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The Inside Track on Federal Loan Issues

Tami Sato, Southern CA College of OptometryVicki Shipley, National Council of Higher Education Loan

Programs (NCHELP)

WASFAA April 2009

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Agenda

The New Congress and New Administration

The Stimulus Package and the President’s 2010 Budget Proposal

Possible new public policies and impact on higher education

A New Student Loan Program for America

2009 Negotiated Rulemaking

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By The Numbers…

Number of students seeking postsecondary education and training will increase by two million by 2013 then level off

Recessionary economy has resulted in increases and shifts in enrollment

State postsecondary education and training costs continue to rise as governors respond to difficult economic choices

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By The Numbers…

Federal and state grant and scholarship funding will continue to lose “purchasing power”

Less available home equity and higher financing costs will prevent families from using this payment method as a convenient resource

Market constriction has severely limited access, and will continue to limit availability, of private loans

5

The Gap we must Overcome

The Advisory Committee on Student Financial Assistance changes their prediction that between 1.7 and 3.2 million low- and moderate-income college-qualified students will not attain a bachelor’s degree within the decade due to financial barriers

6

New Congress - 111th

Senate− Was 51 Democrats – 49 Republicans

− Now 56 Democrats - 41 RepublicansPlus 1 Independent and 1 Independent DemocratMinnesota race will be determined by courts

House− Was 236 Democrats -198 Republicans

One vacancy

− Now 254 Democrats – 178 RepublicansThree vacancies

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New Department of Education

Arne Duncan -- Secretary of Education− Martha Kanter – Nominee for Under

Secretary

− Carmel Martin -- Assistant Secretary for Planning, Evaluation and Policy Development

− Marshall Smith – Special Assistant

− Robert Shireman – Special Assistant

− Dan Madzelan – Acting Assistant Secretary

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President Obama’s Priorities

Economic Stimulus− Strengthen Economy/Create Jobs

Cabinet Confirmation HearingsTax Relief

− Alternative Minimum Tax− College Tax Credit

Labor & Workforce Development− Protecting 401K’s

FY2010 Budget Priorities

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Priorities In Congress Healthcare Reform

− Stem Cell Research − Prescription Drugs

Immigration Reform− Mexico City Policy

Regulatory Reform No Child Left Behind

Reauthorization Omnibus Energy Bill Intelligence Authorization

− FISA (Foreign Intelligence Surveillance Act)

Defense Authorization− Torture/water boarding

Columbian Free Trade Agreement

Vietnam Free Trade Agreement

Fast Track Federal Aviation

Administration Authorization

Cuba Net neutrality

− Broadband expansion Patent Reform

− Intellectual property protection

Alternative Minimum Tax

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American Recovery and Reinvestment Act

Helping Students and FamiliesResearch Funding InfrastructureJob TrainingState Fiscal Relief

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American Recovery and Reinvestment Act

“Recovery Program Plans” by May 1st for each program

Additional Transparency − www.recovery.gov – to provide weekly and

monthly financial reporting on stimulus spending

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American Recovery and Reinvestment Act

Helping Students & Families− Increase Pell Grants

$5,350 in 2009$5,550 in 20107 million recipients

− Increase Work-Study$200 million over two years

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American Recovery and Reinvestment Act

Helping Students and Families− American Opportunity Tax Credit

Temporarily replaces Hope Tax Credit $2,500 credit for four yearsCovers tuition & fess, books and course

materialsPartially refundable

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American Recovery and Reinvestment Act

State Fiscal Relief− State Stabilization Fund

$48.3 billion – to be distributed via population formula $39.5 billion to education (K-12 and public

colleges) $8.8 billion to governors

State applicationMaintenance of Effort required

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New Public Policy Directions?

Increased regulation− Twenty-four new reporting categories and 100

new reporting requirements

More stringent oversight− IRS has requested “intimate” funding information

from 400 colleges – 42 pages of questions and nine pages of instructions

Greater transparency Executive compensation The government as “partner”

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Impact for Schools Increasing demand for student aid

− FAFSA simplification (from 120 questions to less than 30) Former Education Secretary Spellings estimated that 8

million additional students are eligible but not applying− This year 800,000 more students applied for aid than

last year Increasing institutional costs in postsecondary

education− Significant increases in bond financing costs

Level funding for federal and state grant programs− Economists predict $1 trillion annual deficit for each of

the next three years− Thirteen states forced to reduce enacted budgets in

fiscal 2008

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Budget “Basics”

Congress controls the purse! Budget committees formulate a budget

resolution Reconciliation instructions are optional Reconciliation protects budget measures

from parliamentary hurdles such as filibusters to ensure timely completion

Reconciliation instructions lead to the development of legislative changes to programs under the jurisdiction of the authorizing committees

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Budget Process –The Role of Congress

Budget Bills− House Bill

Includes reconciliation instructions to Education and Labor Committee to reduce budget by $1 B

− Senate BillDoes not include similar reconciliation instructions Includes amendment by Senator Lamar Alexander

“to maximize higher education access and affordability by ensuring that institutions of higher education and their students are able to continue to participate in a competitive student loan program, in order to maintain a comprehensive choice of student loan products and services.”

