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Program B: Loan Operations

Program Authorization: R.S. 36:642d(2); R.S. 36:650-615B; R.S. 17:3021 et seq; R.S. 56:797; P.L. 100-50; Acts 476 of 1997 Regular Session

PROGRAM DESCRIPTION

The mission of the Loan Operations Program is to administer the federal and state educational loan programs for the benefit of all program participants.

The goals of the Loan Operations Program are:

  1. Effectively and efficiently administer federal and state loan programs in compliance with statutory authority and regulation.
  2. Maintain financial viability.

The Loan Operations Program includes the following activities:

1. Loan Administration - Processes new loans and services and existing loan guarantees on behalf of the borrower and holder of the loan note.

2. Preclaims Section - Assists lenders, servicers, and delinquent borrowers in avoiding defaults on delinquent loans.

3. Claims Section - Processes claims against the loan guarantee filed by holders of the note and ensures that all claims scheduled for payment meet program requirements.

4. Collections Section - Maintains inventory control and collection activities to maximize recovery of defaulted loans and to ensure compliance with program regulations.

The Loan Operations Program administers federal and state student loan programs and performs the functions of loan origination and servicing, default prevention, default claim payment, and default recoveries.

The Loan Operations Program strives to provide financial assistance for Louisiana residents to pursue their studies at post-secondary and higher education levels by guaranteeing loans to participating lenders. This program assists students in meeting post-secondary educational expenses through low-cost, federally reinsured, educational loans which are made available to students through conventional lenders at no cost to the state. Federally funded components of this program are Stafford Loans (based on need), Unsubsidized Loans, Parent Loans for Undergraduate Students (PLUS), Supplemental Loans for (financially independent) Students (SLS), and Consolidation Loans. State components of this program funded by statutory dedications are the Louisiana Opportunity Loan Program (LA-OP) and the Louisiana Employment Opportunity Program (LEOP). OSFA charges guaranty fees for each applicant, retains interest income from the program guarantee account, and retains collection charges and the agency's share of principal and interest on loans collected from default borrowers.

The Louisiana Opportunity Loan Program (LA-OP) provides low interest loans to middle-income students for educational expenses. The program was implemented in FY 91-92 through general fund appropriations and a seed advance. In reauthorizing the Higher Education Act, the Congress created a new federal loan program for middle-income families. The federal unsubsidized loan program replaced LA-OP on October 1, 1996. The seed advance, in the amount of $2,250,000, remains in the agency's budget. It does not represent new funds. The Louisiana Employment Opportunity Loan Program (LEOP) was established to encourage the growth and expansion of existing industry and to attract new industry and jobs. An initial reserve of $500,000 was provided through the Louisiana Department of Economic Development. The first LEOP loan guarantee was issued on February 2, 1993. On March 17, 1994, the loan guarantee was expanded to include borrowers with adverse credit. These adverse credit loans were underwritten by J.B. Hunt Transport, Inc. until January 2, 1996, at which time they ceased to offer the LEOP loans to borrowers with adverse credit. The lender withdrew from the program effective July 10, 1996. Although no new loans have been guaranteed since that date, LASFAC continues to perform administrative functions required to service the outstanding loan guarantees.

The Preclaims Assistance function of this program prevents the guarantee agency from reaching the federal reinsurance "trigger" percentage by increasing the awareness of borrowers of their responsibility for repayment of their loan obligation. The Claims function of this program will pay lenders 98% of their losses if borrowers default on their student loans. The U.S. Department of Education will reimburse OSFA 98% of its losses. This reimbursement rate will drop if OSFA's annual default rate rises to "trigger" percentages of the amount of loans in repayment. Collection activities maximize the recovery of defaulted loans. OSFA retains up to 27% of the amount collected on defaulted student loans.

OBJECTIVES AND PERFORMANCE INDICATORS

Unless otherwise indicated, all objectives are to be accomplished during or by the end of FY 1999-2000. Performance indicators are made up of two parts: name and value. The indicator name describes what is being measured. The indicator value is the numeric value or level achieved within a given measurement period. For budgeting purposes, performance indicator values are shown for the prior fiscal year, the current fiscal year, and alternative funding scenarios (continuation budget level and Executive Budget recommendation level) for the ensuing fiscal year (the fiscal year of the budget document).

 

 

RESOURCE ALLOCATION FOR THE PROGRAM

SOURCE OF FUNDING

This program is funded with the General Fund, Fees and Self-generated Revenues, Statutory Dedications, and Federal Funds. The Fees and Self-generated Revenue is derived from fees paid for participating school appealing their federal cohort default rate. The Statutory Dedications are from the Louisiana Employment Opportunity Loan Fund and the Louisiana Opportunity Loan Fund. (Per R.S. 39:32B.(8), see table below for a listing of expenditures out of each Statutory Dedicated fund.) The Federal Funds are from the Federal Family Education Loan (FFEL) Program's various administrative cost allowances and reimbursement of defaulted student loan claim payments made to participating lenders.

 

ANALYSIS OF RECOMMENDATION

GENERAL FUND

TOTAL

T.O.

DESCRIPTION

 

 

 

 

 

$12,162

$22,896,209

64

 

ACT 19 FISCAL YEAR 1998-1999

 

 

 

 

 

 

 

 

 

BA-7 TRANSACTIONS:

$0

$158,900

0

 

Carry Forward

 

 

 

 

 

$12,162

$23,055,109

64

 

EXISTING OPERATING BUDGET November 20, 1998

 

 

 

 

 

$0

$34,652

0

 

Annualization of FY 1998 -1999 Classified State Employees Merit Increase

$0

$36,065

0

 

Classified State Employees Merit Increases for FY 1999-2000

$0

$16,000

0

Acquisitions and Major Repairs

$0

($66,887)

0

Nonrecurring Acquisitions and Major Repairs

$0

($158,900)

0

Nonrecurring Carry Forward

$0

($1,145)

0

Rent in State-owned Buildings

$0

$900

0

Workload File Cabinets

$0

($79,161)

(2)

Transfer of 2 positions form Loan Operations to Administration Program

$0

$137,654

2

 

Provides funds for an additional 2 marketing positions

 $0

$140,305

0

 

Provides Federal Funds for reallocation in the Loan Operating Program

$0

$1,746,285

0

 

Provides Federal Funds for collection of insurance from Federal Program

         

$12,162

$24,860,877

64

 

TOTAL RECOMMENDED

 

 

 

 

 

$0

$1,805,768

0

 

DIFFERENCE (TOTAL RECOMMENDED AND EXISTING OPERATING BUDGET)

The total means of financing for this program is recommended at 108.0% of the existing operating budget. It represents 100.0% of the total request ($24,855,230) for this program. The increase in the operating budget is due to a technical adjustment.

PROFESSIONAL SERVICES

$180,000

 

Administrative Hearing Officer

 

 

 

$180,000

 

TOTAL PROFESSIONAL SERVICES

 

OTHER CHARGES

$682,798

 

USAG

$16,142

 

Audit

$1,256,242

 

Collection Fees

$16,966,075

 

FFELP

$2,250,000

 

LA-OP

$294,856

 

LEO

 

 

 

$21,458,355

 

TOTAL OTHER CHARGES

 

 

 

Interagency Transfers:

$142,696

 

Building Rent

 

 

 

$142,696

 

TOTAL INTERAGENCY TRANSFERS

ACQUISITIONS AND MAJOR REPAIRS

$16,900

 

Technical Equipment

$16,900

 

TOTAL ACQUISITIONS AND MAJOR REPAIRS

     

 

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