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Liquidation Procedures for Institutions Ending Participation in the Federal Perkins Loan Program I. Notification An institution must notify the Department of Education (the Department) of its intent to liquidate its Federal Perkins Loan Fund by one of the following methods: * FISAP: An institution may notify the Department that it intends to liquidate its Loan Fund by checking the "yes" box in Part II, Section D of the FISAP. * Written Notification: An institution may notify the Department of its intent to liquidate by writing to the following address: Federal Perkins Loan Program Liquidation U. S. Department of Education Office of Postsecondary Education Perkins Portfolio Management Team P.O. Box 23781 Washington, D. C. 20026-0781 An institution’s written notification must include the names and telephone numbers of appropriate school officials should the Department need to contact the institution at any time during the liquidation process. An institution is responsible for providing the Department with the name and telephone number of any third-party servicer it contracts with for Federal Perkins Loan billing and collection activities, if applicable. II. Compliance Audit General Requirements: 34 CRF 668.26 of the Student Assistance General Provisions regulations requires an institution to submit a letter of engagement for an independent audit of all funds that the school received under the program to the Secretary within 45 days after the school’s participation ends. The results of the independent audit must be submitted to the Secretary within 45 days after the date of the engagement letter with the audit firm. Audit Requirements 1. A Title IV, Higher Education Act program compliance audit must be conducted in accordance with the provisions of 34 CRF 668.23- Compliance audits and audited financial statements of the Student Assistance General Provisions. 2. The audit shall cover the institution’s Federal Perkins Loan Program activities for the entire period of time since the institution’s preceding compliance audit. The audit shall also verify cash-on-hand, the Institutional Capital Contribution, the Federal Capital Contribution, and teacher cancellation data on Section A and all of the data on Section C of Part III of the institution’s most recent FISAP. Schools must adjust the most recent FISAP data as required by the compliance audit. 3. The program compliance audit must be submitted to the Department within 90 days of the end of the institution’s participation in the program. This time frame permits 45 days for the institution to engage an independent auditor and an additional 45 days for preparation and submission of the audit. This document and the institution’s corrective action plan must be submitted to the Document Receipt and Control Center, U. S. Department of Education, at the following address where it will be distributed to the appropriate Case Management Team: By U.S. Postal Service Delivery: U.S. Department of Education Institutional Participation and Oversight Service Case Management Division P.O. Box 44805 L’Enfant Plaza Station Washington, D.C. 20026-4805 By Commercial overnightmail/courier delivery: U.S. Department of Education Institutional Participation and Oversight Service Case Management Division 7th and D Streets, S.W. GSA Building, Room 3522 Washington, D.C. 20407 III. National Student Loan Data System (NSLDS) Reporting General Requirements: An institution must complete its NSLDS reporting requirements, in accordance with the instructions contained in Dear Colleague letter CB-94-20, if not already completed, in order for the Department to reconcile corresponding data on the FISAP and data on the status of defaulted loans and loans assigned to the Department. An institution must continue to report to NSLDS until its Federal Perkins Loans are accepted for assignment by the Department or purchased by the institution. * Contact: 1-800-999-8219 NSLDS Customer Service IV. Assignment Process General Requirements: When an institution liquidates its Federal Perkins Loan portfolio, it must assign the portfolio to the Department of Education. A completed ED Form 553 must accompany each outstanding Federal Perkins Loan or National Direct Student Loan (NDSL) (defaulted or non-defaulted) that the institution submits to the Department in accordance with current instructions for regular assignment of defaulted loans. Schools must inform servicers involved in billing or collection activities to return outstanding accounts to the school so that the school can begin the assignment process. By assigning these loans to the Department, the institution relinquishes entitlement to its share of all outstanding loans collected by the Department after assignment. Assignment of All Outstanding Loans to ED 1. At least 90 days before submission of loans for assignment to the Department, the institution must notify borrowers and its third party loan servicers that the institution intends to liquidate and assign all outstanding Federal Perkins Loans and National Direct Student Loans (NDSL). 