SAFRA Act Payments to Loan Servicers for Job Retention

ACTION:

Interim final requirements; request for comments.

SUMMARY:

The U.S. Secretary of Education (Secretary) establishes requirements to implement section 458(a)(7) of the Higher Education Act of 1965, as amended (HEA), as added by section 2212(b)(1) of the SAFRA Act, title II of the Health Care and Education Reconciliation Act of 2010 (SAFRA). Under this provision of the law, the Secretary provides payments to student loan servicers in Federal fiscal year (FY) 2010 and FY 2011 for retaining jobs at locations in the United States where such servicers were operating under title IV, part B of the HEA (the Federal Family Education Loan Program) on January 1, 2010.

As discussed in more detail elsewhere in these interim final requirements, the Department adopts these requirements for FY 2010 on an interim final basis. We also request public comment on these requirements. After consideration of these comments, the Secretary will publish final requirements that will govern the program for FY 2011.

DATES:

These requirements are effective July 7, 2010. We must receive your comments by August 6, 2010.

ADDRESSES:

Submit your comments through the Federal eRulemaking Portal or via postal mail, commercial delivery, or hand delivery. We will not accept comments by fax or by e-mail. Please submit your comments only one time, in order to ensure that we do not receive duplicate copies. In addition, please include the Docket ID at the top of your comments.

• Federal eRulemaking Portal: Go to http://www.regulations.gov to submit your comments electronically. Information on using Regulations.gov, including instructions for accessing agency documents, submitting comments, and viewing the docket, is available on the site under “How To Use This Site.”
• Postal Mail, Commercial Delivery, or Hand Delivery: If you mail or deliver your comments about these interim final requirements, address them to Donald Conner, 1990 K Street, NW., Room 8030, Washington, DC 20006.

Privacy Note:

The Department's policy for comments received from members of the public (including those comments submitted by mail, commercial delivery, or hand delivery) is to make these submissions available for public viewing in their entirety on the Federal eRulemaking Portal at http://www.regulations.gov. Therefore, commenters should be careful to include in their comments only information that they wish to make publicly available on the Internet.

FOR FURTHER INFORMATION CONTACT:

Donald Conner, Telephone: 202-502-7818 or by e-mail: Donald.conner@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.

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.

SUPPLEMENTARY INFORMATION:

Invitation To Comment

We invite you to submit comments regarding these interim final requirements. To ensure that your comments have maximum effect in developing the requirements for FY 2011 for this program, we urge you to identify clearly the specific section or sections of the interim final requirements that each of your comments addresses and to arrange your comments in the same order as in the interim final requirements.

We invite you to assist us in complying with the specific requirements of Executive Order 12866 and its overall requirement of reducing regulatory burden that might result from these interim final requirements. Please let us know of any further opportunities we should take to reduce potential costs or increase potential benefits while preserving the effective and efficient administration of the program.

During and after the comment period, you may inspect all public comments about these interim final requirements by accessing Regulations.gov. You may also inspect the comments, in person, in room 8031, 1990 K Street, NW., Washington, DC, between the hours of 8:30 a.m. and 4 p.m., Washington, DC time, Monday through Friday of each week except Federal holidays.

Assistance to Individuals With Disabilities in Reviewing the Rulemaking 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 these interim final requirements. 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

On March 30, 2010, the President signed into law the Health Care and Education Reconciliation Act of 2010, Public Law 111-152, title II of which is the SAFRA Act. SAFRA made a number of changes to the Federal student financial aid programs under title IV of the HEA. One of the most significant changes made by SAFRA is to end new loans under the Federal Family Education Loan (FFEL) Program authorized by title IV, part B of the HEA as of July 1, 2010. Beginning July 1, 2010, borrowers will receive any Stafford, PLUS, and Consolidation loans made under the William D. Ford Federal Direct Loan Program. In connection with the termination of the FFEL Program, SAFRA amended the HEA to require the Secretary to provide payments to loan servicers for retaining jobs at locations in the United States where such servicers were operating under the FFEL Program on January 1, 2010. SAFRA authorized and appropriated $25,000,000 for each of FY 2010 and FY 2011 for the Department to make these payments.

