Federal Family Education Loan Program (FFELP), 2518-2564 [E9-712]

Download as PDF 2518 Federal Register / Vol. 74, No. 10 / Thursday, January 15, 2009 / Notices DEPARTMENT OF EDUCATION Submission for OMB Review; Comment Request Department of Education. The Director, Information Collection Clearance Division, Regulatory Information Management Services, Office of Management, invites comments on the submission for OMB review as required by the Paperwork Reduction Act of 1995. DATES: Interested persons are invited to submit comments on or before February 17, 2009. ADDRESSES: Written comments should be addressed to the Office of Information and Regulatory Affairs, Attention: Education Desk Officer, Office of Management and Budget, 725 17th Street, NW., Room 10222, New Executive Office Building, Washington, DC 20503 or faxed to (202) 395–6974. SUPPLEMENTARY INFORMATION: Section 3506 of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35) requires that the Office of Management and Budget (OMB) provide interested Federal agencies and the public an early opportunity to comment on information collection requests. OMB may amend or waive the requirement for public consultation to the extent that public participation in the approval process would defeat the purpose of the information collection, violate State or Federal law, or substantially interfere with any agency’s ability to perform its statutory obligations. The IC Clearance Official, Regulatory Information Management Services, Office of Management, publishes that notice containing proposed information collection requests prior to submission of these requests to OMB. Each proposed information collection, grouped by office, contains the following: (1) Type of review requested, e.g. new, revision, extension, existing or reinstatement; (2) Title; (3) Summary of the collection; (4) Description of the need for, and proposed use of, the information; (5) Respondents and frequency of collection; and (6) Reporting and/or Recordkeeping burden. OMB invites public comment. AGENCY: SUMMARY: [FR Doc. E9–805 Filed 1–14–09; 8:45 am] BILLING CODE 4000–01–P DEPARTMENT OF EDUCATION DEPARTMENT OF THE TREASURY OFFICE OF MANAGEMENT AND BUDGET Federal Family Education Loan Program (FFELP) Institute of Education Sciences AGENCY: Department of Education, Department of the Treasury, Office of Management and Budget. ACTION: Notice of terms and conditions of additional purchase of loans under the Ensuring Continued Access to Student Loans Act of 2008. Type of Review: Revision. Title: Early Childhood Longitudinal Study Kindergarten Class of 2010–2011. Frequency: Annually. SUMMARY: Under the authority of section 459A of the Higher Education Act of 1965, as amended (‘‘HEA’’), as enacted by the Ensuring Continued Access to Dated: January 12, 2009. Angela C. Arrington, IC Clearance Official, Regulatory Information Management Services, Office of Management. jlentini on PROD1PC65 with NOTICES Affected Public: Individuals or household. Reporting and Recordkeeping Hour Burden: Responses: 164,869. Burden Hours: 101,055. Abstract: The ECLS–K 2010–2011 is the follow-up study to the ECLS–K. It is a longitudinal study that will follow children from kindergarten through fifth grade to measure child development, school readiness and early school experiences. It will include cognitive assessments of children on an annual basis, parent interviews, and surveys of teachers, school administrators and the primary care provider. Requests for copies of the information collection submission for OMB review may be accessed from http:// edicsweb.ed.gov, by selecting the ‘‘Browse Pending Collections’’ link and by clicking on link number 3872. When you access the information collection, click on ‘‘Download Attachments’’ to view. Written requests for information should be addressed to U.S. Department of Education, 400 Maryland Avenue, SW., LBJ, Washington, DC 20202–4537. Requests may also be electronically mailed to the Internet address ICDocketMgr@ed.gov or faxed to (202) 401–0920. Please specify the complete title of the information collection when making your request. Comments regarding burden and/or the collection activity requirements should be electronically mailed to ICDocketMgr@ed.gov. Individuals who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1– 800–877–8339. VerDate Nov<24>2008 18:58 Jan 14, 2009 Jkt 217001 PO 00000 Frm 00011 Fmt 4703 Sfmt 4703 Student Loans Act of 2008 (Pub. L. 110– 227) and amended by Public Law 110– 315 and Public Law 110–350, the Department of Education (‘‘Department’’) may purchase, or enter into forward commitments to purchase, Federal Family Education Loan Program (‘‘FFELP’’) loans made under sections 428 (subsidized Stafford loans), 428B (PLUS loans), or 428H (unsubsidized Stafford loans) of the HEA, on such terms as the Secretary of Education (‘‘Secretary’’), the Secretary of the Treasury, and the Director of the Office of Management and Budget (collectively, ‘‘Secretaries and Director’’) jointly determine are ‘‘in the best interest of the United States’’ and ‘‘shall not result in any net cost to the Federal Government (including the cost of servicing the loans purchased).’’ This notice establishes the terms and conditions that will govern certain loan purchases made under section 459A of the HEA, as extended by Public Law 110–350, including (a) purchases from an asset-backed commercial paper vehicle referred to as an ‘‘ABCP Conduit’’ or ‘‘Conduit’’ (‘‘ABCP Conduit Program’’) and (b) replication for the 2009–2010 academic year of the Loan Participation Purchase Program (‘‘2009– 2010 Participation Program’’) and Loan Purchase Commitment Program (‘‘2009– 2010 Purchase Program’’) (collectively, ‘‘Programs’’). This notice also outlines the Department’s methodology and factors that have been considered in evaluating the price at which the Department will purchase these additional FFELP loans; and describes how the use of those factors and methodology will ensure that the additional loan purchases do not result in any net cost to the Federal Government. The Secretaries and Director concur in the publication of this notice and have jointly determined that, based on the Department’s analysis, the purchase of additional loans as described in this notice is in the best interest of the United States and shall not result in any net cost to the Federal Government (including the cost of servicing the loans purchased). DATES: Effective Date: The terms and conditions governing the purchase of loans under the 2009–2010 Participation Program and Purchase Program, and the ABCP Conduit Program are effective January 16, 2009. FOR FURTHER INFORMATION CONTACT: U.S. Department of Education, Office of Federal Student Aid, Union Center Plaza, 830 First Street, NE., room 111G3, Washington, DC 20202. Telephone: (202) 377–4401 or by e-mail: ffel.agreementprocess@ed.gov. E:\FR\FM\15JAN1.SGM 15JAN1 Federal Register / Vol. 74, No. 10 / Thursday, January 15, 2009 / Notices If you use a telecommunications device for the deaf (TDD), call the Federal Relay Service (FRS), toll free, at 1–800–877–8339. Individuals with disabilities can obtain this document in an accessible format (e.g. , braille, large print, audiotape, or computer diskette) on request to the office listed under FOR FURTHER INFORMATION CONTACT. SUPPLEMENTARY INFORMATION: jlentini on PROD1PC65 with NOTICES Introduction The Department’s purchase of FFELP loans is intended primarily to ensure that students and parents continue to have access to FFELP loans for the remainder of the 2008–2009 academic year and for the 2009–2010 academic year. The Department of Education first exercised its authority under section 459A of the HEA in July 2008, when the Secretaries and Director established the Participation Program and Purchase Program for eligible loans made for academic year 2008–2009.1 Under the Participation Program, the Department has purchased participation interests in eligible loans that are held by an eligible lender acting as a sponsor under a Master Participation Agreement. Under the Purchase Program, the Department has purchased eligible loans that are held by eligible lenders. To participate in either the Participation Program or the Purchase Program, a lender must enter into an agreement with the Department for that program. Subsequent to the announcements of the Purchase Program and Participation Program in July, the Secretary of Education concluded that additional action was necessary to ensure students and parents have access to FFELP for the remainder of the 2008–2009 academic year. Specifically, the Secretaries and Director acknowledged the possibility that some lenders would not be able to obtain capital to make second disbursements of 2008–2009 academic year FFELP loans even for the short-term necessary before lenders can utilize the ABCP Conduit Program. To provide needed liquidity to support new lending, the Department, through the Short-term Purchase Program announced in December 2008, extended the offer to purchase loans to include eligible loans made for the 2007–2008 academic year. The Department at that time gave notice that it would purchase such loans beginning on or about 1 The Secretaries and Director announced the terms and conditions governing the Participation Program and the Purchase Program for academic year 2008–2009 in a notice published in the Federal Register on July 1, 2008 (73 FR 37422). Minor revisions to this notice were published in the Federal Register on July 17, 2008 (73 FR 41048). VerDate Nov<24>2008 18:58 Jan 14, 2009 Jkt 217001 December 1, 2008 and would continue purchasing them through February 28, 2009 or the date on which one or more conforming Asset-Backed Commercial Paper (ABCP) Conduits for purchasing FFELP loans become operational, whichever occurs earlier. Through the Short-term Purchase Program, the Department will expend up to $500 million to purchase eligible loans each week during this period, for a potential total aggregate amount of up to $6.5 billion. The Secretaries and the Director believe that, although capital markets have improved, lenders may continue to have difficulty in obtaining funding to make loan commitments for the upcoming academic year, or to make subsequent disbursements on loans, without a commitment from the Department to purchase those loans. To address this need, the Secretaries and the Director have concluded that the Purchase Program and the Participation Program should be replicated for the 2009–2010 academic year. The Secretaries