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With respect to interest-only loans, as of the statistical disclosure date, there are 518 loans with an aggregate outstanding principal balance of $23,917,597 currently in an interest-only period.  These interest-only loans represent approximately 3.9% of the aggregate outstanding principal balance of the trust student loans.  Interest-only periods range up to 48 months in overall length.

The servicer may in the future offer repayment terms similar to those described above to borrowers of trust student loans who are not entitled to these repayment terms as of the statistical disclosure date.  If repayment terms are offered to and accepted by those borrowers, the weighted average life of the securities could be lengthened.

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The information shown for the Significant Guarantor relates to all student loans, including but not limited to trust student loans, guaranteed by the Significant Guarantor.

We obtained the following information from various sources, including from the Significant Guarantor and/or from the Department of Education.  None of the depositor, Navient CFC, the servicer, their affiliates or the remarketing agent has audited or independently verified this information for accuracy or completeness.

 

UNITED STUDENT AID FUNDS, INC.

 

United Student Aid Funds, Inc. (“USA Funds”) was organized as a private, nonprofit corporation under the General Corporation Law of the State of Delaware in 1960.  In accordance with its Certificate of Incorporation, USA Funds: (i) maintains facilities for the provision of guarantee services with respect to approved education loans made to or for the benefit of eligible students attending approved educational institutions; (ii) guaranteed education loans made pursuant to certain loan programs under the Higher Education Act, as well as loans made under certain private loan programs; and (iii) serves as the designated guarantor for education-loan programs under the Higher Education Act of 1965, as amended (“the Act”) in Arizona, Hawaii and certain Pacific Islands, Indiana, Kansas, Maryland, Mississippi, Nevada and Wyoming.

USA Funds contracts with Navient Solutions, LLC and Student Assistance Corporation. Student Assistance Corporation is a wholly owned subsidiary of Navient Solutions, LLC Navient Solutions, LLC and its subsidiaries are not sponsored by nor are they agencies of the United States of America.

USA Funds is the sole member of the Northwest Education Loan Association, a guarantor serving the states of Washington, Idaho and the Northwest.  USA Funds, Inc. became a member of Great Lakes Higher Education Corporation effective January 1, 2017.

For the purpose of providing loan guarantees under the Act, USA Funds has entered into various agreements (collectively, the “Federal Reinsurance Agreements”) with the U.S. Secretary of Education (the “Secretary”). Pursuant to the Federal Reinsurance Agreements, USA Funds serves as a “guaranty agency” as defined in Section 435(j) of the Act. The Act allows the Secretary, after giving the guaranty agency notice and the opportunity for a hearing, to terminate the Federal Reinsurance Agreements if the Secretary determines that the administrative or financial condition of the guaranty agency jeopardizes the agency’s continued ability to perform its responsibilities under its guaranty agreement, it is necessary to protect the federal financial interest, or to ensure the continued availability of loans to student- or parent- borrowers.

Reinsurance is paid to USA Funds by the Secretary in accordance with a formula based on the annual default rate of loans guaranteed by USA Funds under the Act and the disbursement date of loans. The rate of reinsurance ranges from 100 percent to 75 percent of USA Funds’

 

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losses on default-claim payments made to lenders. The Consolidated Appropriations Act of 2016 provided for 100 percent reinsurance on all FFEL Program claims purchased beginning December 2015 and beyond.  Prior to that, the Higher Education Amendments of 1998 (the “1998 Reauthorization Law”) reduced the reinsurance coverage for loans in default made on or after Oct. 1, 1998, to a range from 95 percent to 75 percent based upon the annual default claims rate of the guaranty agency. Reinsurance on non-default claims remains at 100 percent.

 

The 1998 Reauthorization Law requires guaranty agencies to establish two (2) separate funds, a federal reserve fund (property of the United States) and an agency operating fund (property of the guaranty agency). The federal reserve fund is to be used to pay lender claims and to pay a default-aversion fee to the agency operating fund. The agency operating fund is to be used by the guaranty agency to pay its operating expenses.

On March 30, 2010, President Obama signed into law the Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), which ended the origination and guarantee of new loans under the Federal Family Education Loan Program, effective for loans whose first disbursement was after June 30, 2010. As a result of the statute, USA Funds will continue to administer a portfolio of outstanding FFELP loans, but no longer may guarantee new federal student loans.

As of September 30, 2014, USA Funds held net assets on behalf of the federal reserve fund of approximately $157 million. Through September 30, 2014, the outstanding, unpaid, aggregate amount of principal and interest on loans that had been directly guaranteed by USA Funds under the Federal Family Education Loan Program was approximately $56.8 billion.  Also, as of September 30, 2014, USA Funds had operating fund assets totaling almost $1.3 billion, which includes the $157 million of net assets held on behalf of the Federal Reserve Fund.

