ESC-35-09-00008-P New York Higher Education Loan Program
9/2/09 N.Y. St. Reg. ESC-35-09-00008-P
NEW YORK STATE REGISTER
VOLUME XXXI, ISSUE 35
September 02, 2009
RULE MAKING ACTIVITIES
HIGHER EDUCATION SERVICES CORPORATION
PROPOSED RULE MAKING
HEARING(S) SCHEDULED
I.D No. ESC-35-09-00008-P
New York Higher Education Loan Program
PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:
Proposed Action:
Addition of Part 2200-a to Title 8 NYCRR.
Statutory authority:
Education Law, sections 691(10), 653 and 655
Subject:
New York Higher Education Loan Program.
Purpose:
Implementation of the New York Higher Education Loan Program.
Public hearing(s) will be held at:
12:00 p.m. and 4:00 p.m., Sept. 9, 2009 at Legislative Office Bldg., Hearing Room B, Albany, New York.
Interpreter Service:
Interpreter services will be made available to hearing impaired persons, at no charge, upon written request submitted within reasonable time prior to the scheduled public hearing. The written request must be addressed to the agency representative designated in the paragraph below.
Accessibility:
All public hearings have been scheduled at places reasonably accessible to persons with a mobility impairment.
Substance of proposed rule (Full text is posted at the following State website:http://www.hesc.com/content.nsf/):
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.
Text of proposed 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
Data, views or arguments may be submitted to:
Same as above.
Public comment will be received until:
45 days after publication of this notice.
Regulatory Impact Statement
1. Statutory Authority.
Education Law § 691(10) provides that the New York State Higher Education Services Corporation (Corporation) shall have the power and duty to adopt rules and regulations to implement the New York Higher Education Loan Program (Program).
Education Law § 652(2) includes in the Corporation's statutory purposes the improvement of the post-secondary educational opportunities of eligible students through the centralized administration and coordination of New York State's financial aid programs and those of other levels of government.
Education Law § 653(9) further empowers the Corporation's Board of Trustees to perform such other acts as may be necessary or appropriate to carry out the objects and purposes of the Corporation, including the promulgation of regulations.
Education Law § 655(4) authorizes the President of the Corporation (President) to propose regulations, subject to approval by the Board of Trustees, governing the application for, and the granting and administration of, student aid and loan programs, the repayment of loans or the guarantee of loans made by the Corporation, and administrative functions in support of New York State student aid programs. Under Education Law § 655(9), the Corporation's President is also authorized to receive assistance from any Division, Department or Agency of the State in order to properly carry out the President's powers, duties and functions. Finally, Education Law § 655(12) provides the President with the authority to perform such other acts as may be necessary or appropriate to effectively carry out the general objects and purposes of the Corporation.
2. Legislative Objectives.
A growing number of New York State students and families are struggling to obtain affordable private education loans to fill the gap between college costs and available State and federal student aid. Disruptions in the capital markets have led many lenders to either stop offering or tighten their credit criteria for obtaining such loans.
With a typical cost of attendance at a four-year college in New York of approximately $20,000 at a public institution and over $35,000 at a private institution, a student receiving the maximum federal and State grant awards ($5,350 Pell and $5,000 TAP) and maximum federal loans ($5,500 freshman limit) can still have an unmet financial need of up to $19,000. The Program can assist with up to $10,000 annually, by offering a lower cost loan alternative for that student.
The New York State Commission on Higher Education recognized the need for an affordable loan option in its June 2008 Final Commission Report, which recommended the establishment of a state sponsored low-interest education loan program to provide students and families with the same range of college financing options available in many other states.
Proposed by Governor Paterson in his Executive Budget and supported by the State Legislature, the Program was enacted as part of the State's 2009-10 budget to ease the financial burden on students and their families and ensure that New York's institutions of higher education remain financially accessible.
The Program's regulations are patterned after the Federal Family Education Loan (FFEL) Program to provide consistency with schools' and lenders' experience with federal educational loans. As with the FFEL Program, participating lenders will provide loan capital and originate loans using Program credit policies. The statute establishing the Program authorizes the State, through the State of New York Mortgage Agency (SONYMA), to serve as a secondary market for fixed rate Program loans.
3. Needs and Benefits.
Last year, New Yorkers borrowed over two billion dollars in private educational loans. Currently, these loan options in New York offer only variable interest rates between ten and eighteen percent. Additionally, the nation's largest private student loan provider has tightened its credit criteria, and more private lenders are dropping out of the student loan business, thereby creating a need for the State's action.
The annual demand for alternative (or private education) loans in New York continues to grow. The Program requires that students first exhaust all state, federal (excluding federal PLUS loans) and institutional aid to which they are entitled in order to qualify for a Program loan.
