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FEDERAL PERKINS LOAN LIQUIDATION PROCEDURES Procedures for Institutions Ending Participation in the Federal Perkins Loan Program Step 1. Notification Institutions must notify the Department of Education (the Department) of their intent to liquidate their Federal Perkins Loan Fund by one of the following methods: FISAP: Institutions may notify the Department that they intend to liquidate their Loan Funds by checking the “yes” box in Part II, Section B of the FISAP. Written Notification: Institutions may notify the Department of their intent to liquidate by sending a letter to: FAX: (202) 205-1919 or (202) 260-0522 Federal Perkins Loan Program Liquidation U. S. Department of Education Campus-Based Operations 1250 Maryland Avenue, SW Portals Building, Room 600 D Washington, DC 20202-5453 The written notification must include the names and telephone numbers of appropriate school officials should the Department need to contact the institution during the liquidation process. The institution is also responsible for providing the name and telephone number of any third-party servicer that it contracts with for Federal Perkins Loan billing and collection activities, if applicable. Step 2. Assignment Process General Requirements: When an institution liquidates its Federal Perkins Loan portfolio, it must assign the remaining loans with outstanding balances to the Department for collection. The institution must inform servicers involved in billing or collection activities to return outstanding accounts to the institution so that the institution can begin the assignment process. The institution must submit a completed ED Form 553 with each outstanding Perkins Loan or National Direct Student Loan (NDSL) in accordance with current instructions for regular assignment of defaulted loans. Please note that 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 the Department: The institution must: 1. Notify Borrowers: At least 90 days before submission of loans for assignment to the Department, the institution must notify borrowers and its third party servicer that the institution intends to liquidate and assign all outstanding Perkins and NDSL Loans. 2. Complete ED Form 553: For each outstanding defaulted or non-defaulted Perkins or NDSL Loan, the institution must complete ED Form 553 in accordance with the current instructions for regular assignment of defaulted loans found in Dear Colleague letters CB-98-13 and CB-98-14. These letters can be found on the http://www.ifap.ed.gov web site. 3. Separate Loans: The institution must divide its non-defaulted Perkins and NDSL Loans into one of the following borrower categories: grace period, forbearance, deferment, enrolled and in attendance at an institution at the time of liquidation, or in repayment. 4. Send Loans: The institution must include all available documents (original promissory notes, payment history, cancellation forms, deferment forms, etc.) specified in the assignment instruction booklet for ED Form 553 and send them by registered mail to: U. S. Department of Education Federal Perkins Loan/NDSL Assignment Post Office Box 4136 Greenville, TX 75403-4136 5. Instruct Borrowers: Once an institution submits a loan to the Department, the institution must instruct the borrowers in repayment status to: make checks payable to the “U. S. Department of Education;” put their social security numbers or other appropriate identifying information on their repayment checks, along with the designation “Perkins Loan” or “NDSL;” and mail payments to: U. S. Department of Education National Payment Center Post Office Box 4169 Greenville, TX 75403-4169 This will allow for the tracking of repayments received by the Department while the assignment process proceeds and ensure payments are properly credited after the loans are accepted for assignment. 6. Correct Rejected Loan Submissions: For Perkins or NDSL Loans rejected for assignment, the Department will provide the institution with instructions relating to the “cure” process. For most problems, this process may enable an institution to correct the deficiencies and resubmit the rejected loans. For more information on the cure process, please refer to Dear Colleague letters CB-98-13 and CB-98-14. 7. Purchase Loans: The Department will not accept a loan for assignment if the promissory note is missing or unsigned or if proper due diligence has not been performed on the loan. 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 plus any accrued interest on a loan the Department determined is unenforceable. Once a loan has been purchased, the Department transfers all rights, title and interest of the United States in the loan to the institution for its own account. 8. Abide by Terms and Conditions: Because the Federal Perkins Loan promissory note is a binding legal document, the borrower remains subject to the terms and conditions after purchase and retains his/her entitlement to deferment and cancellation benefits. 9. Report Purchased Loans: Reimbursements an institution makes on unassignable loans and deposits into the revolving fund are considered cash-on-hand and are reported on the FISAP in Part III, Section A on line 1.1 or 1.2. The institution will reclaim its share of the reimbursed amount when the final capital distribution occurs. (See Step 4. Final Capital Distribution.) The institution should also report the full purchase price, including interest, in Part III, Section C on line 1.2. 10. Keep In Mind: 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. 11. Contact For Assistance: Questions regarding the assignment process for Federal Perkins Loan and NDSLs should be addressed to (202) 708-4766 at the Department’s Washington Service Center. Step 3. 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. It must continue to report to NSLDS until all of its outstanding Federal Perkins Loans are fully retired, accepted for assignment by the Department, or purchased by the institution. Reporting of Assigned or Purchased Loans to NSLDS: 1. During Assignment: During the assignment process, the institution must report each loan as “AE” (Accepted for Assignment) to NSLDS in accordance with NSLDS reporting requirements. In order to facilitate the assignment process, institutions may obtain a list of all loans reported by the institution to NSLDS by calling NSLDS Customer Service Line at 1-(800) 999-8219. 2. Accepted for Assignment: Upon notification from the Department that a loan has been accepted for assignment, the institution must stop reporting the loan to NSLDS. 