and the Director further conclude that the Department should enter into forward purchase commitments with one or more conforming ABCP Conduits that can purchase FFELP loans, and thereby provide additional liquidity to support new lending. An entity that wishes to establish an ABCP Conduit must submit such offers to the Department at http:// www.federalstudentaid.ed.gov/ffelp. Terms and Conditions Pursuant to section 459A of the HEA, the Secretaries and Director establish the terms and conditions that will govern these additional purchase programs. The terms and conditions governing the replication of the Loan Purchase Program for academic year 2009–2010 (‘‘2009–2010 Loan Purchase Commitment Program Terms and Conditions’’) are attached as Appendix A to this notice; those governing the replication of the Participation Program for academic year 2009–2010 (‘‘2009– 2010 Loan Participation Program Terms and Conditions’’) are attached as Appendix B to this notice, and those governing the ABCP Conduit Program are attached as Appendix C to this notice. The 2009–2010 Purchase Program and 2009–2010 Participation Program will operate for the 2009–2010 academic year in substantially the same way as the Purchase Program and Participation Program did for the 2008–2009 academic year. Under the ABCP Conduit Program, the Department will enter into forward PO 00000 Frm 00012 Fmt 4703 Sfmt 4703 2519 purchase commitments to purchase FFELP loans (subsidized Stafford loans, unsubsidized Stafford loans, and PLUS loans) on which the lender made the first disbursement on or after October 1, 2003, but no later than June 30, 2009, fully disbursed no later than September 30, 2009, and conveyed to the Conduit no later than June 30, 2010. The Department will not agree to purchase FFELP Consolidation loans under this program. In order to participate in the ABCP Conduit Program, a sponsoring entity must enter into a ‘‘Put Agreement’’ with the Department consistent with the terms and conditions stated in Appendix C. The Put Agreement will establish the nature of the relationship between the Department and the Conduit and Conduit Manager. The Department will agree to purchase loans from the Conduit upon demand as needed to support the issuance of commercial paper by the Conduit. The Conduit is expected to exercise the Put only after the Conduit has attempted to obtain funds to meet maturing commercial paper from other resources, including other financial institutions, and has either been unable to do so, or, if it has obtained such funding, is unable to issue new commercial paper sufficient to obtain funds to repay those borrowings. As explained in detail in Appendix C, the Department will agree to purchase loans at either 97 percent or 100 percent of the total of the outstanding principal balance plus accrued but unpaid interest as of the purchase date, depending on the characteristics of the loan. The Conduit may purchase loans as defined in the Put Agreement and the attached terms and conditions for the ABCP Conduit Program in Appendix C. Loans purchased by the Conduit must have been selected from the seller’s portfolio in a manner that assures the sale to the Conduit of loans is fairly representative of the seller’s total portfolio of conduit eligible loans. In addition, a lender that sells the Conduit a loan owed by a particular borrower must also sell the Conduit all other eligible loans it holds for that particular borrower. Under the 2009–2010 Purchase Program and 2009–2010 Participation Program, the Department will purchase loans or participation interests in loans that have ‘‘eligible borrower benefits,’’ which are borrower benefits previously deemed acceptable in the 2008–2009 programs (upfront fee reductions already consummated or interest reductions not exceeding .25 percent conditioned on borrower use of an automatic loan payment process). E:\FR\FM\15JAN1.SGM 15JAN1 2520 Federal Register / Vol. 74, No. 10 / Thursday, January 15, 2009 / Notices jlentini on PROD1PC65 with NOTICES However, under the ABCP Conduit Program, the Department will agree to purchase loans with a broader range of borrower benefits, as summarized in the terms and conditions for the ABCP Conduit Program in Appendix C to this notice. In addition, a list of those specific borrower benefits will be posted to the Department’s Web site at http:// www.federalstudentaid.ed.gov/ffelp. While loans that have a direct payment to a borrower as a borrower benefit—rather than an interest or principal reduction—are eligible for inclusion in the Conduit, the Department will require the holder of the loan to make the payment to the borrower prior to sale to the Department, regardless of whether the borrower actually earned the benefit. The Department will also require the seller of the loan to establish a reserve for this purpose. Outline of Methodology and Factors in Determining Prices for All Programs In accordance with Public Law No. 110–227, Public Law 110–315, and Public Law 110–350, the goal in structuring the 2009–2010 Purchase Program, the 2009–2010 Participation Program, and the ABCP Conduit Program is to maximize student loan availability while ensuring loan purchases result in no net cost to the Federal Government. The Secretaries and Director described the basis for determining the cost neutrality for the Purchase Program and Participation Program in the Federal Register notice published on July 1, 2008 (73 FR 37422). While this notice provides updated cost estimates, the methodology remains essentially the same for the 2009–2010 Purchase Program, the 2009–2010 Participation Program, and the ABCP Conduit Program based on analysis of the Department of Education. This section of the notice responds in particular to the statutory requirement for an outline of the methodology and factors considered in evaluating the price at which loans may be purchased, and describes how the use of such methodology and consideration of such factors will ensure no net cost to the Federal Government results from the loan purchases for the 2009–2010 Purchase Program, the 2009–2010 Participation Program, and the ABCP Conduit Program. Price: To determine the price at which FFELP loans would be purchased from the Conduit, the Secretary of Education considered several factors. These factors included the price that would ensure this program resulted in no net cost to the Federal Government; the increased VerDate Nov<24>2008 18:58 Jan 14, 2009 Jkt 217001 liquidity that the rate would offer distressed lenders; borrower benefits; and other factors. Based on this analysis, the Secretary of Education determined that 100 percent of outstanding principal and accrued interest was the appropriate price for those loans first disbursed on or after May 1, 2008, with no borrower benefits or only ‘‘eligible borrower benefits,’’ and not more than 255 days delinquent at the time of purchase, and 97 percent of principal and interest for any other loans. For the 2009–2010 Purchase Program and the 2009–2010 Participation Program, the Secretary of Education determined that the prices used for the 2008–2009 Programs remained the appropriate prices for 2009–2010. The Department will pay a purchase price for a loan for 2009–2010 of 100 percent of outstanding principal and interest plus one percent fee previously paid on the loan and $75.00. To purchase a participation interest in 2009–2010 loan, the Department will pay 100 percent of the amount of the outstanding principal (including any capitalized interest) of the loan at the time of purchase of the interest. Analysis of Cost Neutrality The cost-neutrality analysis conducted solely by the Department of Education used, in part, credit subsidy cost estimation procedures established under the Federal Credit Reform Act of 1990 (Pub. L. No. 101–508) and OMB Circular A–11. These procedures entail performing various analyses to project cash flows to and from the Government, excluding administrative costs. For changes to outstanding FFELP guaranteed loans, the analysis reflects the modification cost, or the difference between the estimate of the net present value of the remaining cash flows underlying the most recent President’s Budget for such loan guarantees, and the estimate of the net present value of these cash flows after the purchase program, reflecting only the effects of the modification. For new loans, cash flows are discounted to the point of disbursement, using the Credit Subsidy Calculator 2 (‘‘OMB calculator’’), developed by the Office of Management and Budget to estimate credit subsidy costs for all Federal credit programs, as the discounting tool. Costs for new loans can be expressed as subsidy rates that reflect the Federal costs associated with a loan; these costs are expressed as a percentage of the credit extended by the loan. For example, a subsidy rate of 10.0 percent indicates a Federal cost of $10 on a $100 loan. The metric to determine cost neutrality was that costs under the new PO 00000 Frm 00013 Fmt 4703 Sfmt 4703 programs should not exceed costs expected under the FFELP in the absence of these programs. All cost estimates were based on economic and technical assumptions developed for the FY 2009 President’s Budget for the FFELP, updated to reflect the impact of statutory or administrative actions that have occurred since the budget was published in February 2008. Student loan cost estimates were developed to assess the Federal cost incurred for loans financed for each loan type. The analysis also considered risk factors particular to the 2009–2010 Purchase Program, the 2009–2010 Participation Program and the ABCP Conduit Program, such as the likelihood that lenders would sell only their least profitable loans. This discussion outlines the Department’s analysis of the 2009–2010 Purchase Program, the 2009–2010 Participation Program, and the ABCP Conduit Program with respect to the following critical aspects affecting the Federal cost: • Administrative costs • Borrower behavior • Lender behavior • Risk factors Administrative Costs. Federal administrative costs are normally not included in subsidy cost calculations. To capture the full cost of the 2009– 2010 Purchase Program, the 2009–2010 Participation Program, and the ABCP Conduit Program, however, section 459A of the HEA requires that the determination of cost neutrality reflect total costs, including Federal administrative costs subject to annual appropriation, and these costs were included in this analysis. Administrative cash flows primarily involve