Program Overview
The Program is a public/private partnership that makes available up to $350 million annually in tax-exempt private activity bonds for fixed rate loans, and allows for unlimited lender participation to make variable rate loans. Lenders will make fixed rate education loans supported by the proceeds of bonds issued by SONYMA. The State is providing $50 million in General Fund support in the Program's initial year and up to $10 million per year thereafter toward default reserve funds, used to pay lender default claims. This support will effectively lower the overall cost to students through reduced fees and interest rates. Participating colleges will contribute a one percent fee to the default reserve funds based on their loan volume in the Program.
Program Participants
• Corporation Role: To develop and administer the Program, including:
o establishing criteria for lender underwriting, origination, servicing, secondary market purchasing criteria, and default payments, in consultation with bond issuers and industry experts;
o marketing the Program, providing financial literacy education; and
o performing default aversion and collections activities on delinquent and defaulted Program loans, respectively.
• Lender Role: To originate and disburse fixed and/or variable rate education loans using underwriting criteria developed by the Corporation and bond issuers. Lenders will be paid an origination fee upon the purchase of fixed rate loans by SONYMA, and will be reimbursed the principal and unpaid accrued interest for all defaulted Program loans.
• Public Benefit Corporation Role: To assist in the establishment of underwriting criteria, issue private activity bonds, and purchase fixed rate Program loans with such bond proceeds.
• College Role: To certify a student's enrollment and unmet financial need, and to contribute one percent of the loan dollar volume to the default reserve funds. Eligible institutions must be located in New York and be approved to participate in the federal Higher Education Act (HEA) of 1965, as amended, Title IV student aid programs.
Student Eligibility
To be eligible, a student must be enrolled at least half-time in a degree-granting or professional certificate program at an eligible institution and:
• first apply for, and receive, all State, federal (excluding federal PLUS loans), and institutional aid for which the student is entitled; and
• be a New York State resident and have an eligible co-signer who is a New York State resident, if the student is the borrower; and/or
• have a parent borrower or non-parent sponsor who is a New York State resident.
Loan Amounts and Interest
Program loans will be available in January 2010, for the spring term of the 2009-10 academic year. Up to $10,000 may be borrowed on behalf of a student annually, with cumulative loan amounts of up to $20,000 for undergraduate students at 2-year institutions, up to $50,000 for undergraduates at 4-year institutions, and up to $70,000 for undergraduate and graduate study, combined. Rates for fixed rate Program loans will be determined annually based on the rate yielded from the bond issuance. Variable rate Program loans, when offered, will be determined annually based on an index.
Loans will be subject to borrower and college fees. Borrower fees may be added to a student's cost of attendance for purposes of calculating the loan amount. The college fee will not reduce the loan amount credited to the student's account by the college.
Financial Literacy and Default Avoidance
Borrowers must successfully complete a comprehensive Web-based financial literacy program each year in order to receive a Program loan. The Corporation and its servicer will maintain communications with borrowers and/or co-signers who are 15 or more days delinquent on their payments to help avert the borrower from defaulting on his/her Program loan.
4. Costs.
The Program allows for the annual issuance of up to $350 million in tax-exempt private activity bonds. Borrower payments will support the repayment of the bonds. The State will provide $50 million in General Fund support in the Program's initial year, and up to $10 million per year thereafter to help fund default reserve funds. The Program will offer an estimated 40,000 student loans with an expected interest rate of 7.5% to 8.5%. When compared to a 16.5% private loan, these Program loans will save the average 4-year college student more than $52,000 in repayment costs.
A $5 million State appropriation has also been provided for administration of the Program. This appropriation, funded from proceeds of the bond issuance, coupled with existing resources, will support the administrative costs of the Program.
Colleges volunteering to participate in the Program will also pay a fee towards the default reserves. Colleges responding to the Corporation's college survey have largely indicated that the one percent fee requirement will not hinder their participation.
5. Local Government Mandates.
None. Participation in the Program is voluntary.
6. Paperwork.
Borrowers will be required to complete a Program application and promissory note. Colleges will have to obtain information, certify student eligibility, and forward forms/information to the Corporation and/or lender. Lenders will have to meet certain disclosure and reporting requirements. The use of on-line e-filing reduces any paperwork burden on all Program participants.
7. Duplication.
None.
8. Alternatives.
The Program's regulations are modeled after current federal educational loan delivery and servicing standards and include provisions consistent with private education loan requirements and practices. As a result, the origination, disbursement and servicing of Program loans are consistent with current practices employed by lenders and colleges, which will enable participants to adhere to Program requirements with relative ease.
Outreach
The Corporation consulted with a number of interested parties in preparing this rulemaking. Outreach was conducted through: conference calls; e-mails; meetings; and opportunities for submission of comments, questions and/or suggestions to drafts of the regulation text.
Participants in the regulation development process included: the Corporation's College Advisory Council; public interest groups; consumer groups; staff from the State Legislature; SONYMA; the Commission on Independent Colleges and Universities; State University of New York; City University of New York; Association of Proprietary Colleges; student loan industry experts; bond experts; banking organizations; and college financial aid organizations.