USA Funds’ “reserve ratio” complies with the U.S. Department of Education definition, which is determined by dividing the fund balance reserves in a guarantor’s federal reserve fund, by the total amount of loans outstanding. Following this formula, the reserve ratio for the federal reserve fund administered by USA Funds for the last five fiscal years was as follows:

 

 

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USA Funds’ “loss rate” represents the percentage of claims purchased from lenders but not covered by reinsurance. For the last five fiscal years, the “loss rate” was as follows:

 

 

 

 

APPENDIX A

 

Federal Family Education Loan Program

 

On March 30, 2010, the President of the United States signed into law the Health Care and Education Reconciliation Act of 2010 (“HCERA”) which terminated the Federal Family Education Loan Program, known as the FFELP, under Title IV of the Higher Education Act (the “HEA”), as of July 1, 2010. This appendix presents an abbreviated summary of the FFELP prior to its termination date. The new law does not alter or affect the terms and conditions of existing FFELP loans made before July 1, 2010 or the credit support related thereto.

 

This appendix and the remarketing memorandum describe or summarize the material provisions of Title IV of the HEA, the FFELP and related statutes and regulations. They, however, are not complete and are qualified in their entirety by reference to each actual statute and regulation. Both the HEA and the related regulations have been the subject of extensive amendments over the years.  We cannot predict whether future amendments or modifications might materially change any of the programs described in this appendix or the statutes and regulations that implement them.

 

General

 

The FFELP provided for loans to students who were enrolled in eligible institutions, or to parents of dependent students, to finance their educational costs. Payment of principal and interest on the education loans and the holder of the loans are insured by a state or not-for-profit guaranty agency against:

 

·	default of the borrower;

 

·	the death, bankruptcy or permanent, total disability of the borrower;

 

·	closing of the borrower’s school prior to the end of the academic period;

 

·	false certification by the borrower’s school of his eligibility for the loan; and

 

·	an unpaid school refund.

 

Claims are paid from federal assets, known as “federal student loan reserve funds,” which are maintained and administered by state and not-for-profit guaranty agencies.  In addition, the holders of education loans are entitled to receive interest subsidy payments and special allowance payments from the United States Department of Education (which we refer to as the Department of Education) on eligible student loans.

 

Special allowance payments raise the yield to education loan lenders when the statutory borrower interest rate is below an indexed market value.  Subject to certain conditions, a program of federal reinsurance under the HEA entitles guaranty agencies to reimbursement from the Department of Education for between 75% and 100% of the amount of each guaranty payment.

 

Four types of student loans were authorized under the HEA:

 

·	Subsidized Stafford Loans to students who demonstrate requisite financial need;

 

·	Unsubsidized Stafford Loans to students who either did not demonstrate financial need or require additional loans to supplement their Subsidized Stafford Loans;

 

·	Parent Loans for Undergraduate Students, known as “PLUS Loans,” to parents of dependent students whose estimated costs of attending school exceed other available financial aid; and

 

·	Consolidation Loans, which consolidate into a single loan a borrower’s obligations under various federally authorized education loan programs.

 

Before July 1, 1994, the HEA also authorized loans called “Supplemental Loans to Students” or “SLS Loans” to independent students and, under some circumstances, dependent graduate students, to supplement their Subsidized Stafford Loans. The Unsubsidized Stafford Loan program replaced the SLS program.

 

Legislative Matters

 

The federal education loan programs are subject to frequent statutory and regulatory changes. The most significant change to the FFELP was with the enactment of the HCERA, which terminated the FFELP as of July 1, 2010.

 

On December 23, 2011, the President signed the Consolidated Appropriations Act of 2012 into law. This law includes changes that permit FFELP lenders or beneficial holders to move the applicable index on which the special allowance payments are calculated for FFELP loans first disbursed on or after January 1, 2000.  The law allows owners of FFELP loans to elect to move the index from the three-month commercial paper rate to the one-month LIBOR index.  Such elections must be made by April 1, 2012.  Unless otherwise stated in the original prospectus, such election was made with respect to the related trust student loans underlying your notes.

 

Eligible Lenders, Students and Educational Institutions

 

Lenders who were eligible to make loans under the FFELP generally included banks, savings and loan associations, credit unions, pension funds and, under some conditions, schools and guaranty agencies.  FFELP loans were made to, or on behalf of, a “qualified student.” A “qualified student” is an individual who

 

·	is a United States citizen, national or permanent resident;

 

·	has been accepted for enrollment or is enrolled and is maintaining satisfactory academic progress at a participating educational institution; and

 

·	is carrying at least one-half of the normal full-time academic workload for the course of study the student is pursuing.

