment: Specify the required number of consecutive on-time payments before co-signer may be released.
Response: The regulation provides for an annual process that will determine the specific number of payments required for a co-signer release.
Comment: In the Claim Manual, HESC should give notice by the last known e-mail address as well as by mail.
Response: NYHELPs provides for the use of electronic means including e-mails to satisfy due diligence requirements.
Comment: NYHELPs should require disclosure of the federal PLUS loan program availability to potential borrowers.
Response: Public information on NYHELPs, and the financial literacy component, will inform borrowers about the availability of PLUS loans as well as all other State and federal grants and loans. Throughout Marketplace, borrowers are encouraged to research their eligibility for a federal PLUS loan prior to selecting any private loan product.
Comment: The Regulation should require those private education loan disclosures called for in the 'Truth in Lending Act'.
Response: The regulation requires compliance with all State and Federal consumer lending laws, rules and regulations.
