[Federal Register Volume 78, Number 157 (Wednesday, August 14, 2013)]
[Notices]
[Pages 49486-49489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-19749]


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DEPARTMENT OF EDUCATION


Notice Inviting Guaranty Agencies To Submit Requests To 
Participate in a Voluntary Flexible Agreement

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Notice.

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[[Page 49487]]

SUMMARY: The Secretary invites guaranty agencies with agreements to 
participate in the Federal Family Education Loan (FFEL) Program to 
submit requests to enter into a Voluntary Flexible Agreement (VFA) with 
the Secretary, as authorized by the Higher Education Act of 1965, as 
amended (HEA). Guaranty agencies whose requests are accepted will 
operate under the requirements of the VFA in lieu of the guaranty 
agency agreements established under the HEA.
    The Secretary intends to enter into VFAs with a small number of 
guaranty agencies (likely three or fewer) that will assume 
responsibility for all or some of the defaulted and non-defaulted FFEL 
Program loans transferred to it by the Secretary from a guaranty agency 
whose HEA agreements with the Secretary are, or will be, terminated. 
Those agencies will continue to operate under their existing guaranty 
agency agreements, established under the HEA, for their own FFEL 
Program Loan portfolios.

DATES: Deadline for submission of a Request for a VFA: September 13, 
2013.

ADDRESSES: A Request for a VFA must be submitted via email to the 
following email address: [email protected]. Instructions for Submitting a 
Request for a VFA: A guaranty agency that wants to request a VFA 
pursuant to this notice must submit to the Secretary a letter on the 
guaranty agency's letterhead, signed by the chief executive officer of 
the guaranty agency. The letter must include the name, mailing address, 
email address, FAX number, and telephone number of a contact person at 
the guaranty agency. The guaranty agency must also submit, as 
attachments to the letter, information addressing required capacities 
and expertise as described in the Agency Demonstrated Performance 
section of this notice.
    The letter and attachments are to be submitted as an Adobe Portable 
Document (PDF) attachment to an email message sent to the email address 
provided in the ADDRESSES section of this notice. The ``Subject'' line 
of the email must read ``Request for a VFA''.

FOR FURTHER INFORMATION CONTACT: Email: [email protected]; Telephone: 
(202) 377-4401.
    If you use a telecommunications device for the deaf (TDD) or a text 
telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-
800-877-8339.

SUPPLEMENTARY INFORMATION:

Voluntary Flexible Agreements

    Under section 428(b) and (c) of the HEA, guaranty agencies perform 
certain roles in the FFEL Program pursuant to agreements with the 
Secretary. Section 428A of the HEA authorizes the Secretary to enter 
into VFAs with guaranty agencies in lieu of the agreements entered into 
under section 428(b) and (c) of the HEA. This authority allows the 
Secretary to work with guaranty agencies to develop, utilize, and 
evaluate alternate ways of ensuring that the responsibilities of the 
guaranty agencies are fulfilled in the most cost-effective and 
efficient manner possible. A VFA may provide that the guaranty agency 
will earn revenues and fees in a manner different than that provided 
under the regular guaranty agency agreements under section 428(b) and 
(c) of the HEA. The overall cost to the Federal government of a VFA 
cannot exceed the cost to the government under the regular guaranty 
agency agreements.
    As part of a VFA with a guaranty agency, the Secretary may waive or 
modify statutory and regulatory requirements as necessary, except that 
the Secretary may not waive any statutory requirements related to the 
terms and conditions attached to student loans or to default claim 
amounts paid to FFEL Program lenders.
    A VFA will also specify the circumstances under which it may be 
terminated by the Secretary in advance of any established termination 
date and any other provisions the Secretary believes are necessary to 
protect the United States from unreasonable risk of loss.

