[Federal Register Volume 89, Number 146 (Tuesday, July 30, 2024)]
[Notices]
[Pages 61102-61103]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-16760]



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DEPARTMENT OF EDUCATION


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

AGENCY: Office of the Under Secretary, U.S. Department of Education.

ACTION: Notice.

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SUMMARY: The Secretary invites guaranty agencies with agreements to 
participate in the Federal Family Education Loan (FFEL) Program to 
submit interest in entering into a Voluntary Flexible Agreement (VFA) 
with the Secretary, as authorized by the Higher Education Act of 1965, 
as amended (HEA). Guaranty agencies who ultimately agree to the VFA 
through a separate process 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 guaranty agencies to 
support vulnerable borrowers in resolving their delinquent or defaulted 
loans quickly, maximize long-term repayment success of borrowers 
exiting default with immediate enrollment in Income-Driven Repayment 
(IDR) plans available under the Direct Loan program, and ensure 
stability in the FFEL Program as the number of outstanding loans 
continues to decline over the coming years.

DATES: Deadline for submission of interest in a VFA: August 20, 2024.

ADDRESSES: An indication of interest in a VFA must be submitted via 
email to [email protected].

FOR FURTHER INFORMATION CONTACT: Jerry Wallace, U.S. Department of 
Education. Telephone: (202) 453-6605. Email: [email protected].
    If you are deaf, hard of hearing, or have a speech disability and 
wish to access telecommunications relay services, please dial 7-1-1.

SUPPLEMENTARY INFORMATION:

Background

    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.
    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.

Reasons for This Expression of Interest

    It has been 14 years since the last new FFEL Program loan was made. 
As the number of outstanding FFEL loans continues to steadily decline, 
the revenues available to guaranty agencies to fund operational budgets 
are also decreasing. The Secretary expects that over the next several 
years many guaranty agencies may struggle to continue providing stable 
services for borrowers, lenders, and the Department under the existing 
compensation structure. The continued decline of the number of 
outstanding FFEL loans and the loss of associated revenue means it will 
likely be harder for guaranty agencies to maintain the systems and 
staff needed to provide quality services for vulnerable borrowers, 
which creates an unacceptable risk of loss to the Department and 
Federal taxpayers.
    The Secretary believes that a structured and predictable 
compensation model for guaranty agencies will help protect the 
integrity of the outstanding FFEL Program loan portfolio as the number 
of loans and guaranty agencies continues to decline. This model 
presents an opportunity for the Department and guaranty agencies to 
better serve borrowers by aligning financial incentives with helping 
borrowers avoid or exit student loan default. The model will also 
leverage operational procedures established during the Fresh Start 
period that provide borrowers efficient and direct access to more 
affordable IDR plans, which feature enhanced borrower benefits and will 
best support their long-term repayment success. Additionally, 
transferring more defaulted FFEL loans to the Department that are not 
otherwise resolved will assist borrowers and provide long-term benefits 
to the Department by improving the opportunities for resolution of the 
loan.

Scope of the VFAs

    The Department expects that VFAs entered into will address the 
compensation structures, outreach activities, loan transfer schedules, 
and future planning for guaranty agencies.

Compensation

    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. The Department expects that the revised 
schedule of revenues and fees will be common to all VFA-participating 
guaranty agencies.
    The Department expects that the VFAs will include a replacement for 
all compensation paid to guaranty agencies, with the exception of the 
account maintenance fee and reimbursement into the Federal fund for 
claims paid to lenders. The replaced compensation includes the default 
aversion fee, refunds of the default aversion fee, and revenues from 
collections on defaulted loans usually charged to borrowers in the form 
of fees. Instead of this revenue, guaranty agencies would receive two 
forms of compensation:
    (1) A special account maintenance fee (SAMF). The SAMF would be 
calculated based on the guaranty agency's outstanding net guarantees 
using the same formula as the Account Maintenance Fee (AMF) as defined 
in section 428(h) of the HEA and 34 CFR 682.404(h). It would be paid in 
equal quarterly installments.
    (2) A successful resolution fee (SRF). This fee would be paid when 
a borrower with at least one loan in default at a guaranty agency 
successfully consolidates all their defaulted loans at that guaranty 
agency into the Direct Loan program. This fee would be the lesser of a 
set dollar amount or a percentage of the amount of the outstanding 
loans being resolved. This fee would be paid quarterly.
    The Secretary expects that increasing the number of defaulted loans 
that are quickly returned to good standing or otherwise transferred to 
the Department will result in financial savings for the Department and 
better long-term performance for borrowers. Guaranty agencies will have 
guarantees of minimum quarterly income through the SAMF to ensure 
stability in the program and strong incentives to assist defaulted 
borrowers quickly to earn an SRF payment.