 

Eligible schools include institutions of higher education, including proprietary institutions, meeting the standards provided in the HEA. For a school to participate in the program, the Department of Education must approve its eligibility under standards established by regulation.

 

Financial Need Analysis

 

Subject to program limits and conditions, education loans generally were made in amounts sufficient to cover the student’s estimated costs of attending school, including tuition and fees, books, supplies, room and board, transportation and miscellaneous personal expenses as determined by the institution.  Generally, each loan applicant (and parents in the case of a dependent child) underwent a financial need analysis.

 

Special Allowance Payments

 

The HEA provides for quarterly special allowance payments to be made by the Department of Education to holders of education loans to the extent necessary to ensure that they receive at least specified market interest rates of return.  The rates for special allowance payments depend on formulas that vary according to the type of loan, the date the loan was made and the type of funds, tax-exempt or taxable, used to finance the loan.

 

The special allowance payment equals the average unpaid principal balance, including interest which has been capitalized, of all eligible loans held by a holder during the quarterly period multiplied by the special allowance percentage.

 

For student loans disbursed before January 1, 2000, the special allowance percentage is computed by:

 

(1)	determining the average of the bond equivalent rates of 91-day Treasury bills auctioned for that quarter;

 

(2)	subtracting the applicable borrower interest rate;

 

(3)	adding the applicable special allowance margin described in the table below; and

 

(4)	dividing the resultant percentage by 4.

 

If the result is negative, the special allowance payment is zero.

 

For student loans disbursed after January 1, 2000, the special allowance percentage is computed by:

 

(1)	determining the average of the bond equivalent rates of 3-month commercial paper (financial) rates or one-month London Inter-Bank Offered Rates (LIBOR), as applicable, quoted for that quarter;

 

(2)	subtracting the applicable borrower interest rate;

 

(3)	adding the applicable special allowance margin described in the table below; and

 

(4)	dividing the resultant percentage by 4.

 

If the result is negative, the special allowance payment is zero.

 

For student loans disbursed on or after April 1, 2006, lenders are required to pay the Department of Education any interest paid by borrowers on student loans that exceeds the special allowance support levels applicable to such loans.

 

Special allowance payments are available on variable rate PLUS Loans and SLS Loans only if the variable rate, which is reset annually, exceeds the applicable maximum borrower rate. The variable rate is based on the weekly average one-year constant maturity Treasury yield for loans made before July 1, 1998 and based on the 91-day Treasury bill for loans made on or after July 1, 1998.  The maximum borrower rate for these loans is between 9% and 12%. Effective July 1, 2006, this limitation on special allowance payments for PLUS Loans made on and after January 1, 2000 was repealed.

 

Fees

 

Origination Fee.  An origination fee must be paid to the Department of Education for all Stafford and PLUS Loans originated in the FFELP. An origination fee is not paid on a Consolidation Loan. A 3% origination fee must be deducted from the amount of each PLUS Loan.

 

An origination fee may be, but is not required to be, deducted from the amount of a Stafford Loan according to the following table:

 

Federal Default Fee. A federal default fee up to 1% (previously called an insurance premium) may be, but is not required to be, deducted from the amount of a Stafford or PLUS Loan. A federal default fee is not deducted from the amount of a Consolidation Loan.

 

Lender Loan Fee.  A lender loan fee is paid to the Department of Education on the amount of each loan disbursement of all FFELP loans. For loans disbursed from October 1, 1993 to September 30, 2007, the fee was 0.50% of the loan amount. The fee increased to 1% of the loan amount for loans disbursed on or after October 1, 2007.

 

Loan Rebate Fee.  A loan rebate fee of 1.05% is paid annually on the unpaid principal and interest of each Consolidation Loan disbursed on or after October 1, 1993. This fee was reduced to 0.62% for loans made from October 1, 1998 to January 31, 1999.

 

Stafford Loan Program

 

For Stafford Loans, the HEA provided for:

 

·	federal reimbursement of Stafford Loans made by eligible lenders to qualified students;

 

·	federal interest subsidy payments on Subsidized Stafford Loans paid by the Department of Education to holders of the loans in lieu of the borrowers’ making interest payments during in-school, grace and deferment periods; and

 

·	special allowance payments representing an additional subsidy paid by the Department of Education to the holders of eligible Stafford Loans.

 

We refer to all three types of assistance as “federal assistance”.

 

Interest.  The borrower’s interest rate on a Stafford Loan can be fixed or variable. Stafford Loan interest rates are presented below.

