Loan Participation Purchase Program FAQ
Last Updated June 25, 2009
The information presented in this Question and Answer (Q&A) format provides additional information on the new Loan Purchase Programs authorized by the "Ensuring Continued Access to Student Loans Act of 2008" (Pub. Law 110-227) (ECASLA). This set of Q&As relates to the Loan Participation Purchase Program, where the Department offers to purchase from FFEL Program lenders "participation interests" in certain FFEL Program loans that were made for the 2008-2009 academic year. Q&As on the Loan Purchase Commitment Program, where the Department offers to purchase FFEL Program loans that were made for the 2008-2009 academic year, can be accessed on the home page of this website.
These Q&As supplement information provided in other documents on this website and through our series of webinars. This information is to be considered interpretive guidance provided by the Department for use with the Loan Participation Purchase Program. This document will be periodically updated, as needed.
GENERAL
Q1 What organizations are eligible to participate in either or both of the FFEL Loan Purchase Programs?
A1 Any entity that is an eligible lender under section 435(d) of the Higher Education Act of 1965, as amended (HEA) and that holds FFEL Program loans (whether directly or through an eligible lender trustee) is eligible to participate in these programs.
Q2 What loan types are eligible for these FFEL Loan Purchase Programs?
A2 Only Stafford (subsidized or unsubsidized) loans and PLUS loans (parent or graduate/professional student) that are made for the 2008-2009 academic year are eligible. Consolidation loans are not eligible.
Q3 What is meant by loans that are "made for the 2008-2009 academic year"?
A3 Made for the 2008-2009 academic year means that the loan was for a loan period that includes, or begins on or after, July 1, 2008, and the first disbursement is made on or after May 1, 2008 but no later than July 1, 2009, and the loan will be fully disbursed no later than September 30, 2009.
Q4 Are loans that have lender provided borrower benefits eligible for the Loan Purchase Programs?
A4 Generally, loans that have lender provided borrower benefits are not eligible for these programs. However, as provided in an Electronic Announcement #1, posted on June 12, 2008, there are two exceptions. First, an otherwise eligible loan remains eligible even if the lender paid, or offers to pay, any or all of the borrower's up-front fees (borrower origination fee and/or borrower default fee). Second, an otherwise eligible loan remains eligible even if the lender promised up to a one-quarter of one percent interest rate reduction if the borrower repays the loan using automatic repayment.
Q5 Are unsubsidized and subsidized Stafford loans for the same borrower for the same loan period, one loan or two?
A5 They are two separate loans for purposes of these programs.
Q6 Must a lender include all of the loans made for a borrower for the same loan period in these programs?
A6 Eligible subsidized and unsubsidized Stafford loans must be coupled. A lender may not include just one loan if the borrower has both loans for the same loan period. However, a PLUS loan, whether for a parent or for a graduate/professional student borrower who also has Stafford loans, does not have to be included with the student's other loans.
Q7 Are eligible loans that are originated by one FFEL lender and sold to another lender or holder, including a secondary market, eligible for these programs?
A7 Yes. Eligible loans that have been transferred from one eligible lender/holder to another retain eligibility for the FFEL Loan Purchase Programs. The current holder of the loan is responsible for submitting the loan(s) for purchase or placement. That holder is also responsible for all agreements, payments, and obligations related to the loan(s). Note that it is the date that the Department received the "Notice of Intent to Participate" from the originating lender that determines the eligibility of the loan to be included in the programs.
Q8 Are otherwise eligible loans that were originated under or held under an eligible lender trustee (ELT) agreement, eligible for the FFEL Loan Purchase Programs?
A8 Yes.
Q9 Both Agreements contain sections providing for a "Commitment to Lend" under the FFEL Program. What does this commitment entail?
A9 The FFEL lender executing either of the Agreements represents that, at some point after the date of execution of the Agreement, and when funds become reasonably available from private sources, it will originate or purchase FFEL Program loans, either directly or through an Eligible Lender Trustee.
LOAN PARTICIPATION PURCHASE PROGRAM
Q1 What is the Loan Participation Purchase Program?
A1 Under the Loan Participation Purchase Program, the Department purchases "participation interests" in FFEL loans made for the 2008-2009 academic year. In general, the lender (called the "Sponsor") transfers title to the loans to an unrelated entity (called the "Custodian"). Upon transfer, the loans are placed into a "participation facility" under the control of the Custodian. In exchange for that transfer the Custodian sells, on behalf of the Sponsor, participation interests in the loans to the Department. The Department buys those participation interests by providing the Custodian with funds equal to the disbursed amount of the loans. The Custodian then provides those funds to the Sponsor. Therefore, liquidity is provided to the FFEL lender specifically and to the FFEL Program generally.
No later than September 30, 2009, the Department's participation interests in loans must be redeemed by the Sponsor so that the Department receives an amount equal to the funds it paid for the interests plus a yield equal to the Commercial Paper rate plus 50 basis points. Redemption can occur by the Sponsor paying the Department the required funds and receiving full title to the loans. Or, the Sponsor can sell all or some of the loans that are covered by the participation interest to the Department at a price and under the conditions of the Loan Purchase Commitment Programs.
