CUNA Comment Letter

Proposed Rule - Federal Family Education Loan (FFEL) Program

September 15, 1999

Ms. Pamela A. Moran
U.S. Department of Education
P.O. Box 23272
Washington, DC 20202-5449

Re: Proposed Rule - Federal Family Education Loan (FFEL) Program
(34 C.F.R. Part 682)

Dear Ms. Moran:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on the proposed rule issued by the U.S. Department of Education (DOE) that would amend the FFEL Program regulations, which was published in the Federal Register on August 3, 1999. CUNA represents more than 90 percent of our nation's 11,000 state and federal credit unions. This letter also reflects comments from the CUNA Service Group Credit Union Student Loan Network Program.

We understand that the proposed rule is required in order to implement certain changes to the Higher Education Act of 1965 resulting from the Higher Education Amendments of 1998. The changes affect the FFEL Program, which governs the Federal Stafford Loan Program, the Federal Supplemental Loans for Students Program, the Federal PLUS Program, and the Federal Consolidation Loan Program. As requested, we have identified the specific section that each of our comments addresses and have arranged the comments in the same order as they appear in the proposed rule.

Section 682.205 - Disclosure Requirements for Lenders

The proposed rule will require lenders to use "plain English" in the disclosures that they provide to borrowers. Lenders must also include a toll free telephone number that the borrower may use to obtain additional loan information. The disclosures and telephone number may be provided electronically.

We support the proposed change that will permit lenders to provide disclosures electronically. Allowing disclosures to be delivered electronically will further streamline the processing of education lending. This change is also consistent with other regulatory initiatives regarding the electronic delivery of disclosures. The Federal Reserve Board recently agreed to issue proposed rules that would permit financial institutions and others to provide electronically the disclosures that are required under the Equal Credit Opportunity Act, the Electronic Fund Transfers Act, the Consumer Leasing Act, the Truth in Lending Act, and the Truth in Savings Act.

We also understand the need for a toll free telephone number for borrowers to use to obtain loan information, which can be considered a normal cost of business on the part of the lender. We would, however, appreciate clarification in the rule that the toll free telephone number does not have to be a dedicated line and can be used for other purposes.

Section 682.207 - Due Diligence in Disbursing a Loan

Current policy requires that a lender cancel all future disbursements on a loan whenever the first disbursement is returned to the lender. The borrower is then required to reapply in order to obtain subsequent disbursements that are needed. Under the proposed rule, future disbursements may be made at the request of the school and in the absence of information that the student is no longer enrolled.

We support the change in the current policy because it will reduce the paperwork and processing burden for both the credit union and the borrower. Because credit unions are member-owned, not-for-profit cooperatives, the savings realized as a result of this decreased burden can be returned to the members either in the form of lower interest rates on loans or higher rates paid on member accounts. However, we would appreciate clarification regarding any disclosures that may be required if the terms and conditions of the loan change at the time the second disbursement is made.

Section 682.210 - Deferment

Under the current rule, the lender may not grant deferments for a period beginning more than six months before the date the lender receives the request and documentation. The proposed rule will eliminate the six-month requirement if the student is enrolled in-school. The purpose of this proposal is to eliminate the misunderstandings that may occur when the student mistakenly believes that the school has notified the lender that they are in-school. This proposed change should reduce the frequency of these misunderstandings because it will allow lenders to exercise more latitude in adjusting accounts that are in default.

Section 682.211 - Forbearance

The proposed rule will incorporate and modify DOE's policy of permitting lenders and guaranty agencies to grant forbearances to assist FFEL borrowers affected by natural disasters. Loan holders will be able to grant such forbearances for up to three months. Lenders will be able to grant forbearances to resolve delinquencies whenever the lender is notified of exceptional circumstances, such as a local or national emergency, military mobilization, or that the area where the borrower or endorser resides has been designated a disaster area.

We agree with the proposed change, although it may be difficult to monitor forebearances granted to borrowers affected by a disaster if they actually live outside of the affected area.

Section 682.402 - Death, Disability, Closed School, False Certification, and Bankruptcy Payments

The U.S. Bankruptcy Code requires lenders to suspend immediately collection efforts against a borrower if such efforts are outside of the bankruptcy proceedings. The proposed rule will permit a lender to suspend collection efforts against an endorser, or other party that is secondarily liable.

We support the proposed change as long as the suspension of collection activity remains optional for lenders. The proposed change should simplify the process and reduce the current confusion that may arise when lenders must suspend collection efforts against parties in a bankruptcy proceeding, but yet are required to collect from endorsers.

Section 682.414 - Records, Reports, and Inspection Requirements for Guaranty Agency Programs

Currently, the lender must retain for 5 years the required records for loans paid in full by the borrower. The 5-year time period begins on the date that the loan is paid in full. The proposed rule will reduce this time period to 3 years.

We support the proposed change. The automation and improvements in loan servicing support the reduction of the loan record retention period. The change should also reduce storage costs. Again, because credit unions are member-owned, not-for-profit cooperatives, these savings can be returned to the members either in the form of lower interest rates on loans or higher rates paid on member accounts.

* * * * * *

In general, the proposed rule will require credit unions to make minor adjustments to their student loan program. However, most of the proposed changes will benefit credit union members who participate in the program. We especially support the provisions in the rule that require schools, lenders, and guaranty agencies to inform borrowers about the services of the Student Loan Ombudsman's Office.

Thank you for the opportunity to comment on the proposed rule that would amend the FFEL Program regulations. If DOE staff have questions about our comments, please give me a call at 202-218-7795.

Jeffrey Bloch
Assistant General Counsel