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Outreach Activities

    The Department expects that, in addition to continuing their 
current default aversion assistance work, under a VFA, guaranty 
agencies will focus their efforts on borrower outreach and counseling, 
with a focus on options that will help borrowers return to good 
standing and access repayment programs and benefits that will promote 
successful long-term repayment on their loans. This will also include 
targeted outreach campaigns mutually agreed upon with the Department.

Loan Transfers

    To ensure that the guaranty agency can focus its efforts on loan 
counseling and consolidation, under the VFA guaranty agencies will 
adopt a schedule for transferring defaulted loans to the Department. 
The oldest loans will be transferred to the Department immediately 
after the effective date of the VFA, while newer defaults will be 
transferred after a set period if they are not otherwise successfully 
resolved, such as through consolidation, discharge, or pay off.

Future Planning

    To ensure long-term success and stability for the FFEL Program, all 
guaranty agencies that enter into a VFA with the Department will map 
their loan data and systems to at least one other guaranty agency 
acceptable to the Department. The goal is to ensure that a successor 
agency is ready to perform the agency's functions if the agency 
participating in the VFA becomes unable to meet its responsibilities. 
Each guaranty agency will also agree to keep the Department apprised of 
any significant changes in personnel or finances so that if a guaranty 
agency chooses to exit the program there is minimal disruption for 
borrowers and long-term loan servicing activities.
    The terms of any VFA will be subject to applicable Federal, State, 
Local, and U.S. Territory laws and regulations, including 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.

Duration of the VFA

    The Secretary expects that the VFAs will have a term of two years, 
subject to year-to-year renewals if the parties agree. The VFA will 
also provide that either party may terminate the agreement at any time 
by providing written notice to the other party, with provisions for 
sufficient notice before the effective date of termination.

Agency Demonstrated Performance

    The Secretary will select the agencies with which to enter into a 
VFA by identifying agencies that d have the managerial and operational 
capacity to assume the responsibilities of the VFA. The Department 
expects to enter into VFAs with all or the vast majority of guaranty 
agencies.
    A guaranty agency that ultimately enters into a VFA with the 
Secretary must have the capability to:
     Conduct meaningful high-touch borrower outreach.
     Successfully transfer defaulted loans to the Secretary 
within set periods.
     Map systems to a potential successor guaranty agency.

Secretary's Oversight

    The Secretary will conduct oversight and monitoring of the 
activities of guaranty agencies participating in the FFEL Program under 
a VFA to assess each agency's continuing financial viability and 
operational capacity to properly perform all FFEL Program guaranty 
agency responsibilities in accordance with the VFA. The Secretary will 
also conduct oversight and monitoring of the borrower outreach work and 
the transfer of defaulted loans. This oversight will include, at a 
minimum, requirements that the guaranty agency submit operational 
status reports, financial reports, and performance metrics on its loan 
portfolio.

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 an email indicating interest to 
[email protected] by the deadline in the DATES section of this notice.
    The expression of interest notice must be submitted by the chief 
executive officer of the guaranty agency. 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.
    Accessible Format: On request to the program contact person listed 
under FOR FURTHER INFORMATION CONTACT, individuals with disabilities 
can obtain this document in an accessible format. The Department will 
provide the requestor with an accessible format that may include Rich 
Text Format (RTF) or text format (txt), a thumb drive, an MP3 file, 
braille, large print, audiotape, compact disc, or other accessible 
format.
    Electronic Access to This Document: The official version of this 
document is the document published in the Federal Register. You may 
access the official edition of the Federal Register and the Code of 
Federal Regulations at www.govinfo.gov. At this site you can view this 
document, as well as all other Department documents 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 also may access Department documents 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. 1078-1.

James Kvaal,
Under Secretary, Office of the Under Secretary.
[FR Doc. 2024-16760 Filed 7-29-24; 8:45 am]
BILLING CODE 4000-01-P