Q2 Who has title to a loan that is placed into the participation facility?
A2 The Custodian, an entity that is unrelated to the Sponsor, has ownership while the loans are in participation facility.
Q3 Who is responsible for servicing a loan that is placed into the participation facility and title has been transferred from the Sponsor to the Custodian?
A3 Servicing of loans while they are in the participation facility remains the responsibility of the sponsor/lender.
Q4 Are loans with a life-of-loan servicing contract eligible for the Participation Purchase? Program?
A4 No. Since one of the ways that the participation interest could be redeemed is by the Sponsor selling a loan to the Department, the loans must be able to be transferred to the Department's servicer.
Q5 When can a lender redeem the Department's interest in a loan and remove the loan from the participation facility by repurchasing it from the facility?
A5 A loan that is placed in the participation facility can be repurchased by the lender at any time prior to the end of the Loan Participation Program on September 30, 2009. However, the repurchase of a loan by the lender does not immediately reduce the lender's debt obligation to the Department. Funds received from the lender by the Custodian must remain in the Custodian's Collection Account until they are swept to the Department at the end of the month. Those funds will then first be applied to any unpaid Department yield on the entire participation facility and then to any unpaid principal balance due on the entire participation.
Q6 When can a loan be sold to the Department under this program?
A6 A loan that had been placed in the participation facility can be sold to the Department (under the terms of the Loan Purchase Commitment Program) at any time from the date the loan is fully disbursed to the end of the program on September 30, 2009. Note, under provisions of the Master Loan Sales Agreement, lenders wishing to sell loans to the Department must provide the Department with a 45-day notice prior to the sale (and no later than August 14, 2009) and must complete the sale on or before September 30, 2009.
Q7 Is there a minimum loan volume required for a lender to participate in the Loan Participation Purchase Program?
A7 Yes. Under the Loan Participation Purchase Program, the Department will only purchase participation interests from lenders that commit to including, over the period of the program, not less than $50,000,000. Note that there is no minimum loan volume or loan amount required for a lender to participate in the Loan Purchase Commitment Program.
Q8 What are the responsibilities of a guaranty agency for loans included in the Loan Participation Purchase Program while the loans are in the participation facility?
A8 The guaranty agency that originally provided the loan guarantee maintains all of its responsibilities, obligations, and rights while the loan is included in the participation facility. These include responsibility for reporting to the Department (i.e., NSLDS) and to other entities and for providing default aversion activities, if required.
Q9 What is the timeline from when a request for purchase of a participation interest is submitted by the Custodian to the Department and when the Department will make its payment to the Custodian?
A9 The Department expects that payments will be made within 3 to 5 business days from receipt by the Department of a request from the Custodian. Of course, this assumes that the proper forms have been submitted to the Department and that the loan detail electronic file meets required standards.
Q10 The Master Participation Agreement contemplates that the Department will send payments to the Custodian, who in turn will send payments to the Sponsor. Will the Department pay a third party upon request of the Sponsor or the Custodian? May the Sponsor contract with the Custodian to transmit the Department's payment to a third-party?
A10 The Department will only send payments for purchase of participation interests to the Custodian who offered the interests to the Department and will not send such payments to any other party. However, the agreement between the Custodian and the Sponsor must provide that the Custodian forward payments received from the Department to any warehouse or other interim financing lender that has a security interest in the loans. Moreover, the Department expects that any warehouse or interim financing lender would require such a stipulation in the agreement between the Sponsor and the Custodian.
The Sponsor must ensure that any security interests on loans are released in connection with the Department's purchase of a participation interest in the loans, by using the revised Security Release Certification (revised Exhibit G to the Master Participation Agreement, as posted in Electronic Announcement #16). Under this procedure, the Sponsor and the secured party transmit to the Custodian a release of the secured party's interest that is conditioned on receipt of payment from the Custodian by the secured party. The Custodian holds the Security Release Certification in escrow pending Department payment. The Custodian remits the Department's payment to the secured lender and obtains the secured lender's acknowledgement of receipt of that payment. The Custodian then signs the Security Release Certification and submits it to the Department.
Q11 The Master Participation Agreement defines "Permitted Investments" as "overnight or short-term U.S. Treasury securities that will, in all cases, mature on or prior to the day immediately preceding the date such funds are required to be disbursed." Does this allow the Custodian to make investments in repurchase agreements or money market funds?
A11 The Department interprets "Permitted Investments" to include (a) U.S. Treasury securities with a maturity of up to 60 days; (b) repurchase agreements that are fully collateralized by U.S. Treasury securities with a term of not more than 30 days and entered into with the broker-dealer subsidiary of any depository institution organized under the laws of the United States or any State thereof that has outstanding unsecured commercial paper or other short-term unsecured debt obligations that are rated A-1 or better by S&P and P-1 by Moody's (or a comparable rating); and (c) units of money market funds that are exclusively comprised of U.S. Treasury securities with a weighted average term of not more than 60 days that are rated not lower than AAA by S&P and AAA by Moody's (or a comparable rating). Custodians shall not invest in any other investment vehicles.