In addition, the Corporation surveyed colleges and lenders to estimate potential demand and lender interest. Their comments and concerns were considered in the development of the Program.
The public was provided with an opportunity to comment on the May 29th draft Program regulation text, which was posted on the Corporation's Web site. Revisions were made based on comments received, and additionally opportunities for public comment were provided with regard to a June 19th draft and a July 14th draft, both of which were posted on the Corporation's Web site.
Public Concerns
To date, the following general concerns have been raised:
• Borrower protections. In response to concerns raised by the public, provisions for economic hardship forbearance and income sensitive repayment were added to the Program. These tools will protect borrowers not yet in default who are struggling to make their required payments. With actual Program experience, other borrower protections will be evaluated.
• Overborrowing. To discourage unnecessary borrowing, Program loans are only available after exhausting federal, state and institutional aid. The Program's financial literacy component also educates borrowers on the best means for financing their education.
• Consequences for non-compliance. In response to public comments received, the Corporation included language in the Program regulation with regard to the disqualification of lenders and schools who fail to comply with Program requirements.
• Public benefit corporation role. The regulation provides that the role of the public benefit corporation is dependent upon favorable market conditions. The Corporation was informed by bond experts that such conditional statements must be included for the Program to be viable.
• Distribution. The fixed rate Program loan allocation methodology is designed to ensure equitable distribution of fixed rate Program loans across the State.
9. Federal Standards.
To the extent applicable, the Program complies with disclosure requirements for private education loans.
10. Compliance Schedule.
Requirements are effective upon adoption. Program loans will be available for students in the spring term of the 2009-2010 academic year.
Regulatory Flexibility Analysis
This statement is being submitted pursuant to subdivision (3) of section 202-b of the State Administrative Procedure Act and in support of the New York State Higher Education Services Corporation’s (Corporation) ‘Notice of Proposed Rulemaking’ seeking to add a new Part 2200-a to Title 8 of the Official Compilation of Codes, Rules and Regulations of the State of New York.
It is apparent from the nature and purpose of this rule that it will not impose an adverse economic impact or impose reporting or other compliance requirements on either small businesses or local governments. The proposed rule would implement the New York State Higher Education Loan Program (Program). Participation in the Program is voluntary and, as such, this regulation would only apply to those taking part in the Program. The 2009-10 New York State Budget established the Program, which will help fill the gap between college costs and financial aid in order to assist eligible students. While eligible colleges electing to participate in the Program will pay a fee of one percent of the original principal amount of each Program loan, such colleges will benefit from participation by, among other things, enhancing financing opportunities for their students.
The Corporation has determined that this regulation will not impose an adverse economic impact or impose reporting or other compliance requirements on either small businesses or local governments; therefore, a full Regulatory Flexibility Analysis for Small Businesses and Local Governments is not required.
Rural Area Flexibility Analysis
This statement is being submitted pursuant to subdivision (4) of section 202-bb of the State Administrative Procedure Act and in support of the New York State Higher Education Services Corporation’s (Corporation) ‘Notice of Proposed Rulemaking’ seeking to add a new Part 2200-a to Title 8 of the Official Compilation of Codes, Rules and Regulations of the State of New York.
It is apparent from the nature and purpose of the rule that it will not impose an adverse economic impact on public or private entities in rural areas. The proposed rule would implement the New York State Higher Education Loan Program (Program). Participation in the Program is voluntary and, as such, this regulation would only apply to those taking part in the Program. The 2009-10 New York State Budget established the Program, which will help fill the gap between college costs and financial aid in order to assist eligible students. While eligible colleges electing to participate in the Program will pay a fee of one percent of the original principal amount of each Program loan, such colleges will benefit from participation by, among other things, enhancing financing opportunities for their students.
The Corporation has determined that this regulation will not impose an adverse economic impact on public or private entities in rural areas; therefore, a full Rural Area Flexibility Analysis is not required.
Job Impact Statement
This statement is being submitted pursuant to subdivision (2) of section 201-a of the State Administrative Procedure Act and in support of New York State Higher Education Services Corporation’s (Corporation) ‘Notice of Proposed Rulemaking’ seeking to add a new Part 2200-a to Title 8 of the Official Compilation of Codes, Rules and Regulations of the State of New York.
It is apparent from the nature and purpose of this rule that it will not have a substantial adverse impact on jobs or employment opportunities. This rule would implement the New York State Higher Education Loan Program (Program). Participation in the Program is voluntary and, as such, this regulation applies to those taking part in the Program. The 2009-10 New York State Budget established the Program, which will help fill the gap between college costs and financial aid in order to assist eligible students.
The Corporation has determined that this regulation will have no substantial adverse impact on any private or public sector jobs or employment opportunities; therefore, a full Job Impact Statement is not necessary.