servicing costs associated with loans purchased by the Department. These costs can extend for up to 40 years, as servicing must continue until the last loan is paid in full. Under the base scenario for the 2009–2010 Participation and Purchase Programs, servicing costs would be $557 million on a present value basis. Servicing costs associated loans put to the Department from an ABCP Conduit, weighted across the three loan volume scenarios discussed below under ‘‘Lender Behavior,’’ would be $35 million on a net present value basis. The Department’s estimates were developed using the price structure of the Department’s servicing contract for put loans, with adjustments for start-up costs, inflation, and other costs. Borrower Behavior. Since the base FFELP serves as the foundation of the 2009–2010 Purchase Program, the 2009– 2010 Participation Program, and the E:\FR\FM\15JAN1.SGM 15JAN1 jlentini on PROD1PC65 with NOTICES Federal Register / Vol. 74, No. 10 / Thursday, January 15, 2009 / Notices ABCP Conduit Program, and the characteristics of the base program are unchanged, there is no reason to believe that the 2009–2010 Purchase Program, the 2009–2010 Participation Program, or the ABCP Conduit Program will affect borrower behavior. Thus, this cost analysis uses borrower behavior assumptions used to prepare the FY 2009 President’s Budget to gauge the effect on program costs of borrowerbased activities such as loan repayment, use of statutory benefits such as deferments and loan discharges, and default rates and timing. These assumptions are based on a wide range of data sources, including the National Student Loan Data System, the Department’s operational and financial systems, and a group of surveys conducted by the National Center for Education Statistics such as the 2004 National Postsecondary Student Aid Survey, the 1994 National Education Longitudinal Study, and the 1996 Beginning Postsecondary Student Survey. Lender Behavior. A key factor in assessing whether the proposed programs would operate in a costneutral manner was lender behavior: specifically for the ABCP Conduit Program, how many ABCP Conduits would be created, and for the 2009– 2010 Purchase Program and the 2009– 2010 Participation Program, how many lenders would participate in the program, including how many and what type of loans would they eventually choose to sell to the Department. The Department considered alternative scenarios of lender behavior to determine whether the 2009–2010 Purchase Program, the 2009–2010 Participation Program, and ABCP Conduit Program could be considered cost-neutral under each. Because the ABCP Conduit Program would allow the Conduit Manager to sell loans with contingent borrower benefits—such as interest rate reductions for a specified number of on-time payments—all alternatives include an adjustment to reflect the impact of these potential reductions on future loan repayments. Consistent with stress tests applied by rating agencies in the private securitization market, this adjustment reduces the net cash flow to the Government by reducing the principal of sold loans by 0.5 percent a year. Based on an analysis of lender and probability data provided by the Treasury Department and the Department of Education’s financial advisors, it was determined the most likely size of the ABCP Conduit Program was $25 billion. Within that total, three scenarios were used to assess the impact VerDate Nov<24>2008 20:45 Jan 14, 2009 Jkt 217001 of different behavior by participating lenders. The first assumed the ABCP Conduit Program would be unsuccessful and 100 percent of loans would be put to the Department on October 1, 2009; the likelihood of this scenario occurring was 2 percent. Under Scenario 2, ongoing minor market disruptions were assumed to result in 20 percent of loans being put, evenly distributed across the five-year life of the ABCP Conduit; this scenario had a likelihood of 10 percent. The third and most probable scenario, with an 88 percent likelihood, assumed that, at the end of the ABCP Conduit, not-for-profit lenders would put 75 percent of their volume and for-profit lenders would put 10 percent of their volume. Scenarios 2 and 3 both also assume loans would be put upon becoming more than 210 days delinquent. Consolidated results were developed weighted by each scenario’s relative probability. Two scenarios were examined for the 2009–2010 Participation Program, one under which lenders would put 100 percent of loans financed through the program at the end of 2010 and one under which lenders would put 50 percent of loans financed through participations and redeem the other 50 percent. For the latter scenario, the Department assumed a ‘‘worst case’’ in which lenders sold their smallest, least profitable loans. Because long-term loan servicing costs are generally charged on an account basis independent of loan size, small loans tend to be less profitable than larger loans. Considering the probability of the various scenarios, the Department determined that costs for the 2009–2010 Purchase Program, the 2009–2010 Participation Program, and the ABCP Conduit Program were less expensive to the Government than baseline subsidy costs for FFELP loans. (Please see Tables in this notice for a summary of the analysis.) Risk Factors. Analyzing whether the 2009–2010 Purchase Program, the 2009– 2010 Participation Program, and the ABCP Conduit Program would operate in a cost-neutral manner requires that projected costs account for the presence of various risk factors that must be assumed since these programs will not operate entirely like the base FFELP, or without operational risk. As such, the Secretary of Education’s estimates for the 2009–2010 Purchase and Participation Programs included the same adjustments included for the original 2008–2009 programs. For the ABCP Conduit Program, the estimates include five risk factors: (1) That improvements in the national economy will reduce lenders’ incentives to put loans for the ABCP Conduit; (2) that PO 00000 Frm 00014 Fmt 4703 Sfmt 4703 2521 some of the loans purchased by the Department would be those on which the Department would reject a reinsurance claim under the FFELP (‘‘claim rejects’’); (3) that unforeseen problems undermine the Department’s ability to effectively oversee and administer the ABCP Conduit Program (‘‘operational risk’’); (4) that costs related to servicing purchased loans do not fully reflect possible future requirements (‘‘general administrative risk’’); and (5) that the composition of loans ultimately sold to the Department may result in higher Federal costs than the composition assumed in this analysis (‘‘portfolio composition risk’’). To ensure cost estimates reflect a conservative assessment of possible Federal costs, the Secretary of Education added cost adjustments to incorporate each risk factor. The adjustments were based on an assessment of private-sector behavior and program data as follows: Economic Factors. While the current estimates assume a general improvement in the national economy, it also assumes that there will be some periods wherein it will be in lenders’ financial interest to sell loans in the ABCP Conduit to the Department. Because there is a chance conditions will be such that lenders will choose to fund these loans privately rather than sell them to the Department, a risk factor of 50 basis points has been added to the estimate. Claim Rejects. This risk factor takes into account the costs associated with the purchase of loans that would not typically qualify for the federal reinsurance coverage under the FFELP due to improper origination or servicing. The 12 basis point increase in cost is based on a historical rejected claim rate of 1 percent of volume, and assumes that these loans would have lower loss rates than the average portfolio. Operational Risk. This factor addresses risks that might result from servicing errors, technology failures, or fraud. The Department has made every effort to mitigate operational risk. Nonetheless, this analysis assumes a very conservative 100 basis point risk factor to reflect reduction in program cost to reflect this risk. This is consistent with the risk factor used for the original Participation and Purchase Programs. General Administrative Risk. The Department’s analysis of cost neutrality examined the Department’s current loan servicing contract and assumptions of borrower status over the life of the loan after purchase by the Department. The Department’s analysis assumed minimal start-up costs because the ABCP E:\FR\FM\15JAN1.SGM 15JAN1 2522 Federal Register / Vol. 74, No. 10 / Thursday, January 15, 2009 / Notices jlentini on PROD1PC65 with NOTICES Conduit Program builds on the current previously established programmatic infrastructure. In December 2008, the Department extended its current loan servicing contract for one year. This involved the renegotiation of payment rates for certain activities which may affect long-term servicing costs for the loans purchased under the original Purchase Program, the original Participation Program, the 2009–2010 Purchase Program, the 2009–2010 Participation Program, and the ABCP Conduit Program. Given the future uncertainty surrounding several factors, including the assumptions outlined in this notice and the status of loans ultimately purchased by the Department, it is possible that unforeseen additional costs may be incurred. Accordingly, a General Administrative Risk Factor of 100 basis points was added to the analysis. Portfolio Composition Risk. The cost to the Government of the ABCP Conduit Program depends on numerous factors, including loan size, default/prepayment risk, borrower benefits, and other characteristics of the purchased loans. The cost-neutrality analysis accounts for some of these factors, as outlined in this notice, but may not incorporate all of the dimensions of lender behavior and the loans ultimately purchased by the Department. Given this uncertainty, savings may deviate to some degree from the Department’s estimate of savings in the model. To ensure that the potential risk and the potential costs are adequately reflected, a Portfolio Composition Risk Factor of 100 basis points was added to the analysis. VerDate Nov<24>2008 18:58 Jan 14, 2009 Jkt 217001 The Department also considered a high operational risk scenario in which the cost assessment for operation risk was raised from 20 basis points to 80 basis points. Even with this increased assessment, the Department estimates that the 2009–2010 Purchase