Q12 What is the effect on the loan guarantee upon transfer of a loan under the Loan Participation Purchase Program to a Custodian with which the guarantor does not currently have a lender agreement?
A1 Under applicable provisions of the HEA and the Department's regulations, when a loan is placed in a participation facility the original guarantee remains in effect, even if the Custodian does not currently have a lender agreement with that guarantor. Thus, the Department will pay reinsurance with respect to that guarantee, if required.
Q13 I represent a state authority that provides higher education loans. My state law does not allow me to provide the full indemnity required by the Department under the Agreements. May the state authority still participate in the programs?
A13 The Department has learned that a number of states have constitutional, statutory, regulatory, or common law rules prohibiting state authorities from undertaking indemnities as provided under the Agreements. While the Department must be mindful of cost neutrality concerns - and with it, an obligation to mitigate litigation risks related to the Agreements - the Department will entertain proposals for modification of a Sponsor's indemnity for state entities that are making higher education loans. The Department will not approve a modification to the required indemnity that would result in either no indemnity being provided or an indemnity that is less than the collateral being pledged under the Programs. The Department will also not consider any limitations to indemnity that are not specified in a state constitution, statute regulation or in common law, or any other modifications to the Agreements.
To initiate this process, you should contact the Department via email as prescribed in the Agreement. This email shall include citations and copies of the relevant legal authority that prevents the state authority from agreeing to the indemnity as written, and those modifications to the Agreement that the state believes are necessary to account for these legal prohibitions.
Q14 If a Sponsor has multiple loan originating LIDs, does a separate MPA arrangement (i.e. separate corresponding custodian specific LIDs to each originating LID) have to be entered into for each LID or can they all be accommodated under one arrangement?
A14 The program (and supporting Loan Schedule) allows for multiple originating LIDs from one Sponsor and does not require separate MPAs. However, to participate a loan, the Sponsor must have title to the loan and transfer that title to the Custodian on the Purchase Date.
Q15 Under the Department's Participation program, is it acceptable to transfer participation interests in loans that have been temporarily financed by sale and transfer of title to another lender and then transferred back to the Sponsor/originating lender prior to the transfer of the participation interest to the Department? The entity that will transfer the participation interests in the loans to the Department is the originating lender/ Sponsor who has filed the required notice of intent to participate with the Department.
A15 As long as the Originating Lender and the Current Lender have Notices of Intent on file with the Department and the loans have not been previously participated in the Participation facility (and removed), then they are eligible for the Participation facility, assuming that the loans also meet the other eligibility criteria specified in the MPA.
Q16 Please clarify the Department's position on receiving funds for loan refunds, cancellations and payments within two days. Is this two-day window based on the posting date to the Servicer's system or two days from receipt of the Loan Schedule? In the case of two days from the post date on the Servicer's system, if the Loan Schedule is created weekly or even monthly, how will the Department know what to do with the funds received if the associated Loan Schedule hasn't been generated or delivered?
A16 Section 11 of the Master Participation Agreement states that the Servicer is to remit all "Collections" (including refunds) into the Custodian's Collection Account within two business days of receipt. The Department has a requirement for the Custodian to remit all accumulated collections at least monthly to the Department. The payment will be remitted by the Custodian to the Department via Pay.Gov. The payment remitted via Pay.Gov will tie to the disbursement amount on the Monthly Aggregate Settlement Date Report that details the source of the collected cash.
Q17 In regards to the definition for the academic year 2008-2009, the definition is very vague in programming servicing systems to pull loans that are eligible. In a webinar, it was stated that there is no edits on the loan period end date, so that would allow schools to have this academic year end anytime in 2009. The definition also makes the start of the academic year 2008-2009 vague. It states that the loan period must cover July 1, 2008. In surveying data, I have found loans with a first disbursement date on or after 7/1/08, but the loan period started in 8/1/07 and ends 8/1/08. Would this be considered an eligible loan?
A17 As provided in the definition of an "Eligible Loan" in Section 3 of both the Master Participation Agreement and the Master Loan Sales Agreement, for the purposes of these programs, a 2008-2009 academic year loan is one:
That was made for a loan period that includes, or begins on or after, July 1, 2008 and on which the first disbursement is made on or after May 1, 2008, but no later than July 1, 2009.
In addition, for the Loan Participation Program, the loan must be scheduled to be fully disbursed no later than September 30, 2009, and for the Loan Purchase Program, the loan must be fully disbursed prior to the purchase date. Therefore, a lender could use the following criteria to select loans for the programs:
- The "Loan Period End Date" is greater than or equal to 07/01/2008.
- The "Date of First Disbursement" is greater than or equal to 05/01/2008. (Note that this date may vary depending on when the Department received the lender's "Notice of Intent to Participate")
- The Last Disbursement Date is less than or equal to (a) September 30, 2009 for participations or (b) the Purchase Date for loan purchases.
As long as the loan in your example meets all other eligibility requirements, it is indeed eligible for the program.