Earlier VFA Solicitation

    In a Federal Register notice published on May 31, 2011 (76 FR 
31312), the Secretary solicited proposals from guaranty agencies that 
wished to be considered for participation in a specialized VFA. The 
Secretary requested those proposals because of the then-recent 
significant statutory changes to the FFEL Program. Those changes 
included: the Ensuring Continued Access to Student Loan Act of 2008, as 
amended (Pub. L. 110-227) (ECASLA), which authorized the Secretary to 
create programs to allow FFEL Program loan holders to sell certain FFEL 
Program loans to the Secretary; and the SAFRA Act, part of the Health 
Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), that 
ended, as of July 1, 2010, the authority to originate FFEL Program 
loans. As a result of ECASLA and the SAFRA Act, the total dollar amount 
of FFEL Program loans held or insured by guaranty agencies has 
diminished (and will continue to diminish), resulting in less revenue 
available to the agencies and jeopardizing their ability to meet their 
FFEL Program responsibilities.
    The purpose of the Secretary's 2011 VFA solicitation was to 
establish new guaranty agency structures and financing mechanisms to 
protect the Federal fiscal interest in light of the diminishing 
outstanding FFEL Program portfolio. The Secretary also expected that 
the VFAs would help ensure that guaranty agencies were able to continue 
to provide high quality services to borrowers, lenders, and 
postsecondary educational institutions while also supporting the 
important responsibilities that the agencies have in the areas of 
default prevention, outreach, and oversight.
    After reviewing the proposals submitted by guaranty agencies in 
response to the May 31, 2011, Federal Register notice, the Secretary 
determined that the proposals did not meet the stated objectives for 
the VFAs, nor were they responsive to the specific proposal 
requirements included in the May 31, 2011, notice. For these reasons, 
the Secretary has decided that the VFA approach proposed in 2011 is no 
longer a viable response to the significant changes to the FFEL 
Program, and that it is appropriate to develop VFAs that better address 
the current status of the program and the evolving structure of the 
guaranty agency component of the FFEL Program.

Reasons for This Solicitation

    As noted, certain statutory changes have reduced, and will continue 
to reduce, the revenues available to guaranty agencies. The Secretary 
expects that over the next several years, a number of guaranty agencies 
may choose to end their participation in the FFEL Program. It is also 
possible that, as a result of required oversight and monitoring of 
guaranty agencies' finances and operations, the Secretary may determine 
that it is necessary to terminate an agency's agreements under HEA 
section 428(b) and (c). Since 1990, 20 guaranty agencies have left the 
FFEL Program for a variety of reasons. In most of these situations, the 
Department has, working with the closing agency, arranged with another 
guaranty agency to assume all or part of the closing agency's FFEL 
Program responsibilities.
    In light of the increasing likelihood that additional guaranty 
agencies will close as the FFEL Program loan portfolio is retired, the 
Secretary believes that a structured and predictable process should be 
developed and implemented to protect the integrity of the outstanding 
FFEL Program loan portfolio. Thus, the Secretary has decided to 
establish VFAs with a small number of guaranty agencies (likely three 
or fewer), each of which would,

[[Page 49488]]

upon the request of the Secretary, assume responsibility of some or all 
of a terminating guaranty agency's defaulted and non-defaulted loans.

Scope of the VFAs

    When a guaranty agency's participation in the FFEL Program ends, 
the Department may arrange for the transfer of all or some of the 
outstanding non-defaulted FFEL Program loans, and all or some of the 
defaulted loan portfolio of the terminating agency, to one or more of 
the guaranty agencies participating under a VFA established pursuant to 
this notice (a VFA participating guaranty agency). Under the VFA, the 
Secretary would retain discretion in deciding which VFA participating 
guaranty agency or agencies, if any, will be responsible for a closing 
agency's portfolio.
    A transfer of the FFEL Program portfolio from a terminating agency 
to a VFA participating guaranty agency will ensure that FFEL Program 
lenders that hold outstanding FFEL loans guaranteed by the terminating 
agency will retain the benefit of those guarantees and that the 
borrowers of those loans will continue to receive the services of a 
guaranty agency in accordance with statutory and regulatory 
requirements. Similarly, the transfer of defaulted loans on which the 
Secretary previously paid the terminating agency reinsurance pursuant 
to section 428(c) of the HEA to a VFA participating guaranty agency 
will ensure continued servicing and collection activities on those 
loans as required by the HEA and the Department's regulations.

Duration of the VFA

    The Secretary expects that VFAs entered into as a result of this 
notice will be established for a period of four years with the 
possibility, if both parties agree, of year-to-year renewals at the end 
of the four-year period. The VFA will provide that the guaranty agency 
may not terminate the VFA early without requesting and receiving the 
Secretary's approval to do so. However, the VFA will also provide that, 
to protect the interests of Federal taxpayers, borrowers, and FFEL 
Program loan holders, the Secretary may terminate the VFA at any time 
and may do so without any advance notification to the agency. If a VFA 
is terminated, the Secretary will have sole discretion to determine the 
disposition of the loans assigned to the agency under the VFA.