For FY 2010, the Secretary will allocate funds directly to loan servicers actively engaged in servicing FFEL loans in the United States as of January 1, 2010. Eligible entities may apply for funding in accordance with the procedures included in these interim final requirements, for each location at which it operated on January 1, 2010. The Secretary will allocate the payments among eligible applicants based on the servicer's relative annualized payroll of employees engaged in FFEL loan origination activities at each location in the United States where it was servicing loans as of January 1, 2010, weighted by the local unemployment rate of the county or county equivalent in which the facility is located.

For FY 2011 the Secretary will use, subject to consideration of public comments received on these interim final requirements, the same approach as that for FY 2010 but will also take into account the status of the servicer's job retention efforts since the enactment of SAFRA.

Note:

To ensure consideration of an application for funding under this program, a complete, signed application and all required information must be received by the Department on or before August 6, 2010. Instructions for completing and submitting the application are in the application package, which can be obtained by contacting Donald Conner, 202-502-7818, or by e-mail: Donald.conner@ed.gov; or by going to http://www.ed.gov/programs/safra/index.html.

Waiver of Rulemaking and Delayed Effective Date

Under the Administrative Procedure Act (APA) (5 U.S.C. 553), the Department is generally required to publish a notice of proposed rulemaking and provide the public with an opportunity to comment on proposed regulations prior to establishing a final rule. However, we are waiving the notice-and-comment rulemaking requirements under the APA. Section 553(b) of the APA provides that an agency is not required to conduct notice-and-comment rulemaking when the agency for good cause finds that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest. Although these requirements are subject to the APA's notice-and-comment requirements, the Secretary has determined that it would be impracticable and contrary to the public interest to conduct notice-and-comment rulemaking.

These interim final requirements are needed to ensure timely allocation of funds to loan servicers to meet the intent of the law. The Secretary is required to award these funds by September 30, 2010. Even on an extremely expedited timeline, the Department believes that it would be impracticable for it to conduct notice-and-comment rulemaking and to promulgate final requirements in time for FY 2010 funds to be distributed in accordance with section 458(a)(7) of the HEA by that deadline. More specifically, the Department will need to provide potential applicants with 30 days to submit their applications, and the Department's review of the applications will take approximately 20 days. Upon conclusion of that review and the initial selection of applicants for funding, the selected applicants will require 15 days to submit their revised plans, and the Department will then need 15 days to prepare its final funding list and make awards by September 30, 2010. It simply would not be possible for the Department to solicit and respond to public comments, establish final requirements, and then conduct the competition for funding in the short amount of time remaining before September 30, 2010.

Accordingly, the Secretary is issuing these interim final requirements without first publishing proposed requirements for public comment.

Although the Department is adopting these requirements on an interim final basis, the Department requests public comment on these requirements so that any modifications, if necessary, can be made for implementation of the program in FY 2011. After consideration of public comments, the Secretary will publish final requirements.

The APA also requires that a substantive rule be published at least 30 days before its effective date, except as otherwise provided for good cause (5 U.S.C. 553(d)(3)). For the reasons outlined in the preceding paragraphs, the Secretary has determined that a delayed effective date for these interim final requirements would be unnecessary and contrary to the public interest, and that good cause exists to waive the requirement for a delayed effective date. As such, these requirements are effective on the date they are published.

Summary of the Interim Final Requirements

These interim final requirements include the following provisions, which we have determined are necessary to implement section 458(a)(7) of the HEA:

• Application process and eligibility requirements. This notice describes the application process requirements for eligible entities to receive funds for FY 2010 and FY 2011. Applicants need not be recipients of FY 2010 funds to be eligible to apply for FY 2011 funds.
• Definitions. This notice establishes definitions for key terms used for this program, including adjusted eligible payroll, domestic employees, eligible employees, eligible entity, eligible payroll, local unemployment rate, review period, servicing FFEL loans, and total payroll.
• Allowable Use of Funds. This notice describes the types of activities for which grantees can use funds awarded under this program.
• Content of application requirements. This notice describes the information, including a job retention plan, that eligible entities must include in their applications.
• Reporting requirements and required deadlines. This notice describes the annual reporting requirements on the use of funds and the deadlines for the reports.
• Funding allocation formulas for FY 2010 and FY 2011. This notice describes the allocation formula to be used for the distribution of funds for both FY 2010 and FY 2011; however, the requirements for FY 2011 may be amended in response to the request for public comments in this notice.