Q18 On Exhibit B "Form of Participation Purchase Request", at what point in time do you issue the Participation Request Reference Number?
A18 You are not required to provide us with a Participation Purchase Request Reference Number. Our current procedures include a step where we assign this number to the purchase request that you send to our FSA_LR@ed.gov mailbox and provide you with this number. We are re-evaluating if this number is even necessary in the process.
Q19 The MPA requires provision of "…certified copies of all related Eligible Servicing Agreements…" and requires servicing of Eligible Loans to be performed "...at the direction of the Custodian..." If the Sponsor performs it own servicing, the Sponsor will not have a servicing agreement with itself.
A19 If the Sponsor does its own servicing, the Sponsor will be acting as servicer for the Custodian. The Sponsor should consider having an agreement with the Custodian in order to outline the contractual responsibilities the Sponsor will fulfill as servicer for the Custodian. The servicing agreement is separate from the Master Participation Agreement/Adoption Agreement.
Q20 Do loans have to be fully disbursed at the time of redemption or can redemption take place before full disbursement of the loan?
A20 Loans "put" to the Department must be fully disbursed. Loans redeemed back to the Sponsor (and not put to the Department) and loans sold to a third party do not need to be fully disbursed. See Section 15 of the Master Participation Agreement for more details regarding redemptions.
Q21 In Electronic Announcement #24, ED indicated that it was averaging 2-3 business days to process submissions and transfer funds into the custodians' accounts. Is this still the case at this time?
A21 We are unable to promise more than a 7-business day turnaround, especially during our processing blackout periods listed in Electronic Announcement #24. However, we have been averaging a 2-business day turnaround in processing complete Participation Funding Request packages (with the Loan Schedule). In other words, we are finding that if you submit the COMPLETE funding request in the morning, you will receive funding notification during that day and you often see funding the next day.
MONTHLY ROLLING FORECAST
Q1 How does the Monthly Rolling Forecast get aggregated if a Servicer will be servicing for multiple lender IDs that are assigned the same Custodian ID. The multiple LIDs all fall under one lender that is aggregating. Do we submit separate Rolling Forecast reports, one for each of the different Sponsor LIDs?
A1 For each Master Participation Agreement among the Department, a Sponsor, and a Custodian, the Custodian is given a unique CustodianID. We will need one Monthly Rolling Forecast for each unique CustodianID. If you are servicing for different Sponsors, each of whom will have its own separate MPA with the Department, then you will need to provide the Monthly Rolling Forecast for each Sponsor. If the Sponsor has multiple servicers, then the Sponsor will aggregate the Monthly Rolling Forecast into one report for each unique CustodianID.
Q2 For purposes of filling out the Monthly Rolling Forecast, what constitutes an "originated" loan? Can we assume that a loan can be considered "originated" as long as a) the borrower has signed, b) the school has certified, and c) a first disbursement date has been scheduled? Or do we have to wait for the actual guaranty? The first disbursement date and the guaranty date could be in different months.
A2 For the purposes of these programs, a loan is "originated" when the first dollars are disbursed. Of course, that can not happen until the note has been signed (although it could be an MPN that was signed in the past), and the school has sent the lender a certification. The granting of the guaranty is not relevant to whether a loan was originated. Except in the case where the lender and the GA operate under a "blanket guarantee," there should not be a disbursement until the guarantee is granted.
Q3 If a loan is included in a Participation and the Sponsor later decides to put the loan, does the loan need to be redeemed out of the Participation before it can be included in the put?
A3 No. The loan can be "put" to the Department from the Custodian. The Department will send the payment for the put to the Custodian's Collection Account. All of the proceeds for the put will be sent first to the Department to pay down the aggregate Participation Yield, then the aggregate Participation Principal. Once the Department's Class A Participation Certificate is liquidated (yield and principal), remaining cash goes to the holder of the Class B Certificate.
Q4 After a disbursement is funded in the Participation program, if a death claim, or any other GA claim listed in field 35 of the Loan Schedule, is received by the Sponsor, can the Sponsor file the claim and then forward the funds to the Custodian, or must the Sponsor first redeem the loan out of the Participation and then file the claim?
A4 You do not need to redeem the loan. The Sponsor can submit the claim to the GA and forward the claim payment to the Custodian's collection account upon receipt. With the next monthly Aggregate Settlement Report, you would remit that cash to the Department, and report it in field 34 of the Loan Schedule for that specific loan.
Q5 Suppose a loan has a first disbursement in August, a second disbursement in December and a final disbursement in April. For the rolling forecast for August are you asking for the entire loan amount to show as an Origination in August with a loan count of 1; the amount disbursed in August (1st disbursement) and a loan count of 1; then a forecast for the amount to be disbursed in December and in April with a loan count of 1 in each month. Thus the Origination would only be reported in August, correct?
Also, should we only report the eligible loans in either the actuals or the forecast? In other words, prior to July 1 if we have loans that have more than the 0.25% ACH borrower benefit, those loans should NOT be include those in the actual disbursements or forecasted disbursements?