Program, the 2009–2010 Participation Program, and the ABCP Conduit Program remain cost-neutral. The Terms and Conditions for the 2009–2010 Purchase Program, the 2009–2010 Participation Program, and the ABCP Conduit Program seek to reduce the likelihood of lenders exclusively selling low-balance loans. Lenders will be required to sell all eligible loans they hold for a specific borrower into the ABCP Conduit, and the Conduit Manager would be required to select loans for any put to the Department in a manner that assures that the loans to be put are representative of the Conduit portfolio. These provisions make it less likely that lenders will choose to sell only poorlyperforming loans to the Department. Conclusion. After taking into account alternative market and lender behavior scenarios, the Administration determines that the 2009–2010 Purchase Program, the 2009–2010 Participation Program, and the ABCP Conduit Program are in the best interest of the United States and will result in no net cost to the Government. Applicable Program Regulations: 34 CFR part 682. Electronic Access to This Document You may view this document, as well as all other Department of Education documents published in the Federal PO 00000 Frm 00015 Fmt 4703 Sfmt 4703 Register, in text or Adobe Portable Document Format (PDF) on the Internet at the following site: http://www.ed.gov/ news/fedregister/index.html. To use PDF you must have Adobe Acrobat Reader, which is available free at this site. If you have questions about using PDF, call the U.S. Government Printing Office (GPO), toll free, at 1– 888–293–6498; or in the Washington, DC, area at (202) 512–1530. You may also view this document in PDF at the following site: http://www.ifap.ed.gov. You may obtain a copy of the Master Loan Sale Agreement and direction regarding submission of the Master Loan Sale Agreement and offers to sell loans at http://federalstudentaid.ed.gov/ffelp. Note: The official version of this document is the document published in the Federal Register. Free Internet access to the official edition of the Federal Register and the Code of Federal Regulations is available on GPO Access at: http://www.gpoaccess.gov/nara/ index.html. (Catalog of Federal Domestic Assistance Number 84.032 Federal Family Education Loan Program) Program Authority: 20 U.S.C. 1087i–1. Dated: January 9, 2009. Margaret Spellings, Secretary of Education. Dated: January 9, 2009. Henry M. Paulson, Jr., Secretary of the Treasury. Dated: January 9, 2009. Stephen S. McMillin, Deputy Director, Office of Management and Budget. BILLING CODE 4000–01–P E:\FR\FM\15JAN1.SGM 15JAN1 VerDate Nov<24>2008 18:58 Jan 14, 2009 Jkt 217001 PO 00000 Frm 00016 Fmt 4703 Sfmt 4725 E:\FR\FM\15JAN1.SGM 15JAN1 2523 EN15JA09.001</GPH> jlentini on PROD1PC65 with NOTICES Federal Register / Vol. 74, No. 10 / Thursday, January 15, 2009 / Notices VerDate Nov<24>2008 Federal Register / Vol. 74, No. 10 / Thursday, January 15, 2009 / Notices 18:58 Jan 14, 2009 Jkt 217001 PO 00000 Frm 00017 Fmt 4703 Sfmt 4725 E:\FR\FM\15JAN1.SGM 15JAN1 EN15JA09.002</GPH> jlentini on PROD1PC65 with NOTICES 2524 VerDate Nov<24>2008 18:58 Jan 14, 2009 Jkt 217001 PO 00000 Frm 00018 Fmt 4703 Sfmt 4725 E:\FR\FM\15JAN1.SGM 15JAN1 2525 EN15JA09.003</GPH> jlentini on PROD1PC65 with NOTICES Federal Register / Vol. 74, No. 10 / Thursday, January 15, 2009 / Notices VerDate Nov<24>2008 Federal Register / Vol. 74, No. 10 / Thursday, January 15, 2009 / Notices 18:58 Jan 14, 2009 Jkt 217001 PO 00000 Frm 00019 Fmt 4703 Sfmt 4725 E:\FR\FM\15JAN1.SGM 15JAN1 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E9–712 Filed 1–14–09; 8:45 am] BILLING CODE 4000–01–C DEPARTMENT OF EDUCATION National Institute on Disability and Rehabilitation Research—Notice of Proposed Long-Range Plan for Fiscal Years 2010–2014 Office of Special Education and Rehabilitative Services, Department of Education. ACTION: Notice of proposed long-range plan for fiscal years 2010–2014. jlentini on PROD1PC65 with NOTICES AGENCY: SUMMARY: The Assistant Secretary for Special Education and Rehabilitative Services proposes the National Institute on Disability and Rehabilitation Research’s (NIDRR’s) Long-Range Plan (Plan) for fiscal years 2010 through 2014. Pursuant to section 202(h)(1) of the Rehabilitation Act of 1973, as amended, the Department is required to develop a plan for NIDRR that outlines NIDRR’s priorities for rehabilitation research, demonstration projects, training, and related activities, and explains the basis for these priorities. DATES: We must receive your comments on or before March 16, 2009. ADDRESSES: Address all comments about the proposed Plan to Donna Nangle, U.S. Department of Education, 400 Maryland Avenue, SW., Room 6029, Potomac Center Plaza, Washington, DC 20202–2700. If you prefer to send your comments through the Internet, use the following address: NIDRRMailbox@ed.gov. You must include the term ‘‘LongRange Plan’’ in the subject line of your electronic message. FOR FURTHER INFORMATION CONTACT: Donna Nangle. Telephone: (202) 245– 7462 or by e-mail: donna.nangle@ed.gov. If you use a telecommunications device for the deaf (TDD), call the Federal Relay Service (FRS), toll free, at 1–800–877–8339. SUPPLEMENTARY INFORMATION: Invitation to Comment: We invite you to submit comments regarding the proposed Plan. To ensure that your comments have maximum effect in developing the final Plan, we urge you to identify clearly the specific area of the Plan that each comment addresses and to arrange your comments in the same order as the proposed Plan. During and after the comment period, you may inspect all public comments about the proposed Plan on our Web site, at: http://www.ed.gov/about/ offices/list/osers/nidrr/policy.html. VerDate Nov<24>2008 18:58 Jan 14, 2009 Jkt 217001 Assistance to Individuals With Disabilities in Reviewing the Record: On request we will provide an appropriate accommodation or auxiliary aid to an individual with a disability who needs assistance to review the comments or other documents in the public rulemaking record for this proposed Plan. If you want to schedule an appointment for this type of accommodation or auxiliary aid, please contact the person listed under FOR FURTHER INFORMATION CONTACT. Background: In developing the research agenda in the proposed Plan, NIDRR considered: the legislative mandate for the Plan; consumer goals (as documented, for example, in public input on preparation of this Plan received via e-mail, the Web, and in a national teleconference in response to a notice published in the Federal Register and an e-mail solicitation inviting comment on the Plan); and scientific advances documented through state of the science conferences and literature. The purposes of the proposed Plan are: (1) To describe the broad general principles that will guide NIDRR’s policies and use of resources; (2) To establish objectives for research and related activities from which annual research priorities can be formulated; and (3) To describe how NIDRR will operationalize the Plan, i.e., the process by which NIDRR establishes annual priorities. The authority for the Secretary to establish the Plan is contained in section 202(h) of the Rehabilitation Act of 1973, as amended (29 U.S.C. 762(h)). The proposed Plan is published as an attachment to this notice. Accessible Format: Individuals with disabilities can obtain this document in an accessible format (e.g., braille, large print, audiotape, or computer diskette) on request to the contact person listed under FOR FURTHER INFORMATION CONTACT. Electronic Access to This Document: You can view this document, as well as all other documents of this Department published in the Federal Register, in text or Adobe Portable Document Format (PDF) on the Internet at the following site: http://www.ed.gov/news/ fedregister. To use PDF you must have Adobe Acrobat Reader, which is available free at this site. If you have questions about using PDF, call the U.S. Government Printing Office (GPO), toll free, at 1– 888–293–6498; or in the Washington, DC, area at (202) 512–1530. Note: The official version of this document is the document published in the Federal PO 00000 Frm 00057 Fmt 4703 Sfmt 4703 Register. Free Internet access to the official edition of the Federal Register and the Code of Federal Regulations is available on GPO Access at: http://www.gpoaccess.gov/nara/ index.html. Dated: January 9, 2009. Tracy R. Justesen, Assistant Secretary for Special Education and Rehabilitative Services. National Institute on Disability and Rehabilitation Research: Long-Range Plan (Plan) for Fiscal Years (FYs) 2010– 2014 I. Introduction NIDRR’s mission is to support research and related activities to generate new knowledge and promote its effective use in order to improve the lives of individuals with disabilities and their opportunities for full participation in society. The Plan presents goals, objectives, and strategies for NIDRR research investments for FYs 2010 through 2014 that are aligned with this mission and that may be implemented through funding priorities. Statutory Mandate NIDRR was established by the 1978 amendments to the Rehabilitation Act of 1973, as amended (Act). As specified in section 200 of the Act (29 U.S.C. 760), NIDRR’s role is to: (a) Support research, demonstration projects, training, and related activities to maximize the full inclusion and integration into society, employment, independent living, family support, and economic and social selfsufficiency of individuals with disabilities of all ages; (b) provide for a comprehensive and coordinated approach to the support and conduct of research, demonstration projects, training, and related activities; (c) promote the transfer of rehabilitation technology; (d) ensure the widespread distribution of practical scientific and technological information; and (e) increase opportunities for researchers who are members of minority groups and researchers who are individuals with disabilities. NIDRR implements its statutory mandate by supporting research and development projects to generate new knowledge and products, along with supporting knowledge translation and capacity building activities. Research and development are supported through a variety of program mechanisms described later in this document. Knowledge translation is a process of ensuring that new knowledge and products gained through research and development will ultimately be used to improve the lives of individuals with disabilities and further their E:\FR\FM\15JAN1.SGM 15JAN1