Duration of Loan Transfer

    The Secretary will assign the VFA participating guaranty agency 
responsibility for a loan transferred from a terminating agency for a 
minimum of two years from the date when the VFA participating guaranty 
agency, at the direction of the Secretary, assumes legal responsibility 
for the loan. The transferred loans may be defaulted loans or non-
defaulted guaranteed loans. The VFA will also provide that for a 
transferred non-defaulted loan that subsequently defaults, the two-year 
period may be extended for up to three months if the VFA participating 
guaranty agency would otherwise be unable to perform the activities 
required under 34 CFR 682.410(b)(6)(ii). Notwithstanding the above, 
defaulted loans serviced by the VFA participating guaranty agency are 
subject to the requirements of 34 CFR 682.409 governing mandatory 
assignment by guaranty agencies of defaulted loans to the Secretary if 
they meet the criteria for such assignment.
    After the end of the two-year period, the Secretary may direct the 
VFA participating guaranty agency to assign defaulted loans to the 
Secretary or to another guaranty agency for continued collections, and 
to transfer the guarantee on a non-defaulted loan.

Operating Under a VFA

    A guaranty agency that enters into a VFA with the Secretary as 
described in this notice will operate under the VFA only for the loans 
transferred to it by the Secretary under the terms of the VFA. The 
agency will continue to operate under its existing guaranty agency 
agreements, established under section 428(b) and (c) of the HEA, for 
purposes of its own FFEL Program loan portfolio. Accordingly, the VFA 
will require the agency to maintain records on the transferred loans 
separately from the loans it holds or has guaranteed on its own behalf.
    The terms of any VFA will be subject to any changes in the HEA (or 
other applicable laws) and the Department's regulations, unless waived 
or modified by the Secretary, and to any applicable administrative 
actions of the Secretary.

Agency Demonstrated Performance

    The Secretary will choose the agencies with which to enter into a 
VFA pursuant to this notice by identifying those agencies that best 
demonstrate that they have the managerial and operational capacity, 
including significant and demonstrable scalability in their management, 
finances, systems, and infrastructure, to assume the responsibilities 
of an expanded loan portfolio.
    A guaranty agency that requests to enter into a VFA with the 
Secretary pursuant to this notice must provide the Secretary, in the 
format described in the Instructions for Submitting a Request for a VFA 
section of this notice, detailed information that demonstrates that it 
has the necessary capacity and expertise in at least the following 
areas:
    [ssquf] Lender Oversight--The expertise and capacity to perform 
lender and lender servicer oversight in an efficient and cost-effective 
manner for an expanded loan portfolio.
    [ssquf] Default Aversion and Prevention--A fully developed and 
successful delinquency and default prevention program that is scalable 
to support an expanded portfolio of non-defaulted loans transferred to 
it under the VFA.
    [ssquf] Outreach and Financial Literacy--A fully developed and 
successful outreach and financial literacy program that is scalable to 
support an expanded portfolio of non-defaulted loans transferred to it 
under the VFA.
    [ssquf] Lender Claims Review--Scalability in operations and 
management to perform timely, accurate, and comprehensive lender claims 
review for an expanded loan portfolio.
    [ssquf] Claims Payment--The financial and operational capability to 
make timely, accurate, and reconcilable lender claim payments and 
reinsurance requests for an expanded loan portfolio.
    [ssquf] Collections--Demonstrated success and scalability in the 
collection of defaulted loans, including a successful loan 
rehabilitation program.
    [ssquf] Financial Reporting--The capability to provide accurate and 
timely required reports to the Secretary, both for its regular agency 
reporting and for the special reporting required under the VFA.
    [ssquf] National Student Loan System (NSLDS)--Demonstrated capacity 
to fulfill all current NSLDS reporting requirements in a timely and 
accurate manner and the systems flexibilities to provide any additional 
NSLDS reporting that may be required under the VFA.
    [ssquf] Assignment of Loans to the Secretary--The operational and 
financial processes necessary to assign an increased number of 
defaulted loans to the Secretary.
    [ssquf] FISMA Compliance--Proof of FISMA compliance based on 
applicable information technology (IT) security standards and 
guidelines established by the National Institute of Standards and 
Technology (NIST).

Secretary's Oversight

    The Secretary will conduct additional oversight and monitoring of 
the activities of VFA participating guaranty agencies to assess each 
agency's continuing financial viability and operational capacity to 
properly perform

[[Page 49489]]

all FFEL Program guaranty agency responsibilities, including the added 
responsibilities assigned to it under the VFA. This oversight will 
include, at a minimum, requirements that the guaranty agency submit 
operational status reports, financial reports, and performance metrics 
on the portfolio assigned to it under the VFA.