A5 You are correct, in this example the Origination would only be reported in August and you would report the forecasted distributions in December and April.
Only those loans that you are going to place into the Participation facility should be aggregated into the Monthly Rolling Forecast (actuals and forecasts). Only eligible loans can be placed into the facility, and loans that have greater than 0.25% ACH borrower benefits are not eligible loans.
LOAN SCHEDULE AND CUSTODIAL CERTIFICATION DATA FILE
Q1 If a Sponsor has loans with more than one Servicer, will all Servicers be required to submit the Loan Schedule on the same day?
If the answer is yes, will the Custodian need to submit a single request for funding for that day or can a separate request be submitted for each Servicer?
If a Sponsor/Custodian/Servicer needs to submit multiple Loan Schedule files on a single day due to the maximum PC Funding Request amount, is the Custodian permitted to submit a single request for funding or must the Custodian submit a separate request for funding for each Loan Schedule?
A1 No. A Loan Schedule file is uniquely identified by the CustodianID, the ServicerID, and the BatchID. A Sponsor may have multiple Loan Schedules submitted in any given week for one Purchase Funding Request. We will approve (and fund) the Participation Purchase Request only after all servicer files are received for the Participation Purchase Request. The Custodian is required to sign the Participation Purchase Request, where they are certifying that upon purchase date, they will have title to all eligible loans listed in the Loan Schedules.
There is only one Participation Funding Request that should be submitted for the aggregate of all files. It does not have to be submitted on the same day as the files. However, we will approve (and fund) the Participation Purchase Request only after all servicer files are received for it.
All Sponsor/Custodian/Servicer/Batch requests will be aggregated onto one Participation Purchase Request.
Q2 We understand that in the Weekly and Month-End Loan Schedules, we need to report everything that has been participated. If a loan has been participated, then canceled or paid in full, how long do we need to report it? How would we report for loans that we've pulled back out of the participation?
A2 You will only need to keep reporting these loans through the first Month-End Loan Schedule report. After that, you do not need to report zero balance loans. In the report, you will report in Loan Level Fields (#32, #34, and #37 to #41) the remitted cash in the Custodian's collection account, including the reason codes for the collections. By this monthly report, we would expect to see Loan Level Field #28 (Outstanding Principal Balance) and #29 (Outstanding Interest Balance) equal to zero. If the loan has been fully redeemed, then it needs to be reported that way once and then it can be removed from the Loan Schedules.
Q3 Which fields are specific to the Participation Funding Request? Are they cumulative?
A3 Loan Level Field #17 (Disbursement Number) and Field #18 (Disbursement Amount) pertain to each funding request. The summation of all disbursement amounts on each loan record must equal the total Participation Certificate Funding Request (Header Record Field #4) for which you are seeking funding with that week's submission. These fields are not cumulative. Please see Electronic Announcement #16 for further guidance and field definitions.
Q4 Which fields pertain only to the Month-End Loan Schedule? Are they cumulative?
A4 Fields #32 (Reduction Amount School), #34 (Guaranty Agency Claims), #37 (Loan Proceeds), #38 (Loan Put To Department), #39 (Borrower Principal Collection), #40 (Borrower Interest Collection), and #41 (Other Cash) all pertain to each Month-End Loan Schedule. The summation of these amounts on each detail record must equal the total for Cash Collections (Header Record Field #5) for which you are remitting cash that month. These fields are not cumulative. Fill these fields with zeroes on the Weekly Loan Schedule. Please see Electronic Announcement #16 for further guidance and field definitions.
Q5 For Header Record Field 5 "cash collections", when reporting a positive number, the space is populated with a zero where a negative sign would occur when reporting a negative number. Please confirm.
A5 Loan Schedule Header Field 5 would never be negative. That would suggest that the Custodian's Collection Account has a negative balance, which is not anticipated.
Q6 Header Record Field #3 (Servicer ID): If the Sponsor of the loan will continue to service the loan even after it is fully funded, what should be entered in this field?
A6 Please enter the existing Sponsor's Servicer LID.
Q7 Loan Level Field #2 (Data Flag): Are cancellations and refunds an example of the type of change that would result in the Code U?
A7 Any update (financial or non-financial) that occurs to the loan record since the previous submission of the Loan Schedule requires a code U, including cancellations and refunds. We understand that nearly all records from one submission to the next will have a 'U' Data Flag.
Q8 Loan Level Field #24 (Guaranty Fee) and Loan Level Field #26 (Lender Fee Amount): Is this 1% of the disbursement amount for the requested amount only, or cumulative on all disbursements, whether funded or not?
A8 Both fields are cumulative on all funded disbursements.
Q9 Loan Level Field #25 (Original Loan Amount): What is considered a cancellation? Is a borrower payment within 120 days considered a cancellation? Are full or partial refunds considered cancellations? Is this field cumulative?
A9 A borrower payment within 120 days should be reported as a Borrower Collection (Loan Level Fields #39 and #40). For a refund, please use Loan Level Fields #32 (Reduction Amount School) and #33 (Reduction Reason Code School), per the Loan Schedule Data File Fields Definitions document. These amount fields are not cumulative.