Interim Final Requirements

Process

Any entity submitting an application for a payment under section 458(a)(7) of the HEA must be an eligible entity (as defined in this notice). Applicants that submit an application, including a plan to use FY 2010 funds that meets the requirements set forth in this notice, and that have an eligible payroll, will be notified by the Department of the actual amount of funds they will receive for FY 2010. After receiving this notification, but before the Department disburses funds to the applicant, the applicant must submit to the Secretary an updated plan that describes how the applicant will use the funds to preserve jobs; this updated plan must be based on the actual amount of funding the applicant will receive.

Applicants need not be recipients of FY 2010 funds to be eligible to apply for FY 2011 funds.

Only eligible entities submitting complete applications by the application deadline will be considered for funding. Any funds received and not used in accordance with the Allowable Use of Funds requirement established in this notice must be returned to the Secretary.

Definitions: For purposes of this program, we are establishing the following definitions:

Adjusted Eligible Payroll: For each location, the adjusted eligible payroll is the payroll amount determined by applying the unemployment adjustment formula (described in these requirements) to the eligible payroll for that location.

Domestic Employees: The eligible entity's employees, but not contractors, working for a location in a State as defined by section 103(20) of the HEA.

Eligible Employees: The eligible entity's domestic employees, employed by the eligible entity as of March 31, 2010, who spent more than 50 percent of their time during the review period working for one of the eligible entity's locations to market, evaluate, authorize, or recommend approval of FFEL Program loans.

Eligible Entity: Any company or organization that was engaged in servicing FFEL loans on January 1, 2010, and that submits a complete application by the deadline established by the Secretary.

Eligible Payroll: The total annual contribution and benefit base, as defined by 42 U.S.C. 430, for all eligible employees at each location.

Local Unemployment Rate: The unemployment rate of the county or county equivalent in which a facility is located for the 12-month period ending on March 31, 2010. For purposes of this definition, the Secretary will use current local area unemployment statistics for counties and county equivalents compiled by the U.S. Bureau of Labor Statistics, rounded to the nearest one-tenth of one percent: http://www.bls.gov/lau.

Review Period: For the purposes of determining total payroll for FY 2010 funds, the one-year period ending on March 31, 2010, the date of enactment of the SAFRA Act, used to calculate the number of eligible employees. For the purposes of determining total payroll for FY 2011 funds, the one-year period ending on March 31, 2011.

Servicing FFEL Loans: Providing collection, origination, deferment processing, and borrower contact services to a lender in connection with FFEL Loans.

Total Payroll: The total annual contribution and benefit base as defined by 42 U.S.C. 430, for all domestic employees at each location during the review period.

Requirements

Allowable Use of Funds: Eligible entities must use funds awarded under this program for either or both of the following:

(a) Job training and related services to permit current employees, whose employment status has been negatively affected by SAFRA, to maintain employment with the eligible entity.

(b) Job training and related services that lead laid-off eligible employees to a position at another entity.

Content of Application: Eligible entities that apply to the Secretary for funding under this program must include, as part of their application, a job retention plan. That job retention plan must include, for each location for which the applicant is requesting funds:

(a) A viable business plan describing how the applicant plans to continue the employment of employees who might otherwise lose their jobs due to the termination of new originations in the FFEL Program;

(b) The address of each facility in each location for which the applicant is requesting payment;

(c) For each location, the number of total employees and total payroll and the number of eligible employees and eligible payroll; and

(d) A budget and timeline outlining how the applicant will use the funds in accordance with this program's Allowable Use of Funds requirement (described in this notice).