3. Purchased: 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” (Cancelled). Step 4. Final Capital Distribution General Requirements: The final capital distribution from an institution’s Federal Perkins Loan revolving fund must be made in accordance with Section 466(c) of the Higher Education Act of 1965, as amended (HEA). This Section requires an institution to return the federal share of an institution’s Federal Perkins Loan revolving fund to the Department when the amount in the Loan Fund exceeds what would be “required for loans or otherwise in the foreseeable future.” This passage of the HEA is applied to both excess liquid capital procedures for on-going institutions and liquidation procedures for institutions ending their participation in Perkins. Determining Share Distributions The required institutional match of FCC increased from one-ninth in the 1992-1993 and prior award years, to three-seventeenths in the 1993-1994 award year and, finally, to one-third in the 1994-1995 and subsequent award years. Because of these changes in the matching ratio, the federal share of an institution’s revolving fund must be calculated using the “over-time” formula that follows:
FCC = Federal Capital Contribution added to the fund by ED over period of time (Part III, Section A, line 19) net FCC = FCC minus repayments of fund capital to federal government (Part III, Section A, line 20) ICC = Institutional Capital Contribution added by institution over period of time (Part III, Section A, line 21) net ICC = ICC minus repayments of fund capital to institution (Part III, Section A, line 22) Example: 3,778,548 (line 19) – 89,377 (line 20) = 3,689,171 629,581 (line 21) – 178,490 (line 22) = 451,091 3,689,171 ------------------------- = .89 x 59,949 (line 1.1) = 53,355 (federal share) 3,689,171 + 451,091 Note: The Perkins Loan Program required a minimum 90/10 ratio between the federal and institutional shares for some 35 years. Consequently, most institutions will arrive at a figure that is between .85 and .90 using this formula. See the following enclosure entitled Instructions for Electronic Fund Transfers and Check Transmittals for the Federal Perkins Loan Program for information regarding returning the federal share to the Department. Step 5. Final Fiscal Operations Report An institution must continue to file its FISAP annually until it can report that (1) all outstanding loans have been fully retired, including those loans it purchased, or accepted for assignment by the Department and (2) the federal share of cash on hand has been returned to the Department. The “final” Perkins Loan Report must be submitted for the Fiscal Operations Report year during which the final activity occurred. This Report must show zero entries on lines 1.1 and 1.2 of Part III, Section A and entries on lines 20 and 22 of the same section that equal the amounts returned to the Department and reclaimed by the institution, respectively. In addition, the “final” Report must show zero entries on lines 3, 4, 5.1, 5.2, 5.3, and 5.4 of Section C and entries equal to the amounts pertaining to loans that have been fully retired (line 1.1), purchased (line 1.2), and/or assigned (line 2). Step 6. Compliance Audit General Requirements: 34 CFR 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 institution received under the program to the Secretary within 45 days after the institution’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, HEA program compliance audit must be conducted in accordance with the provisions of 34 CFR 668.23 – Compliance audits and audited financial statements of the Student Assistance General Provisions. 2. Timing: 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. However, the “end of the institution’s participation in the program” is at the discretion of the institution. Therefore, an institution may select an end of participation date that will coincide with the institution’s submission of its regular annual audit so that this requirement can be met during the institution’s normal audit process. 3. Coverage: 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. Specifically, the audit shall verify cash-on-hand, the Institutional Capital Contribution, the Federal Capital Contribution, and Service Cancellation data on Section A and all of the data on Section C of Part III of the institution’s final FISAP. The auditor must make a statement regarding the accuracy of the institution’s Perkins data in the report. Any findings regarding inaccurate data must be corrected by the institution. 4. SFA Audit Guide: The Department updated the SFA Audit Guide in 2000 with guidance for auditors regarding the Perkins liquidation audit requirement. The revised Guide can be found on the Office of Inspector General’s web site (http://www.ed.gov/offices/OIG/nonfed/index.html). Choose “SFA Audits” from the ED/OIG Non-Federal Audit Team Homepage and select “School/Servicer Audit Guide (2000).” 5. Audit Submission: The audit and the institution’s corrective action plan must be submitted to the Document Receipt and Control Center at the following address where it will be distributed to the appropriate Case Management Team: By U. S. Postal Service Delivery: By commercial overnight mail/courier delivery: U. S. Department of Education U. S. Department of Education P. O. Box 44805 7th and D Streets, SW L’Enfant Plaza Station Regional Office Building 3, Room 3522 Washington, DC 20026-4805 Washington, DC 20407 In addition, the institution must send a copy of the portion of the audit that pertains to the Perkins Loan Fund to the address or one of the fax numbers listed in Step 1. Step 7. Reconciliation and Approval In order to complete the liquidation process, the institution should send a letter to the address or one of the fax numbers listed in Step 1. The letter should state that the institution’s outstanding loans have been fully retired, purchased, or assigned; the federal share of the cash on hand has been returned; and the audit has been completed. Please provide an explanation of how the amount of the refund was calculation and include a copy of the refund check and the Perkins portion of the audit. The Department’s Campus-Based Operations will use the letter and its enclosures as a starting point to attempt a reconciliation of the information submitted by the institution on the FISAP with data on file with the Department’s Washington Service Center. We will also verify that the Department has received the federal share of the cash on hand and that it is the proper amount. Once the liquidation requirements have been satisfied, a letter of approval will be sent to the institution. |
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