Q10 Loan Level Field #27 (Actual Interest Rate): Should this be the statutory rate, without regard to the possibility of a PLUS loan receiving the 25 basis point reduction due to the ACH benefit?
A10 Please populate Field 27 (Actual Interest Rate) with the rate actually charged to the borrower, after any ACH discount.
Q11 In the below example, please advise what we should report in Loan Level Fields #28 (Outstanding Principal Balance), #29 (Outstanding Interest Balance) and #41 (Other Cash).
A loan is fully disbursed and is in the participation. When the next Loan Schedule is run after the final disbursement was reported, that loan record has a principal balance of $5,000 in Field #28 and accrued interest of $300 in Field #29. Prior to the next Loan Schedule, more interest is accruing and it gets capitalized, so the loan principal is now $5,400. Another Loan Schedule is being produced on the day the interest is capitalized. Do we report $5,400 in Field #28, $0 in Field #29, and $400 in Field #41?
A11 Loan Level Field #41 (Other Cash) is only to be used to report cash in the Custodian's Collection Account that is not explainable using one of the other standard fields (i.e., #32, #34, #37, #38, #39, or #40). In this example, $5,400 would be reported in Field #28 (Outstanding Principal Balance), $0 would be reported in Field #40 (Borrower Interest Collection), and $0 would be reported in Field #41 (Other Cash), as there has been no cash added to the Collection Account as a result of this transaction.
Q12 Loan Level Field 32 (Reduction Amount School): When a refund is applied to a disbursement, what amount do you want to appear in this field? Do you want the amount to reflect the amount that has been returned from the school? Do you want the amounts of the rebated guarantee and origination fees included in the refund amount in that field?
A12 Field 32 ReductionAmountSchool field will be used to report on the monthly Loan Schedule the cash that has come into the Custodian's Collection Account from the school. The rebated guarantee fee will be reported in the GuaranteeAgencyClaims field and a new code (GF) has been provided in the table to report in the ReductionReasonCodeGA field. The rebated origination fee will be reported on the 799. Once provided to the custodian via the 799 invoice process, the net payment from the 799 billing process will be swept from the Custodian's account and reported on the Monthly Aggregate Settlement Date Report.
Q13 Loan Level Field #39 (Borrower Principal Collection): If interest is capitalized, should that amount be indicated here as a "negative payment"?
A13 No. This field is only populated when cash is sent by the borrower that is used to pay down principal. Header Record Field #5 (Cash Collections) must be an aggregate of Loan Level Fields #32 (Reduction Amount School), #34 (Guaranty Agency Claims), #37 (Loan Proceeds), #38 (Loan Put To Department), #39 (Borrower Principal Collection), #40 (Borrower Interest Collection), and #41 (Other Cash). When interest is capitalized, it will be reflected in a change in balances reported in Loan Level Fields #28 (Outstanding Principal Balance) and #29 (Outstanding Interest Balance).
Q14 Loan Level Field #40 (Borrower Interest Collection): Should capitalized interest be included in this field?
A14 No. This field is only populated when cash is sent by the borrower that is used to pay down accrued interest. Header Record Field #5 (Cash Collections) must be an aggregate of Loan Level Fields #32 (Reduction Amount School), #34 (Guaranty Agency Claims), #37 (Loan Proceeds), #38 (Loan Put To Department), #39 (Borrower Principal Collection), #40 (Borrower Interest Collection), and #41 (Other Cash). When interest is capitalized, it will be reflected in a change in balances reported in Loan Level Fields #28 (Outstanding Principal Balance) and #29 (Outstanding Interest Balance).
Q15 It was mentioned for the Put program that it would be best to separate securitized loans from unsecuritized loans into separate sales. Is this also true for loans we plan to fund in the Participation program?
A15 Only loans where the title is free and clear of any liens can be placed into a participation facility. If there is a lien against the loan, it must be released via the Security Release Certificate (Master Participation Agreement Exhibit G). If it cannot be released, then the loan cannot be placed into the facility. Loans that have been included in a securitization would have a lien against the title. See Electronic Announcement #16 for more details regarding the Security Release Certificate.
Loans that require a Security Release Certificate and those that do not require one may be commingled in a Participation Purchase Request, using field 42 to differentiate between the two.
Q16 When reporting on the loans that are NOT to be funded in the weekly - are you asking for the same information as in the monthly (the reconcilement of the collection account to activity)?
For both the Weekly and the Monthly are we reporting at Loan Level or at Disbursement Level? If we have a loan that has two disbursements in the same week how would this be reflected on the weekly?