Agencies

[Federal Register Volume 74, Number 10 (Thursday, January 15, 2009)]
[Notices]
[Pages 2518-2564]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-712]


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DEPARTMENT OF EDUCATION

DEPARTMENT OF THE TREASURY

OFFICE OF MANAGEMENT AND BUDGET


Federal Family Education Loan Program (FFELP)

AGENCY: Department of Education, Department of the Treasury, Office of 
Management and Budget.

ACTION: Notice of terms and conditions of additional purchase of loans 
under the Ensuring Continued Access to Student Loans Act of 2008.

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SUMMARY: Under the authority of section 459A of the Higher Education 
Act of 1965, as amended (``HEA''), as enacted by the Ensuring Continued 
Access to Student Loans Act of 2008 (Pub. L. 110-227) and amended by 
Public Law 110-315 and Public Law 110-350, the Department of Education 
(``Department'') may purchase, or enter into forward commitments to 
purchase, Federal Family Education Loan Program (``FFELP'') loans made 
under sections 428 (subsidized Stafford loans), 428B (PLUS loans), or 
428H (unsubsidized Stafford loans) of the HEA, on such terms as the 
Secretary of Education (``Secretary''), the Secretary of the Treasury, 
and the Director of the Office of Management and Budget (collectively, 
``Secretaries and Director'') jointly determine are ``in the best 
interest of the United States'' and ``shall not result in any net cost 
to the Federal Government (including the cost of servicing the loans 
purchased).''
    This notice establishes the terms and conditions that will govern 
certain loan purchases made under section 459A of the HEA, as extended 
by Public Law 110-350, including (a) purchases from an asset-backed 
commercial paper vehicle referred to as an ``ABCP Conduit'' or 
``Conduit'' (``ABCP Conduit Program'') and (b) replication for the 
2009-2010 academic year of the Loan Participation Purchase Program 
(``2009-2010 Participation Program'') and Loan Purchase Commitment 
Program (``2009-2010 Purchase Program'') (collectively, ``Programs'').
    This notice also outlines the Department's methodology and factors 
that have been considered in evaluating the price at which the 
Department will purchase these additional FFELP loans; and describes 
how the use of those factors and methodology will ensure that the 
additional loan purchases do not result in any net cost to the Federal 
Government. The Secretaries and Director concur in the publication of 
this notice and have jointly determined that, based on the Department's 
analysis, the purchase of additional loans as described in this notice 
is in the best interest of the United States and shall not result in 
any net cost to the Federal Government (including the cost of servicing 
the loans purchased).

DATES: Effective Date: The terms and conditions governing the purchase 
of loans under the 2009-2010 Participation Program and Purchase 
Program, and the ABCP Conduit Program are effective January 16, 2009.