 

Trigger Date		Borrower Rate		Maximum Borrower Rate		Interest Rate Margin
From 07/01/88 through 09/30/92		8% for 48 months; thereafter, 91-day Treasury + Interest Rate Margin		8% for 48 months, then 10%		3.25% for loans made before 7/23/92 and for loans made on or before 10/1/92 to new student borrowers; 3.10% for loans made after 7/23/92 and before 7/1/94 to borrowers with outstanding FFELP loans
From 10/01/92 through 06/30/94		91-day Treasury + Interest Rate Margin		9%		3.10%
From 07/01/94 through 06/30/95		91-day Treasury + Interest Rate Margin		8.25%		3.10%
From 07/01/95 through 06/30/98		91-day Treasury + Interest Rate Margin		8.25%		2.50% (In-School, Grace or Deferment); 3.10% (Repayment)
From 07/01/98 through 06/30/06		91-day Treasury + Interest Rate Margin		8.25%		1.70% (In-School, Grace or Deferment); 2.30% (Repayment)
From 07/01/06 through 06/30/08		6.8%		N/A		N/A
From 07/01/08 through 06/30/09		6.0% for undergraduate subsidized loans; and 6.8% for unsubsidized loans and graduate subsidized loans		6.0%, 6.8%		N/A
From 07/01/09 through 06/30/10		5.6% for undergraduate subsidized loans; and 6.8% for unsubsidized loans and graduate loans		5.6%, 6.8%		N/A

 

 

The rate for variable rate Stafford Loans applicable for any 12-month period beginning on July 1 and ending on June 30 is determined on the preceding June 1 and is equal to the lesser of:

 

·	the applicable maximum borrower rate

 

and

 

·	the sum of

 

·	the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held before that June 1,

 

and

 

·	the applicable interest rate margin.

 

Interest Subsidy Payments.  The Department of Education is responsible for paying interest on Subsidized Stafford Loans:

 

·	while the borrower is a qualified student,

 

·	during the grace period, and

 

·	during prescribed deferment periods.

 

The Department of Education makes quarterly interest subsidy payments to the owner of a Subsidized Stafford Loan in an amount equal to the interest that accrues on the unpaid balance of that loan before repayment begins or during any deferral periods. The HEA provides that the owner of an eligible Subsidized Stafford Loan has a contractual right against the United States to receive interest subsidy and special allowance payments. However, receipt of interest subsidy and special allowance payments is conditioned on compliance with the requirements of the HEA, including the following:

 

·	satisfaction of need criteria, and

 

·	continued eligibility of the loan for federal insurance or reinsurance.

 

If the loan is not held by an eligible lender in accordance with the requirements of the Higher Education Act and the applicable guarantee agreement, the loan may lose its eligibility for federal assistance.

 

Lenders generally receive interest subsidy payments within 45 days to 60 days after the submission of the applicable data for any given calendar quarter to the Department of Education. However, there can be no assurance that payments will, in fact, be received from the Department of Education within that period.

 

Loan Limits.  The HEA generally requires that lenders disburse student loans in at least two equal disbursements.  The HEA limits the amount a student can borrow in any academic year. The following chart shows current and historic loan limits.

 

 

For the purposes of the table above:

·	The loan limits include both FFELP and Federal Direct Lending Program (FDLP) loans.

 

·

The amounts in the final column represent the combined maximum loan amount per year for Subsidized and Unsubsidized Stafford Loans. Accordingly, the maximum amount that a student may borrow under an Unsubsidized Stafford Loan is the difference between the combined maximum loan amount and the amount the student received in the form of a Subsidized Stafford Loan.

 

·

Independent undergraduate students, graduate students and professional students may borrow the additional amounts shown in the third and fourth columns. Dependent undergraduate students may also receive these additional loan amounts if their parents are unable to provide the family contribution amount and cannot qualify for a PLUS Loan.

 

·	Students attending certain medical schools are eligible for $38,500 annually and $189,000 in the aggregate.

 

·	The annual loan limits are sometimes reduced when the student is enrolled in a program of less than one academic year or has less than a full academic year remaining in his program.

 

Repayment.  Repayment of principal on a Stafford Loan does not begin while the borrower remains a qualified student, but only after a 6-month grace period. In general, each loan must be scheduled for repayment over a period of not more than 10 years after repayment begins. New borrowers on or after October 7, 1998 who accumulate FFELP loans totaling more than $30,000 in principal and unpaid interest are entitled to extend repayment for up to 25 years, subject to minimum repayment amounts. Consolidation Loan borrowers may be scheduled for repayment up to 30 years depending on the borrower’s indebtedness. Outlined in the table below are the maximum repayment periods available based on the outstanding FFELP indebtedness.