A16 Both the weekly and monthly Loan Schedules use the exact same format. All Loan Schedules are to include all loans in the Participation facility, whether there was recent funding or collection activity on them. The weeklies (i.e., Participation Funding Requests) are the Loan Schedules used to actually request funding. With the exception of your first Participation Funding Request, the Department would expect to see a mix of loans for which you are not requesting funding (i.e., fields 17 and 18 are zero) and those for which you are requesting funding for (i.e., fields 17 and 18 are > zero). The weeklies may contain Cash Collection info (i.e., header field 5, detail fields 32, 34, 37-41) but this data will not be used on the weeklies. The monthly Loan Schedules will be used to support the cash that is remitted to us via the monthly Pay.Gov procedures (see Electronic Announcement #29). You should not request funding on the Monthly Loan Schedule (i.e., fields 17 and 18 should always be zero). However, if the Custodian's Collection account has received cash related to any of these loans, you would use fields 32, 34, and 37-41 on the Monthly Loan Schedule to report this cash to us. The Department will use this as support for the cash remitted to us via Pay.Gov. The monthly should include all Cash Collection activity since your last monthly report.
Report at the Loan Level. If there are 2 disbursements within the same week, add them together and report the total disbursement amount in field 18 and the largest disbursement number in field 17.
Q17 I see that both the Exhibit B and Funding Request need to be received on the same day for the Participation Program. Do they have to be sent together through the same method of delivery or can the Exhibit be emailed and the funding request file be through SAIG mailbox?
A17 They are not (and cannot be) be sent via the same delivery method. The Loan Schedule is sent via our SAIG mailbox and the Participation Funding Request form should be sent via e-mail. Please see Electronic Announcement #16 for more specific submission instructions for all required forms and files.
Q18 Would you please confirm that the changes effective October 6th are not required to be implemented for the Sept. 30, 2008 month end report.
A18 The changes are effective October 6th to the Loan Schedule file layout are updates specifically for the monthly Loan Schedule file in addition to all weekly funding requests. The changes are not required to be implemented for the September 30, 2008 monthly Loan Schedule. With that said, the changes of substance include (1) a new record count on the Header record and (2) a new comment field, field 43, for any "OtherCash" amounts reported in field 41. All other changes to the documents were further clarification of existing layout/functionality.
MONTHLY REPORTING
Q1 On the Month-End Loan Schedule data file and Monthly Aggregate Settlement Report, do we only include loans that the Department has purchased a Participation Interest in and exclude the loans that we have submitted a Purchase Request for, yet have not received funding from the Department?
A1 Include all loans on the Month-End Loan Schedule and Monthly Aggregate Settlement Date Report for which the Department has purchased a Participation Interest. Do not include new loans for which there is a funding request submitted to the Department, but have not yet been funded, as there is no Participation Interest in these new loans as of the date of the Month-End Loan Schedule. However, if there is a loan in the participation where only one disbursement has been funded, and a subsequent disbursement has not yet been funded, the total principal balance of the loan should be reflected in the reports. The aggregate of Loan Level Field #28 (Outstanding Principal Balance) and Field #29 (Outstanding Interest Balance) for all of your Servicers' Loan Schedules must add up to your total Ending Balance for Principal (Line B2) and Accrued Interest (Line C2) on the Monthly Aggregate Settlement Date Report.
Q2 When submitting the Month-End Loan Schedule in conjunction with the Monthly Aggregate Settlement Date Report, for Cash Collections (Header Record Field #5), please review the following scenario:
A funding request is submitted on 9/15/08. The Cash Collections Field contains $200,000. On 10/1/08 the Month-End Loan Schedule is created to be submitted with the Monthly Aggregate Settlement Date Report. Since 9/15/08, an additional $100,000 has been collected on these loans. What number should be populated in the Cash Collections (Header Record Field #5) for the monthly submission?
A2 The Cash Collections field is an aggregate of Loan Level Fields #32 (Reduction Amount School), #34 (Guaranty Agency Claims), #37 (Loan Proceeds), #38 (Loan Put To Department), #39 (Borrower Principal Collection), #40 (Borrower Interest Collection), and #41 (Other Cash). It is a summary of all cash that is received by the Custodian, except for Participation Funding from the Department. Every month, this amount is to be remitted to the Department, to pay down the Participation Yield, then the Participation Principal. It need only be reported on the Month-End Loan Schedule that is submitted with the Monthly Aggregate Settlement Date Report as support for all of the cash that is being remitted to the Department for that month.
The Cash Collection header field is only populated when you are remitting cash (most likely at month-end). If you have had a total of $300,000 cash in the Custodian's collection account throughout the month, it would be substantiated by the Monthly Aggregate Settlement Date Report, which is further supported by the Month-End Loan Schedule.
Please see Electronic Announcement #17 for guidance regarding the Monthly Aggregate Settlement Report. Please see Electronic Announcement #29 for guidance on the Month-End Loan Schedule and the cash remittance procedures. For example, the first cash remittance is due by October 9th (i.e., 7 business days after September month-end) for all Participation Purchase Requests funded in September, 2008.
Q3 Is the Month-End Loan Schedule an aggregate of all loans where an interest has been purchased by the Department even if there are no changes from the previous month's report or does it include only loans that have had some activity since the previous month's Loan Schedule was created?
A3 It is an aggregate of all loans. Every month, we will use it to verify that the underlying collateral in the Participation Facility (Loan Level Field #28 Outstanding Principal Balance and #29 Outstanding Interest Balance) is greater than or equal to the total Participation Principal and Participation Yield.
