The [insurance premium] default fee charged by the Corporation for FFEL Program loans shall be no more than what is prescribed by the Higher Education Act of 1965, as amended [1.0%, except that the insurance premium charged by the Corporation for graduate student FFEL loans for the Academic Year 1998-99, where the period of the loan begins on or after July 1, 1998, shall be no more than 0.5%].

Pursuant to section 207 of the State Administrative Procedure Act, 8 NYCRR § 2101.5 was subject to review by HESC during 2008. To that end, HESC filed its "Rule Review" in the March 19, 2008 edition of the State Register in which HESC anticipated amending this regulation in order to incorporate changes to federal law. After the required 45-day public comment period, no comments were received by HESC.

HESC examined the rule and found that federal law supporting this regulation had been amended. In 2005, the federal Higher Education Reconciliation Act ("HERA") amended the Federal Higher Education Act ("HEA") of 1965, as amended, to rename the federal student loan "insurance premium" the "federal default fee," and to require, the collection of no more than a one percent (1%) default fee. Due to the revisions to federal law, HESC's rule must be amended accordingly.

HESC has determined that modification of the rule is necessary to comport with present federal law.

Among other things, the New York State Higher Education Services Corporation ("HESC") guarantees federal student loans in accordance with the federal Higher Education Act ("HEA") of 1965 as amended. Under the HEA, HESC was authorized to collect insurance premiums (also known as 'guarantee fees') of up to one percent (1%) of the principal amount of each student loan made under the Federal Family Education Loan Program ("FFELP").

In 1998, HESC promulgated 8 NYCRR § 2101.5 to limit itself to charging no more than 0.5% of the 1% maximum allowable insurance premium on graduate level FFELP loans while continuing to charge the maximum allowable insurance premium of up to one percent (1%) on all undergraduate loans.

In 2005, the federal Higher Education Reconciliation Act ("HERA") renamed the "insurance premium" the "federal default fee." Under HERA, HESC is now required to deposit a federal default fee of no more than one percent (1 %) of the principal amount of each FFELP loan into its federal fund. The default fee can either be charged to the borrower by a deduction from the proceeds of the loan or paid from other non-federal sources.

Since HESC must charge a federal default fee of no more than one percent (1%) to all FFELP loans under HERA, the present rule no longer comports with federal law.

Consensus rulemaking is warranted because no party is likely to object to this rulemaking. Federal law requires that HESC pay a default fee of up to one percent (1%). This rulemaking is needed to amend an existing state regulation in order to bring in into accord with the revised federal provision.

This statement is being submitted pursuant to subdivision (2) of section 201-a of the State Administrative Procedure Act and in support of New York State Higher Education Services Corporation's "Notice of Proposed Rule Making" seeking to amend section 2101.5 of Title 8 of the Official Compilation of Codes, Rules and Regulations of the State of New York.

It is apparent from the nature and purpose of this consensus rule that it will not have any adverse impact on jobs or employment opportunities. The proposal would conform HESC's regulation with recent amendments to federal law.