 

In addition to the outstanding FFELP indebtedness requirements described above, the HEA currently requires minimum annual payments of $600, unless the borrower and the lender agree to lower payments, except that negative amortization is not allowed.  The HEA and related regulations require lenders to offer a choice among standard, graduated, income-sensitive and extended repayment schedules, if applicable, to all borrowers entering repayment.  The 2007 legislation introduced an income-based repayment plan on July 1, 2009 that a student borrower may elect during a period of partial financial hardship and have annual payments that do not

exceed 15% of the amount by which adjusted gross income exceeds 150% of the poverty line.  The Secretary repays or cancels any outstanding principal and interest under certain criteria after 25 years.

 

Grace Periods, Deferral Periods and Forbearance Periods.  After the borrower stops pursuing at least a half-time course of study, he generally must begin to repay principal of a Stafford Loan following the grace period.  However, no principal repayments need be made, subject to some conditions, during deferment and forbearance periods.

 

For borrowers whose first loans are disbursed on or after July 1, 1993, repayment of principal may be deferred while the borrower returns to school at least half-time.  Additional deferrals are available, when the borrower is:

 

·	enrolled in an approved graduate fellowship program or rehabilitation program;

 

·	seeking, but unable to find, full-time employment, subject to a maximum deferment of three years; or

 

·	having an economic hardship, as defined in the HEA, subject to a maximum deferment of three years; or

 

·

serving on active duty during a war or other military operation or national emergency, or performing qualifying National Guard duty during a war or other military operation or national emergency, subject to a maximum deferral period of three years, and effective July 1, 2006 on loans made on or after July 1, 2001.

 

The HEA also permits, and in some cases requires, “forbearance” periods from loan collection in some circumstances. Interest that accrues during a forbearance period is never subsidized.  When a borrower ends forbearance and enters repayment, the account is considered current.  When a borrower exits grace, deferment or forbearance, any interest that has not been subsidized is generally capitalized and added to the outstanding principal amount.

 

PLUS and SLS Loan Programs

 

The HEA authorized PLUS Loans to be made to parents of eligible dependent students and graduate and professional students and previously authorized SLS Loans to be made to the categories of students now served by the Unsubsidized Stafford Loan program. Borrowers who have no adverse credit history or who are able to secure an endorser without an adverse credit history are eligible for PLUS Loans, as well as some borrowers with extenuating circumstances. The basic provisions applicable to PLUS and SLS Loans are similar to those of Stafford Loans for federal insurance and reinsurance. However, interest subsidy payments are not available under the PLUS and SLS programs and, in some instances, special allowance payments are more restricted.

 

Loan Limits.  PLUS and SLS Loans disbursed before July 1, 1993 were limited to $4,000 per academic year with a maximum aggregate amount of $20,000. The annual loan limits for SLS Loans disbursed on or after July 1, 1993 range from $4,000 for first and second year

undergraduate borrowers to $10,000 for graduate borrowers, with a maximum aggregate amount of $23,000 for undergraduate borrowers and $73,000 for graduate and professional borrowers.

 

The annual and aggregate amounts of PLUS Loans first disbursed on or after July 1, 1993 are limited only to the difference between the cost of the student’s education and other financial aid received, including scholarship, grants and other student loans.

 

Interest.  The interest rates for PLUS Loans and SLS Loans are presented in the chart below.

 

For PLUS or SLS Loans that bear interest based on a variable rate, the rate is set annually for 12-month periods, from July 1 through June 30, on the preceding June 1 and is equal to the lesser of:

 

·	the applicable maximum borrower rate

 

and

 

·	the sum of:

 

·	the applicable 1-year Index or the bond equivalent rate of 91-day Treasury bills, as applicable,

 

and

 

·	the applicable interest rate margin.

 

Under current law, PLUS Loans with a first disbursement on or after July 1, 2006 will return to a fixed annual interest rate of 8.5%.

 

Until July 1, 2001, the 1-year index was the bond equivalent rate of 52-week Treasury bills auctioned at the final auction held prior to each June 1. Beginning July 1, 2001, the 1-year index is the weekly average 1-year constant maturity Treasury, as published by the Board of Governors of the Federal Reserve System, for the last calendar week ending on or before the June 26 immediately preceding the July 1 reset date.

 

A holder of a PLUS or SLS Loan is eligible to receive special allowance payments during any quarter if:

 

·	the borrower rate is set at the maximum borrower rate and

 

·	the sum of the average of the bond equivalent rates of 91-day Treasury bills auctioned during that quarter and the applicable interest rate margin exceeds the maximum borrower rate.