Reporting Requirements: Each recipient of funds under this program must submit a report to the Secretary for each year funds are received.

Content of Report. The report must include—

(a) An accounting of how all funds were used at each location;

(b) A description of all activities funded at each location; and

(c) A description and analysis of the effect of the use of those funds on job retention of eligible employees.

Deadlines. Eligible entities that receive FY 2010 funds under this program, but that will not apply for FY 2011 funds, must submit the report to the Secretary no later than one year from the receipt of funds for FY 2010.

Eligible entities that receive funds for FY 2010 and that will apply for FY 2011 funds under this program must submit the required report prior to the application deadline for FY 2011 funding.

Eligible entities that receive funds under this program for FY 2011 must submit a report regarding those funds to the Secretary no later than one year from the date of receipt of FY 2011 funds.

Funding Allocation Formula—FY 2010

General. To determine the amount of funding to be disbursed to eligible entities under this program, the Secretary will calculate the adjusted eligible payroll for each location of each eligible entity as a proportion of the total adjusted eligible payroll for all locations across all eligible entities. The Secretary will then distribute the $25 million available based on those proportions.

Calculating Adjusted Eligible Payroll. For each location of an eligible entity, the Secretary will adjust the location's eligible payroll by applying a formula that takes into consideration the local unemployment rate for the location.

Unemployment Adjustment Formula. The Secretary will apply a sliding scale formula based on the difference (D) between the Local Unemployment Rate (L) for each location and the national historical unemployment rate for 1948-2009 (N), which is used to compute an adjustment multiplier (M).

N = 5.8

D = L-N

If D < 2, then M = 1

If D >= 2, then M = D/2

Adjusted eligible payroll for each location is calculated by multiplying the location's eligible payroll by the adjustment multiplier (M).

The following chart contains six examples of the application of the unemployment adjustment formula:

Funding Allocation Formula—FY 2011

For FY 2011, funds will be distributed according to the Funding Allocation Formula—FY 2010, except that the Secretary will also consider the facility's job retention performance. Specifically, to determine the facility's job retention performance, the Secretary will adjust each eligible entity's eligible payroll for FY 2011 to take into account any decrease in total payroll for each of the eligible entity's domestic U.S. locations on a dollar-for-dollar basis. The Secretary will adjust an entity's eligible payroll only when there is a decrease in total payroll; no adjustments will otherwise be made.

Example:

At one location, an entity's eligible payroll before being adjusted for unemployment was $15,000,000 and the total payroll for the applicant at the same time was $100,000,000. If by the time the entity applies for FY 2011 funds, its total payroll at that location decreases by $5,000,000 to $95,000,000, then its eligible payroll at that one location, before being adjusted for unemployment, decreases by $5,000,000 to $10,000,000. After these new eligible payroll amounts are determined and then adjusted for unemployment for all of the eligible entity's locations, proportions will be determined and the $25,000,000 for 2011 will be divided among eligible entities' locations accordingly.

Executive Order 12866

Under Executive Order 12866, the Secretary must determine whether a regulatory action is “significant” and therefore subject to the requirements of the Executive order and subject to review by the Office of Management and Budget (OMB). Section 3(f) of Executive Order 12866 defines a “significant regulatory action” as an action likely to result in a rule that may (1) have an annual effect on the economy of $100 million or more, or adversely affect a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or Tribal governments or communities in a material way (also referred to as an “economically significant” rule); (2) create serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impacts of entitlement grants, user fees, or local programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive order. The Secretary has determined that this regulatory action is not significant under section 3(f) of the Executive order.

Potential Costs and Benefits

Under Executive Order 12866, we have assessed the potential costs and benefits of this regulatory action and have determined that this rule will not impose additional costs to State applicants, grantees, or the Federal government. The Department is issuing these requirements to implement a new legislative provision resulting from the enactment of the SAFRA Act. Additionally, the Department has determined that this regulatory action does not unduly interfere with State, local, and Tribal governments in the exercise of their governmental functions.

