COHEAO submitted a detailed response to the Department’s Notice of Proposed Rulemaking of June 12, 2007, which contains provisions that would lead to mandatory assignment of defaulted Perkins Loans, define reasonable collection costs and impose a number of new record-keeping requirements on institutions participating in the Perkins Program. The NPRM also sets forth detailed rules on preferred lender lists and of what constitutes an illegal inducement for a FFELP loan.

The COHEAO response, a draft of which was distributed at the Mid-Year Conference, takes exception with the Department’s proposal to require institutions to assign Perkins Loans that have been in default for more than seven years with no payments for one year. COHEAO believes the Department lacks the authority under the Higher Education Act to require assignment. It also believes that, even if the Department had the authority, it should not require assignment sooner than 10 years of default and, most important, should return collected funds, less costs, to the Perkins Loan program. In addition to the NPRM response, COHEAO is submitting a legal opinion that contends that the Department lacks the statutory authority for a blanket requirement that all loans be assigned.

The Department significantly modified its original position on reasonable collection costs, recognizing that a cap of 24 percent being charged the defaulted borrower was too low for Perkins. Instead the Department proposed a cap of 30 percent for first placements and 40 percent for second placements, plus court costs in the case of litigated loans. In order to keep Perkins Loan funds whole, COHEAO is proposing caps of 33 percent for first placements, 40 percent for second placements and 50 percent for loans that are litigated or are collected from borrowers who have left the country.
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