 

Effective July 1, 2006, this limitation on special allowance payments for PLUS Loans made on or after January 1, 2000 was repealed.

 

Repayment; Deferments.  Borrowers begin to repay principal on their PLUS and SLS Loans no later than 60 days after the final disbursement, unless they use deferment available for the in-school period and the six-month post enrollment period. Deferment and forbearance provisions, maximum loan repayment periods, repayment plans and minimum payment amounts for PLUS and SLS loans are generally the same as those for Stafford Loans.

 

 

The enactment of HCERA ended new originations under the FFELP consolidation program, effective July 1, 2010.  Previously, the HEA authorized a program under which borrowers could consolidate one or more of their education loans into a single FFELP Consolidation Loan that was insured and reinsured on a basis similar to Stafford and PLUS Loans.  Consolidation Loans were made in an amount sufficient to pay outstanding principal, unpaid interest, late charges and collection costs on all federally reinsured education loans incurred under the FFELP that the borrower selects for consolidation, as well as loans made under various other federal student loan programs and loans made by different lenders.  In general, a borrower’s eligibility to consolidate its federal education loans ends upon receipt of a Consolidation Loan.  With the end of new FFELP originations, borrowers with multiple loans, including FFELP loans, may only consolidate their loans under the FDLP.

 

Consolidation Loans made on or after July 1, 1994 have no minimum loan amount.  Consolidation Loans for which an application was received on or after January 1, 1993 but before July 1, 1994 were available only to borrowers who had aggregate outstanding student loan balances of at least $7,500.  For applications received before January 1, 1993, Consolidation Loans were available only to borrowers who had aggregate outstanding student loan balances of at least $5,000.

 

To obtain a FFELP Consolidation Loan, the borrower must be either in repayment status or in a grace period before repayment begins.  For applications received on or after January 1, 1993, delinquent or defaulted borrowers are eligible to obtain Consolidation Loans if they re-enter repayment through loan consolidation.  Prior to July 1, 2006, married couples who agreed to be jointly and severally liable could apply for one Consolidation Loan.  In some cases, borrowers may enter repayment status while still in school and thereby become eligible to obtain a Consolidation Loan.

 

Consolidation Loans bear interest at a fixed rate equal to the greater of the weighted average of the interest rates on the unpaid principal balances of the consolidated loans and 9% for loans originated before July 1, 1994.  For Consolidation Loans made on or after July 1, 1994 and for which applications were received before November 13, 1997, the weighted average

interest rate is rounded up to the nearest whole percent.  Consolidation Loans made on or after July 1, 1994 for which applications were received on or after November 13, 1997 through September 30, 1998 bear interest at the annual variable rate applicable to Stafford Loans subject to a cap of 8.25%.  Consolidation Loans for which the application is received on or after October 1, 1998 bear interest at a fixed rate equal to the lesser of (i) the weighted average interest rate of the loans being consolidated rounded up to the nearest one-eighth of one percent or (ii) 8.25%.

 

The 1998 reauthorization maintained interest rates for borrowers of Federal Direct Consolidation Loans whose applications were received prior to February 1, 1999 at 7.46%, which rates are adjusted annually based on a formula equal to the 91-day Treasury bill rate plus 2.3%.  The borrower interest rates on Federal Direct Consolidation Loans for borrowers whose applications were received on or after February 1, 1999 and before July 1, 2006 is a fixed rate equal to the lesser of the weighted average of the interest rates of the loans consolidated, adjusted up to the nearest one-eighth of one percent, and 8.25%.  This is the same rate that the 1998 legislation set on FFELP Consolidation Loans for borrowers whose applications are received on or after October 1, 1998 and before July 1, 2006.  The 1998 legislation, as modified by the 1999 act and in 2002, set the special allowance payment rate for FFELP Consolidation Loans at the three-month commercial paper (financial) rate plus 2.64% for loans disbursed on or after January 1, 2000 and before July 1, 2006.  Public Law 112-74, dated December 23, 2011, allows FFELP lenders to make an election to permanently change the index for special allowance payment calculations on all FFELP loans in the lender’s portfolio (with certain exceptions) disbursed after January 1, 2000 from the three-month commercial paper (financial) rate to the one-month LIBOR index, commencing with the special allowance payment calculations for the calendar quarter beginning on April 1, 2012.  Lenders of FFELP Consolidation Loans pay a reinsurance fee to the U.S. Department of Education.  All other guarantee fees may be passed on to the borrower.