2. Complete ED Form 553, in accordance with current instructions for regular assignment of defaulted loans found in Dear Colleague letters CB-95-13 and CB-95-14, for each outstanding defaulted or non-defaulted Federal Perkins Loan or NDSL. The institution must divide its non-defaulted Federal Perkins Loans and NDSLs into one of the following borrower categories: grace period, forbearance, deferment, enrolled and in attendance at the institution at time of liquidation, or in repayment. All available documents (original promissory notes, payment history, cancellation forms, deferment forms, etc.) specified in the assignment instruction booklet must accompany each Form 553 and be sent by registered mail to: US Department of Education Federal Perkins Loan/NDSL Assignment Processing Center PO Box 4136 Greenville, TX 75403-4169 3. For each Federal Perkins loan accepted for assignment, the institution must instruct the borrowers in repayment status to make checks payable to the U.S. Department of Education and mail payments to: U.S. Department of Education National Payment Center Post Office Box 4169 Greenville, TX 75403-4169 Borrowers must be instructed to put their social security numbers or other appropriate identifying information on their repayment checks, along with the designation "Perkins Loan" or "NDSL" in order to allow for the tracking of repayments received by the Department while the assignment process proceeds. 4. During the assignment process, the institution must report each loan as AE to NSLDS in accordance with NSLDS reporting requirements. Upon notification from ED that a loan has been accepted for assignment, the institution must stop reporting the loan to NSLDS. In order to facilitate the assignment process, institutions may obtain a list of all loans reported by the institution to NSLDS by calling the NSLDS Customer Service Line at 1-800/999-8219. 5. The institution relinquishes entitlement to its share of any amount collected by the Department after a loan is assigned to and accepted by the Department. 6. A loan will not be accepted for assignment if the promissory note is missing or unsigned or if proper due diligence has not been performed on the loan. For Federal Perkins Loans and NDSLs rejected for assignment, the Department will provide the school with instructions relating to the "cure" process. This process may enable a school to correct the deficiencies and resubmit the rejected loans. For more information on the cure process, please refer to Dear Colleague letters CB-95-14 and CB-95-13. 7. All accounts deemed unenforceable by the Department will be rejected for assignment and returned to the institution for purchase. Section 674.50(g) of the Federal Perkins Loan Program regulations requires that the institution reimburse the Fund for the entire portion of the outstanding balance on a loan assigned to the Department which is determined to be unenforceable because of an act or omission of that institution or its agent. Upon reimbursement to the Fund by the institution,the Secretary transfers all rights, title and interest of the United States in the loan to the institution for its own account. 8. For FISAP reporting purposes, reimbursements on unassignable loans made by the institution and deposited in the revolving fund are considered cash-on-hand and are reported in Part III, Section A on line l.l or l.2. The institution is reimbursed for its share of the balance on unenforceable loans when the final capital distribution of the institution’s revolving fund occurs. Note: Because the Federal Perkins Loan promissory note is a binding legal document, the borrower remains subject to the terms and conditions of a purchased loan and retains his/her entitlement to deferment and cancellation benefits. 9. After the Fund is reimbursed for any defaulted and non-defaulted loans that an institution has purchased, the institution must report these loans to NSLDS as "CA". Follow the instructions for assignment in Dear Colleague letters CB-95-13 and CB-95-14 carefully. Questions regarding the assignment process for Federal Perkins Loans and NDSLs should be addressed to Kathryn Griffin (202)708-8471 or Dana Johnson (202)708-6857 at the Department of Education’s Washington Service Center. V. Reconciliation The Department’s Perkins Portfolio Management Team will reconcile information submitted by the institution on the FISAP with data submitted to NSLDS and with data on file with the Department’s Washington Service Center to verify the accuracy of institutional data and to determine the value of the institution’s Federal Perkins Loan portfolio. VI. Final Capital Distribution The final capital distribution from an institution’s Federal Perkins Loan revolving fund must be made in accordance with Sec. 466(c) of the Higher Education Act of 1965, as amended (HEA). Sec. 466(c) of the HEA requires an institution to return the Federal share of an institution’s Federal Perkins Loan revolving fund to the Department. Because the required institutional match of FCC increased from one-ninth in the 1992-93 and prior award years, to three-seventeenths in the 1993-94 award year and, finally, to one-third in the 1994-95 award year, the Federal share of an institution’s revolving fund must be calculated using the "over-time" formula that follows: Final Capital distribution = ( net FCC )x Cash on Hand ( net FCC + net ICC) where: FCC = Federal Capital Contribution added to the fund by ED over period of time ICC = Institutional Capital Contribution added by the school over period of time Final capital distribution amounts calculated by the institution must be verified for accuracy by the Perkins Portfolio Management Team of the U.S. Department of Education. An institution must continue to file its FISAP annually until the liquidation process has been completed. |