Schedule of Revenues and Fees

    The Secretary expects that the increased number of defaulted loans 
on which a VFA participating guaranty agency will collect will result 
in financial savings from economies of scale and increased 
efficiencies. In addition, the VFA participating guaranty agencies will 
earn increased revenues from Account Maintenance Fees (AMF) and Default 
Aversion Fees (DAF) on the increased number of non-defaulted loans for 
which the agency has assumed guarantor responsibility.
    As noted in the Voluntary Flexible Agreements section of this 
notice, a VFA may provide that a guaranty agency will earn revenues and 
fees differently than it would under agreements pursuant to section 
428(b) and (c) of the HEA. Therefore, VFAs developed as a result of 
this notice will include a revised schedule of revenues and fees that 
will apply to loans transferred to the VFA participating guaranty 
agency pursuant to the VFA. The revised schedule, which will be common 
to all VFA participating guaranty agencies, will result in lower costs 
to the Secretary.
    Under the revised schedule, the VFA participating guaranty agency 
will receive the regular AMF rate calculated under 34 CFR 682.404(i) 
and DAF calculated under 34 CFR 682.404(k)(2). The schedule will 
provide that the agency will retain 100 percent of collection costs 
paid by borrowers on defaulted loans, capped at current regulatory 
limits. However, the revised schedule will provide that, except on 
loans which have been rehabilitated under 34 CFR 682.405, the 
Secretary's share of total collections of principal and interest is 100 
percent. For loans that have been rehabilitated, the Secretary's share 
will be 93 percent.

Letters of Request for a VFA

    Guaranty agencies with agreements with the Secretary under section 
428(b) and (c) of the HEA that wish to enter into a VFA under the terms 
outlined in this notice must submit a written ``Request for a VFA'' by 
the deadline in the DATES section of this notice and in the format 
described in the Instructions for Submitting a Request for a VFA 
section of this notice.

Information to Be Included With the Request for a VFA

    A Request for a VFA must include information addressing the 
guaranty agency's capacity to perform each of the activities discussed 
in the Agency Demonstrated Performance section of this notice. The 
information should be submitted as an attachment to the agency's 
Request for a VFA letter and be in the form of a bulleted narrative 
that totals no more than 10 pages. The Secretary may request that the 
agency provide supporting or other documentation to assist the 
Secretary in making a decision regarding the agency's possible 
participation in a VFA.

Availability of Letters of Request for Consideration

    Requests for a VFA submitted to the Secretary in response to this 
notice will generally be considered public documents.

Selection

    The Secretary will review and evaluate an agency's Request for a 
VFA letter, the accompanying supporting documentation, and other 
relevant information (e.g., financial information, audit and program 
review results, and any relevant public information about the agency 
and its management) that is available to the Secretary. The guaranty 
agencies that will be offered the opportunity to enter into a VFA as 
described in this notice will be those that the Secretary determines 
best demonstrate their capability to perform the responsibilities under 
the VFA.
    Accessible Format: Individuals with disabilities can obtain this 
document in an accessible format (e.g., braille, large print, 
audiotape, or compact disc) on request to the contact listed above.
    Electronic Access to This Document: 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 via the Federal Digital System 
at: www.gpo.gov/fdsys. At this site you can view this document, as well 
as all other documents of this Department published in the Federal 
Register, in text or Adobe Portable Document Format (PDF). To use PDF 
you must have Adobe Acrobat Reader, which is available free at the 
site.
    You may also access documents of the Department published in the 
Federal Register by using the article search feature at: 
www.federalregister.gov. Specifically, through the advanced search 
feature at this site, you can limit your search to documents published 
by the Department.

    Program Authority:  20 U.S.C. 1070a, 1070a-1, 1070b-1070b-4, 
1070c-1070c-4, 1070g, 1071-1087-2, 1087a-1087j, and 1087aa-1087ii; 
42 U.S.C. 2751-2756b.

    Dated: August 9, 2013.
Brenda Dann-Messier,
Assistant Secretary for Vocational and Adult Education, delegated the 
authority to perform the functions and duties of the Assistant 
Secretary for Postsecondary Education.
[FR Doc. 2013-19749 Filed 8-13-13; 8:45 am]
BILLING CODE 4000-01-P