 

Interest on Consolidation Loans accrues and, for applications received before January 1, 1993, is paid without interest subsidy by the Department of Education.  For Consolidation Loans for which applications were received between January 1, 1993 and August 10, 1993, all interest of the borrower is paid during all deferment periods.  Consolidation Loans for which applications were received on or after August 10, 1993 are subsidized only if all of the underlying loans being consolidated were Subsidized Stafford Loans.  In the case of Consolidation Loans made on or after November 13, 1997, the portion of a Consolidation Loan that is comprised of Subsidized Stafford Loans retains subsidy benefits during deferment periods.

 

No insurance premium is charged to a borrower or a lender in connection with a Consolidation Loan.  However, FFELP lenders must pay an origination fee to the Department of Education of 0.50% on principal of Consolidation Loans disbursed and a monthly rebate fee to the Department of Education at an annualized rate of 1.05% on principal of and interest on Consolidation Loans disbursed on or after October 1, 1993, or at an annualized rate of 0.62% for Consolidation Loan applications received between October 1, 1998 and January 31, 1999.  The rate for special allowance payments for Consolidation Loans is determined in the same manner as for other FFELP loans.

 

A borrower must begin to repay his Consolidation Loan within 60 days after his consolidated loans have been disbursed.  For applications received on or after January 1, 1993,

repayment schedule options include graduated or income-sensitive repayment plans.  Loans are repaid over periods determined by the sum of the Consolidation Loan and the amount of the borrower’s other eligible student loans outstanding.  The lender may, at its option, include graduated and income-sensitive repayment plans in connection with student loans for which the applications were received before that date.  The maximum maturity schedule is 30 years for indebtedness of $60,000 or more.

 

Guaranty Agencies under the FFELP

 

Under the FFELP, guaranty agencies guarantee loans made by eligible lending institutions, paying claims from “federal education loan reserve funds.” These loans are insured as to 100% of principal and accrued interest against death or discharge.  The guarantor also pays 100% of the unpaid principal and accrued interest on PLUS Loans, where the student on whose behalf the loan was borrowed dies.

 

FFELP loans are also insured against default, with the percent insured dependent on the date of the related loan’s disbursement.  For loans made prior to October 1, 1993, lenders are insured against default for 100% of principal and accrued interest.  For loans disbursed from October 1, 1993 through June 30, 2006, lenders are insured against default for 98% of principal and accrued interest.  For loans disbursed on or after July 1, 2006, lenders are insured against default for 97% of principal and accrued interest.

 

The Department of Education reinsures guarantors for amounts paid to lenders on FFELP loans that are discharged or defaulted.  Under the HEA, the guaranty agencies by way of guaranty agreements entered in to with the Department of Education are, subject to conditions, deemed to have a contractual right against the United States during the life of the loan to receive reimbursement for these amounts.  The reimbursement rate on discharged loans is for 100% of the amount paid to the holder.  The reimbursement rate for defaulted loans decreases as a guarantor’s default rate increases.  The first trigger for a lower reinsurance rate is when the amount of defaulted loan reimbursements exceeds 5% of the amount of all loans guaranteed by the agency in repayment status at the beginning of the federal fiscal year.  The second trigger is when the amount of defaults exceeds 9% of the loans in repayment.  Guaranty agency reinsurance rates are presented in the table below.

 

After the Department of Education reimburses a guaranty agency for a default claim, the guaranty agency attempts to collect the loan from the borrower.  However, the Department of Education requires that the defaulted guaranteed loans be assigned to it when the guaranty agency is not successful.  A guaranty agency also refers defaulted loans to the Department of Education to “offset” any federal income tax refunds or other federal reimbursement that may be due the borrowers.  Some states have similar offset programs.

 

To be eligible for federal reinsurance, FFELP loans must meet the requirements of the HEA and the regulations issued thereunder.  Generally, these regulations require that lenders

determine whether the applicant is an eligible borrower attending an eligible institution, explain to borrowers their responsibilities under the loan, ensure that the promissory notes evidencing the loan are executed by the borrower, and disburse the loan proceeds as required.  After the loan is made, the lender must establish repayment terms with the borrower, properly administer deferrals and forbearances, credit the borrower for payments made, and report the loan’s status to credit reporting agencies.  If a borrower becomes delinquent in repaying a loan, a lender must perform collection procedures that vary depending upon the length of time a loan is delinquent.  The collection procedures consist of telephone calls, demand letters, skiptracing procedures and requesting assistance from the guaranty agency.

 

A lender may submit a default claim to the guaranty agency after the related student loan has been delinquent for at least 270 days.  The guaranty agency must review and pay the claim within 90 days after the lender filed it.  The guaranty agency will pay the lender interest accrued on the loan for up to 450 days after delinquency.  The guaranty agency must file a reimbursement claim with the Secretary within 30 days after the guaranty agency paid the lender for the default claim.  Following payment of claims, the guaranty agency endeavors to collect the loan.  Guaranty agencies also must meet statutory and regulatory requirements for collecting loans.

