Sallie Mae 2006 Annual Report Download - page 205

Law 107-139, (February 8, 2002) by Public Law 108-98 (October 10, 2003), and by Public Law 108-409
(October 30, 2004). Since HERA 2005, the Higher Education Act was amended by the Third Higher Education
Extension Act of 2006 (THEEA), Public Law 109-292 (September 30, 2006).
In 1993 Congress created the William D. Ford Federal Direct Loan Program (“FDLP”) under which
Stafford, PLUS and FFELP Consolidation Loans are funded directly by the U.S. Department of Treasury. The
school determines whether it will participate in the FFELP or FDLP.
The 1998 reauthorization extended the principal provisions of the FFELP and the FDLP to October 1,
2004. This legislation, as modified by the 1999 act, lowered both the borrower interest rate on Stafford Loans
to a formula based on the 91-day Treasury bill rate plus 2.3 percent (1.7 percent during in-school, grace and
deferment periods) and the lender’s rate after special allowance payments to the 91-day Treasury bill rate plus
2.8 percent (2.2 percent during in-school, grace and deferment periods) for loans originated on or after
October 1, 1998. The borrower interest rate on PLUS loans originated during this period is equal to the 91-day
Treasury bill rate plus 3.1 percent.
The 1999 and 2001 acts changed the financial index on which special allowance payments are computed
on new loans from the 91-day Treasury bill rate to the three-month commercial paper rate (financial) for
FFELP loans disbursed on or after January 1, 2000. For these FFELP loans, the special allowance payments to
lenders are based upon the three-month commercial paper (financial) rate plus 2.34 percent (1.74 percent
during in-school, grace and deferment periods) for Stafford Loans and 2.64 percent for PLUS and FFELP
Consolidation Loans. The 1999 act did not change the rate that the borrower pays on FFELP loans.
The 2000 act changed the financial index on which the interest rate for some borrowers of SLS and
PLUS loans are computed. The index was changed from the 1-year Treasury bill rate to the weekly average
one-year constant maturity Treasury yield. The 2002 act changed the interest rate paid by borrowers beginning
in fiscal year 2006 to a fixed rate of 6.8 percent for Stafford loans and 7.9 percent for PLUS loans, which has
since been increased to 8.5 percent by the Higher Education Reconciliation Act of 2005.
The 1998 reauthorization and P.L. 107-139 set the borrower interest rates on FFELP and Federal Direct
FFELP Consolidation Loans for borrowers whose applications are received before July 1, 2003 at 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 percent. The 1998 legislation, as modified by the 1999 and 2002
acts, sets the special allowance payment rate for FFELP loans at the three-month commercial paper rate plus
2.64 percent for loans disbursed on or after January 1, 2000. Lenders of FFELP Consolidation Loans pay a
rebate fee of 1.05 percent per annum to the U.S. Department of Education. All other guaranty fees may be
passed on to the borrower.
The 2004 act increased the teacher loan forgiveness level for certain Stafford loan borrowers, and
modified the special allowance calculation for loans made with proceeds of tax-exempt obligations.
The Higher Education Reconciliation Act of 2005 reauthorized the loan programs of the Higher Education
Act (HEA) through September 30, 2012. Major provisions, which became effective July 1, 2006 (unless stated
otherwise), include:
• Change to a fixed 6.8 percent interest rate for Stafford loans.
• Increases the scheduled change to a fixed PLUS interest rate from 7.9 percent to 8.5 percent.
• Permanently modifies the minimum special allowance calculation for loans made with proceeds of tax-
exempt obligations.
• Requires submission of floor income to the government on loans made on or after April 1, 2006.
• Repeals limitations on special allowance for PLUS loans made on and after January 1, 2000.
• Increases first and second year Stafford loan limits from $2,625 and $3,500 to $3,500 and $4,500
respectively (effective July 1, 2007).
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