FOR FURTHER INFORMATION CONTACT: U.S. Department of Education, Office 
of Federal Student Aid, Union Center Plaza, 830 First Street, NE., room 
111G3, Washington, DC 20202. Telephone: (202) 377-4401 or by e-mail: 
ffel.agreementprocess@ed.gov.

[[Page 2519]]

    If you use a telecommunications device for the deaf (TDD), call the 
Federal Relay Service (FRS), toll free, at 1-800-877-8339. Individuals 
with disabilities can obtain this document in an accessible format 
(e.g. , braille, large print, audiotape, or computer diskette) on 
request to the office listed under FOR FURTHER INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:

Introduction

    The Department's purchase of FFELP loans is intended primarily to 
ensure that students and parents continue to have access to FFELP loans 
for the remainder of the 2008-2009 academic year and for the 2009-2010 
academic year.
    The Department of Education first exercised its authority under 
section 459A of the HEA in July 2008, when the Secretaries and Director 
established the Participation Program and Purchase Program for eligible 
loans made for academic year 2008-2009.\1\
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    \1\ The Secretaries and Director announced the terms and 
conditions governing the Participation Program and the Purchase 
Program for academic year 2008-2009 in a notice published in the 
Federal Register on July 1, 2008 (73 FR 37422). Minor revisions to 
this notice were published in the Federal Register on July 17, 2008 
(73 FR 41048).
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    Under the Participation Program, the Department has purchased 
participation interests in eligible loans that are held by an eligible 
lender acting as a sponsor under a Master Participation Agreement. 
Under the Purchase Program, the Department has purchased eligible loans 
that are held by eligible lenders. To participate in either the 
Participation Program or the Purchase Program, a lender must enter into 
an agreement with the Department for that program.
    Subsequent to the announcements of the Purchase Program and 
Participation Program in July, the Secretary of Education concluded 
that additional action was necessary to ensure students and parents 
have access to FFELP for the remainder of the 2008-2009 academic year. 
Specifically, the Secretaries and Director acknowledged the possibility 
that some lenders would not be able to obtain capital to make second 
disbursements of 2008-2009 academic year FFELP loans even for the 
short-term necessary before lenders can utilize the ABCP Conduit 
Program. To provide needed liquidity to support new lending, the 
Department, through the Short-term Purchase Program announced in 
December 2008, extended the offer to purchase loans to include eligible 
loans made for the 2007-2008 academic year. The Department at that time 
gave notice that it would purchase such loans beginning on or about 
December 1, 2008 and would continue purchasing them through February 
28, 2009 or the date on which one or more conforming Asset-Backed 
Commercial Paper (ABCP) Conduits for purchasing FFELP loans become 
operational, whichever occurs earlier. Through the Short-term Purchase 
Program, the Department will expend up to $500 million to purchase 
eligible loans each week during this period, for a potential total 
aggregate amount of up to $6.5 billion.
    The Secretaries and the Director believe that, although capital 
markets have improved, lenders may continue to have difficulty in 
obtaining funding to make loan commitments for the upcoming academic 
year, or to make subsequent disbursements on loans, without a 
commitment from the Department to purchase those loans. To address this 
need, the Secretaries and the Director have concluded that the Purchase 
Program and the Participation Program should be replicated for the 
2009-2010 academic year. The Secretaries and the Director further 
conclude that the Department should enter into forward purchase 
commitments with one or more conforming ABCP Conduits that can purchase 
FFELP loans, and thereby provide additional liquidity to support new 
lending. An entity that wishes to establish an ABCP Conduit must submit 
such offers to the Department at http://www.federalstudentaid.ed.gov/
ffelp.

Terms and Conditions

    Pursuant to section 459A of the HEA, the Secretaries and Director 
establish the terms and conditions that will govern these additional 
purchase programs. The terms and conditions governing the replication 
of the Loan Purchase Program for academic year 2009-2010 (``2009-2010 
Loan Purchase Commitment Program Terms and Conditions'') are attached 
as Appendix A to this notice; those governing the replication of the 
Participation Program for academic year 2009-2010 (``2009-2010 Loan 
Participation Program Terms and Conditions'') are attached as Appendix 
B to this notice, and those governing the ABCP Conduit Program are 
attached as Appendix C to this notice.
    The 2009-2010 Purchase Program and 2009-2010 Participation Program 
will operate for the 2009-2010 academic year in substantially the same 
way as the Purchase Program and Participation Program did for the 2008-
2009 academic year.
    Under the ABCP Conduit Program, the Department will enter into 
forward purchase commitments to purchase FFELP loans (subsidized 
Stafford loans, unsubsidized Stafford loans, and PLUS loans) on which 
the lender made the first disbursement on or after October 1, 2003, but 
no later than June 30, 2009, fully disbursed no later than September 
30, 2009, and conveyed to the Conduit no later than June 30, 2010. The 
Department will not agree to purchase FFELP Consolidation loans under 
this program.
    In order to participate in the ABCP Conduit Program, a sponsoring 
entity must enter into a ``Put Agreement'' with the Department 
consistent with the terms and conditions stated in Appendix C. The Put 
Agreement will establish the nature of the relationship between the 
Department and the Conduit and Conduit Manager. The Department will 
agree to purchase loans from the Conduit upon demand as needed to 
support the issuance of commercial paper by the Conduit. The Conduit is 
expected to exercise the Put only after the Conduit has attempted to 
obtain funds to meet maturing commercial paper from other resources, 
including other financial institutions, and has either been unable to 
do so, or, if it has obtained such funding, is unable to issue new 
commercial paper sufficient to obtain funds to repay those borrowings.
    As explained in detail in Appendix C, the Department will agree to 
purchase loans at either 97 percent or 100 percent of the total of the 
outstanding principal balance plus accrued but unpaid interest as of 
the purchase date, depending on the characteristics of the loan. The 
Conduit may purchase loans as defined in the Put Agreement and the 
attached terms and conditions for the ABCP Conduit Program in Appendix 
C. Loans purchased by the Conduit must have been selected from the 
seller's portfolio in a manner that assures the sale to the Conduit of 
loans is fairly representative of the seller's total portfolio of 
conduit eligible loans. In addition, a lender that sells the Conduit a 
loan owed by a particular borrower must also sell the Conduit all other 
eligible loans it holds for that particular borrower.
    Under the 2009-2010 Purchase Program and 2009-2010 Participation 
Program, the Department will purchase loans or participation interests 
in loans that have ``eligible borrower benefits,'' which are borrower 
benefits previously deemed acceptable in the 2008-2009 programs 
(upfront fee reductions already consummated or interest reductions not 
exceeding .25 percent conditioned on borrower use of an automatic loan 
payment process).

[[Page 2520]]

However, under the ABCP Conduit Program, the Department will agree to 
purchase loans with a broader range of borrower benefits, as summarized 
in the terms and conditions for the ABCP Conduit Program in Appendix C 
to this notice. In addition, a list of those specific borrower benefits 
will be posted to the Department's Web site at http://
www.federalstudentaid.ed.gov/ffelp.
    While loans that have a direct payment to a borrower as a borrower 
benefit--rather than an interest or principal reduction--are eligible 
for inclusion in the Conduit, the Department will require the holder of 
the loan to make the payment to the borrower prior to sale to the 
Department, regardless of whether the borrower actually earned the 
benefit. The Department will also require the seller of the loan to 
establish a reserve for this purpose.