 

If the Department of Education determines that a guaranty agency is unable to meet its insurance obligations, the holders of loans insured by that guaranty agency may submit claims directly to the Department of Education and the Department of Education is required to pay the full reimbursements amounts due, in accordance with claim processing standards no more stringent than those applied by the affected guaranty agency. However, the Department of Education’s obligation to pay reimbursement amounts directly in this fashion is contingent upon the Department of Education determining a guaranty agency is unable to meet its obligations. While there have been situations where the Department of Education has made such determinations regarding affected guaranty agencies, there can be no assurances as to whether the Department of Education must make such determinations in the future or whether payments of reimbursement amounts would be made in a timely manner.

 

Education Loan Discharges

 

FFELP loans are not generally dischargeable in bankruptcy.  Under the United States Bankruptcy Code, before an education loan may be discharged, the borrower must demonstrate that repaying it would cause the borrower or his family undue hardship.  When a FFELP borrower files for bankruptcy, collection of the loan is suspended during the time of the proceeding.  If the borrower files under the “wage earner” provisions of the United States Bankruptcy Code or files a petition for discharge on the grounds of undue hardship, then the lender transfers the loan to the guaranty agency which guaranteed that loan and that agency then participates in the bankruptcy proceeding.  When the proceeding is complete, unless there was a finding of undue hardship, the loan is transferred back to the lender and collection resumes.

 

Education loans are discharged if the borrower dies or becomes totally and permanently disabled.

 

If a school closes while a student is enrolled, or within 120 days after the student withdrew, loans made for that enrollment period are discharged.  If a school falsely certifies that a borrower is eligible for the loan, the loan may be discharged.  And if a school fails to make a refund to which a student is entitled, the loan is discharged to the extent of the unpaid refund.  Effective July 1, 2006, a loan is also eligible for discharge if it is determined that the borrower’s eligibility for the loan was falsely certified as a result of a crime of identity theft.

 

Rehabilitation of Defaulted Loans

 

The Department of Education is authorized to enter into agreements with a guaranty agency under which such guaranty agency may sell defaulted loans that are eligible for rehabilitation to an eligible lender.  For a loan to be eligible for rehabilitation the related guaranty agency must have received reasonable and affordable payments originally for 12 months which was reduced to 9 payments in 10 months effective July 1, 2006, and then the borrower may request that the loan be rehabilitated.  Because monthly payments are usually greater after rehabilitation, not all borrowers opt for rehabilitation.  Upon rehabilitation, a borrower is again eligible for all the benefits under the HEA for which he or she is not eligible as a borrower on a defaulted loan, such as new federal aid, and the negative credit record is expunged.  No education loan is eligible to be rehabilitated more than once.

 

The July 1, 2009 technical corrections made to the HEA under H.R. 1777, Public Law 111-39 provide authority, between July 1, 2009 through September 30, 2011, for a guaranty agency to assign a defaulted loan to the Department of Education depending on market conditions.

 

The Bipartisan Budget Act of 2013 reduced the charge that a guarantor may assess to a borrower to defray the collection cost for assisting a borrower with the rehabilitation of a defaulted FFELP loan. The change was effective for loans sold by a guarantor to an eligible lender on and after July 1, 2014.

 

Guarantor Funding

 

In addition to administering the federal reserve funds, from which claims are paid, guaranty agencies are charged with responsibility for maintaining records on all loans which they have insured (“account maintenance”), assisting lenders to prevent default by delinquent borrowers (“default aversion”), post-default loan administration and collections and program awareness and oversight.  These activities are funded by revenues from the following statutorily prescribed sources plus earnings on investments.

 

 

Source		Basis
Default Aversion Fee		1% of the outstanding amount of loans submitted by a lender for default aversion assistance, minus 1% of the unpaid principal and interest paid on default claims, which is paid once per loan by transfers out of the Student Loan Reserve Fund
Collection Retention Fee		16% of the amount collected on loans on which reinsurance has been paid (10% or 18.5% of the amount collected for a defaulted loan that is purchased by a lender for consolidation or rehabilitation, respectively), withheld from gross receipts

 

The HEA requires guaranty agencies to establish two funds: a Federal Student Loan Reserve Fund and an Agency Operating Fund.  The Federal Student Loan Reserve Fund contains the payments received from the Department of Education and insurance premiums.  The fund is federal property and its assets may be used only to pay Default Aversion Fees.  Collection fees on defaulted loans are deposited into the Agency Operating Fund.  The Agency Operating Fund is the guaranty agency’s property and is not subject to strict limitations on its use.

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