Q4 What commercial paper rate is used on the Monthly Aggregate Settlement Date Report?
A4 The rate at which the Participant Principal balance accrues interest for the period from October 1, 2008 to December 31, 2008 is 3.37% (see Electronic Announcement #30). Subsequent interest rates to apply to the Participant Principal balance for future quarters will be communicated via quarterly Electronic Announcements on www.federalstudentaid.ed.gov.
Q5 Is it possible to send a weekly Loan Schedule to request a funding while a monthly Loan Schedule is outstanding?
For example, if a monthly Loan Schedule is sent on the 6th business day of the month, is it possible to send a weekly Loan Schedule for funding on the 7th business day? OR would the monthly schedule have to be approved first?
A5 Yes, you can send a weekly Loan Schedule to request funding while the monthly Loan Schedule is outstanding.
We will not process any new funding requests after the seventh business day into a month if we have not received the previous month's Aggregate Settlement Date Report, your monthly Loan Schedule, and a Pay.Gov payment remittance. However, it does not have to be completely reconciled/processed and approved by us before we will process another funding request.
AGREED-UPON PROCEDURES
Q1 Sections 3.4(F) and 4.3(F) of the ECASLA, Loan Participation Program and Loan Purchase Commitment Program, Agreed Upon Procedures Attestation Guide issued December 9, 2008 require the auditor to perform the following procedures:
Section 3.4(F):
For loan records where the sponsor is not the originating lender- 1) If the sponsor's and originating lenders' NOI dates are both on or before July 31, 2008, determine that the First Disbursement Date (Loan Level Layout Field 15) has no records with a date on or before April 30, 2008. 2) If the either the sponsor's or originating lenders' NOI date is on or after August 1, 2008, determine that the First Disbursement Date (Loan Level Layout Field 15) has no records with a date before the later of the sponsor's or originating lenders' NOI date. Report as a finding in the Schedule of Findings (Attachment 5) any records before the applicable NOI date.Section 4.3(F):
For loan records where the seller is not the originating lender- 1) If the seller's and originating lenders' NOI dates are both on or before July 31, 2008, query the Loan Schedule (i.e., from §4.2(A)(6)) to see that the First Disbursement Date (Loan Level) has no records with a date on or before April 30, 2008. 2) If the either the seller's or originating lenders' NOI date is on or after August 1, 2008, query the Loan Schedule (i.e., from 4.2(A)(6)) to see that the First Disbursement Date (Loan Level) has no records with a date before the later of the seller's or originating lenders' NOI date.
Question #34 in Electronic Announcement #34 from the Department states: The Department interprets the NOI to permit a lender that holds a loan acquired from another lender to participate in the loan purchase programs with regard to that loan if (1) it filed a NOI on or before the date it acquired that loan and (2) the originating lender filed a timely NOI with regard to that loan.
Which date is compared to the sponsor/seller's NOI, the disbursement date per the AUP guide or the acquisition date per EA #34?
A1: Question #34 in Electronic Annoucement #34 is correct, a lender that holds a loan acquired from another lender can participate that loan in the loan purchase programs if it filed a NOI on or before the date it acquired that loan and the originating lender filed a timely NOI with regard to that loan. Therefore, to execute the procedure described in Sections 3.4(F) and 4.3(F) of the ECASLA, Loan Participation Program and Loan Purchase Commitment Program, Agreed Upon Procedures Attestation Guide issued December 9, 2008, the auditor must compare both the original lender and the sponsor/seller's NOI date to the first disbursement date. In cases where the first disbursement date is before the sponsor/seller's NOI date, this must be reported as a finding in the Schedule of Findings (attachment 5). The audit guide was designed to rely on available date on the loan detail submitted as part of a PPR or BOS. The date acquired is not a field that is included in that data submission. The Department will handle this discrepancy through the audit resolution process. If it is reported as a finding then the lender can address the response in the CAP and the Department will request documentation to substantiate the response. Since this is not a loan eligibility test, a finding in this area would not result in an increase in the error rate nor affect the frequency of AUP submission.
Q2 If loans are included in the population tested as part of an Agreed Upon Procedures (AUP) engagement for the Loan Participation Program and those same loans are subsequently put to the Department, is a seller required to include those same loans in the population of loans test as part of an AUP engagement for the Loan Purchase Commitment Program?
A2. Yes. AUP engagements are authorized under Section 8 of the MPA for Loan Participation Program and Section 5 of the MLSA for the Loan Purchase Commitment Program. Sponsors/Sellers must ensure that all Participation Purchase Requests consummated under the Loan Participation Program and all Bills of Sale consummated under the Loan Purchase Commitment Program are covered under an AUP in accordance with the AUP guide, as amended, dated December 9, 2008, issued by the Office of Inspector General.
Q3 What is the due date for submission of the Agreed Upon Procedures (AUP) engagements that cover Participation Purchase Requests and Bills of Sale that are consummated in the final days of the 08-09 Loan Participation Program and Loan Purchase Commitment Program?
A3. The due date for submission of these AUPs is November 30, 2009.