Outline of Methodology and Factors in Determining Prices for All 
Programs

    In accordance with Public Law No. 110-227, Public Law 110-315, and 
Public Law 110-350, the goal in structuring the 2009-2010 Purchase 
Program, the 2009-2010 Participation Program, and the ABCP Conduit 
Program is to maximize student loan availability while ensuring loan 
purchases result in no net cost to the Federal Government. The 
Secretaries and Director described the basis for determining the cost 
neutrality for the Purchase Program and Participation Program in the 
Federal Register notice published on July 1, 2008 (73 FR 37422). While 
this notice provides updated cost estimates, the methodology remains 
essentially the same for the 2009-2010 Purchase Program, the 2009-2010 
Participation Program, and the ABCP Conduit Program based on analysis 
of the Department of Education. This section of the notice responds in 
particular to the statutory requirement for an outline of the 
methodology and factors considered in evaluating the price at which 
loans may be purchased, and describes how the use of such methodology 
and consideration of such factors will ensure no net cost to the 
Federal Government results from the loan purchases for the 2009-2010 
Purchase Program, the 2009-2010 Participation Program, and the ABCP 
Conduit Program.
    Price: To determine the price at which FFELP loans would be 
purchased from the Conduit, the Secretary of Education considered 
several factors. These factors included the price that would ensure 
this program resulted in no net cost to the Federal Government; the 
increased liquidity that the rate would offer distressed lenders; 
borrower benefits; and other factors. Based on this analysis, the 
Secretary of Education determined that 100 percent of outstanding 
principal and accrued interest was the appropriate price for those 
loans first disbursed on or after May 1, 2008, with no borrower 
benefits or only ``eligible borrower benefits,'' and not more than 255 
days delinquent at the time of purchase, and 97 percent of principal 
and interest for any other loans. For the 2009-2010 Purchase Program 
and the 2009-2010 Participation Program, the Secretary of Education 
determined that the prices used for the 2008-2009 Programs remained the 
appropriate prices for 2009-2010. The Department will pay a purchase 
price for a loan for 2009-2010 of 100 percent of outstanding principal 
and interest plus one percent fee previously paid on the loan and 
$75.00. To purchase a participation interest in 2009-2010 loan, the 
Department will pay 100 percent of the amount of the outstanding 
principal (including any capitalized interest) of the loan at the time 
of purchase of the interest.

Analysis of Cost Neutrality

    The cost-neutrality analysis conducted solely by the Department of 
Education used, in part, credit subsidy cost estimation procedures 
established under the Federal Credit Reform Act of 1990 (Pub. L. No. 
101-508) and OMB Circular A-11. These procedures entail performing 
various analyses to project cash flows to and from the Government, 
excluding administrative costs. For changes to outstanding FFELP 
guaranteed loans, the analysis reflects the modification cost, or the 
difference between the estimate of the net present value of the 
remaining cash flows underlying the most recent President's Budget for 
such loan guarantees, and the estimate of the net present value of 
these cash flows after the purchase program, reflecting only the 
effects of the modification. For new loans, cash flows are discounted 
to the point of disbursement, using the Credit Subsidy Calculator 2 
(``OMB calculator''), developed by the Office of Management and Budget 
to estimate credit subsidy costs for all Federal credit programs, as 
the discounting tool. Costs for new loans can be expressed as subsidy 
rates that reflect the Federal costs associated with a loan; these 
costs are expressed as a percentage of the credit extended by the loan. 
For example, a subsidy rate of 10.0 percent indicates a Federal cost of 
$10 on a $100 loan.
    The metric to determine cost neutrality was that costs under the 
new programs should not exceed costs expected under the FFELP in the 
absence of these programs. All cost estimates were based on economic 
and technical assumptions developed for the FY 2009 President's Budget 
for the FFELP, updated to reflect the impact of statutory or 
administrative actions that have occurred since the budget was 
published in February 2008.
    Student loan cost estimates were developed to assess the Federal 
cost incurred for loans financed for each loan type. The analysis also 
considered risk factors particular to the 2009-2010 Purchase Program, 
the 2009-2010 Participation Program and the ABCP Conduit Program, such 
as the likelihood that lenders would sell only their least profitable 
loans.
    This discussion outlines the Department's analysis of the 2009-2010 
Purchase Program, the 2009-2010 Participation Program, and the ABCP 
Conduit Program with respect to the following critical aspects 
affecting the Federal cost:
     Administrative costs
     Borrower behavior
     Lender behavior
     Risk factors
    Administrative Costs. Federal administrative costs are normally not 
included in subsidy cost calculations. To capture the full cost of the 
2009-2010 Purchase Program, the 2009-2010 Participation Program, and 
the ABCP Conduit Program, however, section 459A of the HEA requires 
that the determination of cost neutrality reflect total costs, 
including Federal administrative costs subject to annual appropriation, 
and these costs were included in this analysis. Administrative cash 
flows primarily involve servicing costs associated with loans purchased 
by the Department. These costs can extend for up to 40 years, as 
servicing must continue until the last loan is paid in full. Under the 
base scenario for the 2009-2010 Participation and Purchase Programs, 
servicing costs would be $557 million on a present value basis. 
Servicing costs associated loans put to the Department from an ABCP 
Conduit, weighted across the three loan volume scenarios discussed 
below under ``Lender Behavior,'' would be $35 million on a net present 
value basis. The Department's estimates were developed using the price 
structure of the Department's servicing contract for put loans, with 
adjustments for start-up costs, inflation, and other costs.
    Borrower Behavior. Since the base FFELP serves as the foundation of 
the 2009-2010 Purchase Program, the 2009-2010 Participation Program, 
and the

[[Page 2521]]