Regulatory Flexibility Act Certification

The Secretary certifies that these interim final requirements will not have a significant economic impact on a substantial number of small entities. The U.S. Small Business Administration Size Standards define for-profit servicers as “small businesses” if they are independently owned and operated and not dominant in their field of operation with total annual revenue below $7,000,000. Other servicers would be considered small if they are a nonprofit servicer independently owned and operated and not dominant in their field of operation, or if they are institutions controlled by governmental entities with populations below 50,000. The Department estimates that approximately thirty-seven servicers will apply. Of this group, approximately fifteen are expected to be for-profit servicers, none of which are expected to fall below the $7,000,000 revenue threshold for small business status. Approximately twenty-two non-profit or public servicers could apply. Even if we assume all servicers are considered to be small entities, the rule does not impose significant costs.

The Secretary makes this certification because the rule offers servicers the opportunity to apply for payments for job retention, but does not mandate participation or impose cost-matching requirements. Even if all thirty-seven servicers expected to apply are assumed to be small entities, the estimated cost to apply for funds, update their job retention plans, and submit the required reports is approximately $723 per institution. An hourly rate of $21.60 was used to monetize the burden of these provisions. This was a blended rate based on wages of $18.82 for office staff and $37.37 for managers, assuming that office staff would perform 85 percent of the work affected by these regulations. The Secretary invites comments from small institutions and other affected entities as to whether they believe the proposed changes would have a significant economic impact on them and, if so, requests evidence to support that belief.

Paperwork Reduction Act of 1995

The interim final requirements contain information collection requirements. Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), the Department of Education has submitted a copy of these requirements to the Office of Management and Budget (OMB) for its review.

Collection of Information: SAFRA Act Payments to Loan Servicers for Job Retention.

I. Application and Initial Plan

Any entity submitting an application for a payment under section 458(a)(7) of the HEA must be an eligible entity (as defined in this notice). Applicants that submit an application, including a plan to use FY 2010 funds that meets the requirements set forth in this notice, and that have an eligible payroll, will be notified by the Department of the actual amount of funds they will receive for FY 2010. We estimate that 37 servicers would submit an application, including a plan describing how they would use FY 2010 funds in accordance with the requirements in this notice. We estimate that each application would take an applicant 1 hour to complete, totaling 37 hours of new burden that would be included for approval under OMB Control Number 1840-0815. We estimate that development of each plan would take, on average, 14 hours for a total of 518 hours of new burden that would be included for approval under OMB Control Number 1840-0815. Collectively, the total estimated burden for servicers to complete an application for these job retention funds, including developing their initial plans describing how the applicants would use funds, would be 555 hours of new burden under OMB Control Number 1840-0815.

II. Updated Plan

After the Department notifies the applicant, but before the Department disburses funds to the applicant, the applicant must submit to the Secretary an updated plan that describes how the applicant will use the funds to preserve jobs; this updated plan must be based on the actual amount of funding the applicant will receive, as indicated in the notification provided by the Department. We estimate that each of the projected 37 applicants would take an additional 7 hours to update their plans for final submission to the Secretary for a total of 259 hours of new burden under OMB Control Number 1840-0815.

III. Reporting

Each recipient of funds under this program must submit a report to the Secretary for each year funds are received. We expect that all 37 estimated applicants would ultimately receive funds under this program.

Each recipient's report must include an accounting of how all funds were used at each location; a description of all activities funded at each location; and a description and analysis of the effect of the use of those funds on job retention of eligible employees. We estimate that each of the projected 37 recipients of these job retention funds would take, on average, 25 hours to collect the required information and report it to the Secretary, for a total of 925 hours of new burden under OMB Control Number 1840-0815.

Intergovernmental Review

This program is not subject to Executive Order 12372 and the regulations in 34 CFR 79.

Electronic Access to This Document

You may 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.

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.

Delegation of Authority: The Secretary of Education has delegated authority to Daniel T. Madzelan, Director, Forecasting and Policy Analysis for the Office of Postsecondary Education, to perform the functions and duties of the Assistant Secretary for Postsecondary Education.