ABCP Conduit Program, and the characteristics of the base program are 
unchanged, there is no reason to believe that the 2009-2010 Purchase 
Program, the 2009-2010 Participation Program, or the ABCP Conduit 
Program will affect borrower behavior. Thus, this cost analysis uses 
borrower behavior assumptions used to prepare the FY 2009 President's 
Budget to gauge the effect on program costs of borrower-based 
activities such as loan repayment, use of statutory benefits such as 
deferments and loan discharges, and default rates and timing. These 
assumptions are based on a wide range of data sources, including the 
National Student Loan Data System, the Department's operational and 
financial systems, and a group of surveys conducted by the National 
Center for Education Statistics such as the 2004 National Postsecondary 
Student Aid Survey, the 1994 National Education Longitudinal Study, and 
the 1996 Beginning Postsecondary Student Survey.
    Lender Behavior. A key factor in assessing whether the proposed 
programs would operate in a cost-neutral manner was lender behavior: 
specifically for the ABCP Conduit Program, how many ABCP Conduits would 
be created, and for the 2009-2010 Purchase Program and the 2009-2010 
Participation Program, how many lenders would participate in the 
program, including how many and what type of loans would they 
eventually choose to sell to the Department. The Department considered 
alternative scenarios of lender behavior to determine whether the 2009-
2010 Purchase Program, the 2009-2010 Participation Program, and ABCP 
Conduit Program could be considered cost-neutral under each. Because 
the ABCP Conduit Program would allow the Conduit Manager to sell loans 
with contingent borrower benefits--such as interest rate reductions for 
a specified number of on-time payments--all alternatives include an 
adjustment to reflect the impact of these potential reductions on 
future loan repayments. Consistent with stress tests applied by rating 
agencies in the private securitization market, this adjustment reduces 
the net cash flow to the Government by reducing the principal of sold 
loans by 0.5 percent a year.
    Based on an analysis of lender and probability data provided by the 
Treasury Department and the Department of Education's financial 
advisors, it was determined the most likely size of the ABCP Conduit 
Program was $25 billion. Within that total, three scenarios were used 
to assess the impact of different behavior by participating lenders. 
The first assumed the ABCP Conduit Program would be unsuccessful and 
100 percent of loans would be put to the Department on October 1, 2009; 
the likelihood of this scenario occurring was 2 percent. Under Scenario 
2, ongoing minor market disruptions were assumed to result in 20 
percent of loans being put, evenly distributed across the five-year 
life of the ABCP Conduit; this scenario had a likelihood of 10 percent. 
The third and most probable scenario, with an 88 percent likelihood, 
assumed that, at the end of the ABCP Conduit, not-for-profit lenders 
would put 75 percent of their volume and for-profit lenders would put 
10 percent of their volume. Scenarios 2 and 3 both also assume loans 
would be put upon becoming more than 210 days delinquent. Consolidated 
results were developed weighted by each scenario's relative 
probability.
    Two scenarios were examined for the 2009-2010 Participation 
Program, one under which lenders would put 100 percent of loans 
financed through the program at the end of 2010 and one under which 
lenders would put 50 percent of loans financed through participations 
and redeem the other 50 percent. For the latter scenario, the 
Department assumed a ``worst case'' in which lenders sold their 
smallest, least profitable loans. Because long-term loan servicing 
costs are generally charged on an account basis independent of loan 
size, small loans tend to be less profitable than larger loans. 
Considering the probability of the various scenarios, the Department 
determined that costs for the 2009-2010 Purchase Program, the 2009-2010 
Participation Program, and the ABCP Conduit Program were less expensive 
to the Government than baseline subsidy costs for FFELP loans. (Please 
see Tables in this notice for a summary of the analysis.)
    Risk Factors. Analyzing whether the 2009-2010 Purchase Program, the 
2009-2010 Participation Program, and the ABCP Conduit Program would 
operate in a cost-neutral manner requires that projected costs account 
for the presence of various risk factors that must be assumed since 
these programs will not operate entirely like the base FFELP, or 
without operational risk. As such, the Secretary of Education's 
estimates for the 2009-2010 Purchase and Participation Programs 
included the same adjustments included for the original 2008-2009 
programs. For the ABCP Conduit Program, the estimates include five risk 
factors: (1) That improvements in the national economy will reduce 
lenders' incentives to put loans for the ABCP Conduit; (2) that some of 
the loans purchased by the Department would be those on which the 
Department would reject a reinsurance claim under the FFELP (``claim 
rejects''); (3) that unforeseen problems undermine the Department's 
ability to effectively oversee and administer the ABCP Conduit Program 
(``operational risk''); (4) that costs related to servicing purchased 
loans do not fully reflect possible future requirements (``general 
administrative risk''); and (5) that the composition of loans 
ultimately sold to the Department may result in higher Federal costs 
than the composition assumed in this analysis (``portfolio composition 
risk'').
    To ensure cost estimates reflect a conservative assessment of 
possible Federal costs, the Secretary of Education added cost 
adjustments to incorporate each risk factor. The adjustments were based 
on an assessment of private-sector behavior and program data as 
follows:
    Economic Factors. While the current estimates assume a general 
improvement in the national economy, it also assumes that there will be 
some periods wherein it will be in lenders' financial interest to sell 
loans in the ABCP Conduit to the Department. Because there is a chance 
conditions will be such that lenders will choose to fund these loans 
privately rather than sell them to the Department, a risk factor of 50 
basis points has been added to the estimate.
    Claim Rejects. This risk factor takes into account the costs 
associated with the purchase of loans that would not typically qualify 
for the federal reinsurance coverage under the FFELP due to improper 
origination or servicing. The 12 basis point increase in cost is based 
on a historical rejected claim rate of 1 percent of volume, and assumes 
that these loans would have lower loss rates than the average 
portfolio.
    Operational Risk. This factor addresses risks that might result 
from servicing errors, technology failures, or fraud. The Department 
has made every effort to mitigate operational risk. Nonetheless, this 
analysis assumes a very conservative 100 basis point risk factor to 
reflect reduction in program cost to reflect this risk. This is 
consistent with the risk factor used for the original Participation and 
Purchase Programs.
    General Administrative Risk. The Department's analysis of cost 
neutrality examined the Department's current loan servicing contract 
and assumptions of borrower status over the life of the loan after 
purchase by the Department. The Department's analysis assumed minimal 
start-up costs because the ABCP

[[Page 2522]]

Conduit Program builds on the current previously established 
programmatic infrastructure. In December 2008, the Department extended 
its current loan servicing contract for one year. This involved the 
renegotiation of payment rates for certain activities which may affect 
long-term servicing costs for the loans purchased under the original 
Purchase Program, the original Participation Program, the 2009-2010 
Purchase Program, the 2009-2010 Participation Program, and the ABCP 
Conduit Program. Given the future uncertainty surrounding several 
factors, including the assumptions outlined in this notice and the 
status of loans ultimately purchased by the Department, it is possible 
that unforeseen additional costs may be incurred. Accordingly, a 
General Administrative Risk Factor of 100 basis points was added to the 
analysis.
    Portfolio Composition Risk. The cost to the Government of the ABCP 
Conduit Program depends on numerous factors, including loan size, 
default/prepayment risk, borrower benefits, and other characteristics 
of the purchased loans. The cost-neutrality analysis accounts for some 
of these factors, as outlined in this notice, but may not incorporate 
all of the dimensions of lender behavior and the loans ultimately 
purchased by the Department. Given this uncertainty, savings may 
deviate to some degree from the Department's estimate of savings in the 
model. To ensure that the potential risk and the potential costs are 
adequately reflected, a Portfolio Composition Risk Factor of 100 basis 
points was added to the analysis.
    The Department also considered a high operational risk scenario in 
which the cost assessment for operation risk was raised from 20 basis 
points to 80 basis points. Even with this increased assessment, the 
Department estimates that the 2009-2010 Purchase Program, the 2009-2010 
Participation Program, and the ABCP Conduit Program remain cost-
neutral. The Terms and Conditions for the 2009-2010 Purchase Program, 
the 2009-2010 Participation Program, and the ABCP Conduit Program seek 
to reduce the likelihood of lenders exclusively selling low-balance 
loans. Lenders will be required to sell all eligible loans they hold 
for a specific borrower into the ABCP Conduit, and the Conduit Manager 
would be required to select loans for any put to the Department in a 
manner that assures that the loans to be put are representative of the 
Conduit portfolio. These provisions make it less likely that lenders 
will choose to sell only poorly-performing loans to the Department.
    Conclusion. After taking into account alternative market and lender 
behavior scenarios, the Administration determines that the 2009-2010 
Purchase Program, the 2009-2010 Participation Program, and the ABCP 
Conduit Program are in the best interest of the United States and will 
result in no net cost to the Government.
    Applicable Program Regulations: 34 CFR part 682.

Electronic Access to This Document

    You may view this document, as well as all other Department of 
Education documents published in the Federal Register, in text or Adobe 
Portable Document Format (PDF) on the Internet at the following site: 
http://www.ed.gov/news/fedregister/index.html.
    To use PDF you must have Adobe Acrobat Reader, which is available 
free at this site. If you have questions about using PDF, call the U.S. 
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in 
the Washington, DC, area at (202) 512-1530. You may also view this 
document in PDF at the following site: http://www.ifap.ed.gov.
    You may obtain a copy of the Master Loan Sale Agreement and 
direction regarding submission of the Master Loan Sale Agreement and 
offers to sell loans at http://federalstudentaid.ed.gov/ffelp.

    Note: The official version of this document is the document 
published in the Federal Register. Free Internet access to the 
official edition of the Federal Register and the Code of Federal 
Regulations is available on GPO Access at: http://www.gpoaccess.gov/
nara/index.html.


(Catalog of Federal Domestic Assistance Number 84.032 Federal Family 
Education Loan Program)

    Program Authority: 20 U.S.C. 1087i-1.

    Dated: January 9, 2009.
Margaret Spellings,
Secretary of Education.
    Dated: January 9, 2009.
Henry M. Paulson, Jr.,
Secretary of the Treasury.
    Dated: January 9, 2009.
Stephen S. McMillin,
Deputy Director, Office of Management and Budget.
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[FR Doc. E9-712 Filed 1-14-09; 8:45 am]
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