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Budget Process –Citizen Impact on Congress

Senator Alexander’s Amendment was due to him hearing from constituents− Letters to the Senator from school groups− Expressions of concern to other members

of Congress over the past few weeks1,000 phone calls1,200 faxes4,000 e-mails

− Consumer Bankers Association electronic petition6,000+ signers

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House Budget Committee Report Language

“The Committee urges the Committee on Education and Labor to review options for the student loan program that will maintain a role for FFELP lenders in the student loan program, and to look to ways to achieve savings that capitalize on current infrastructure and minimize the disruption to students and the employees of FFELP lenders who currently serve 75 percent of loans at American colleges, universities, and community colleges.”

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Budget Process –After Spring Recess

The Budget Bills− Bills proceeds to a conference committee

Committee must merge House and Senate versions Primarily done by staff over Spring recess

Currently, it appears that the reconciliation instructions will be included and the Alexander Amendment will be omitted

Both pieces are still “in play” – constituent lobbying may play a factor

− Committee report will be considered by both House and Senate and then bill goes to the President for signature

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President’s 2010 Budget Proposal

Loan Proposals− Due to “turmoil” in the financial markets,

the President’s budget requests that Congress end the entitlements for financial institutions that lend to students by eliminating the FFEL Program by 7/1/10

− Makes campus-based aid more widely available through a modernization of the Perkins Loan Program

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President’s 2010 Budget Proposal Pell Grants

− Supports a $5,550 maximum Pell Grant award in the 2010-2011 school year

− Indexes Pell Grants to the Consumer Price Index plus 1 percent in an effort to address inflation and put the program on “sure footing”

− Makes the Pell Grant program mandatory to ensure consistent stream of funding

College Completion & Access− Makes the $2,500 American Opportunity Tax Credit permanent − Create a new five-year, $2.5 billion Access and Incentive Fund to

support efforts to help low-income students succeed and graduate from college

− Includes an evaluation component to ensure best practices − Triples number of graduate fellowships in science to spur

innovation 

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CBO Budget Projections

Cost to make Pell an entitlement - $116B over 5 years and $293 over 10 years

Elimination of FFELP will save $47B over 5 years and $94B over 10 years (Obama’s budget predicted $24B over 5 years and $48B over 10 years)

CBO estimates that the President’s budget proposals will add $4.8 trillion to the baseline deficits over the 2010-19 time period

If proposals enacted – 2009 deficit would be $1.8 trillion and 2010 would be $1.4 trillion

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Obama Vows Budget Fight For His Priorities

“With the magnitude of the challenges we face right now, what we need in Washington are not more political tactics – we need more good ideas. We don’t need more point-scoring – we need more problem-solving.”

Obama challenged his critics to offer “constructive, alternative solutions.”

Source: CQ Today 3/17/09

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NASFAA’s One Loan Program Model

Combine positive features of three federal loan programs

Not DL, Not FFELP, Not PSLFixed interest rateSingle point of contactMultiple funding sources (including

Education Finance Bonds)Servicing with bidding contracts

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Design Principles - A Student Loan Program for America

Stabilize funding and encourage continued competition and choice for students, families and schools

Standardized borrower termsStudent/borrower advocacy for the life

of the loanComprehensive school services

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A New Student Loan Program for America

Increasing Access to Postsecondary Education

Ensuring Program Integrity and Providing Technical Assistance

Simplifying Student Loan DeliveryDeveloping A Sustainable Student

Loan Program for the Future

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A New Student Loan Program for America

Expands student-focused counseling, financial literacy and delinquency and default prevention services to all individuals receiving federal loans regardless of the source of the loan funds

Streamlines the application process and utilizes a single, cost-efficient loan delivery and federal financial aid system

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A New Student Loan Program for America

Preserves competition that will spur innovation and lower-cost loan products

Preserves the historic postsecondary partnership between the federal government and state-based organizations

Saves the federal government billions of dollars in debt financing while saving thousands of jobs at a time of national economic distress

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31Discussion DRAFT

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House Technical Correction Legislation (HR 1777)

Postpones PLUS loan auctionsGuaranty agencies able to sell

rehabilitation loans to the Department of Education

Remove GI Bill benefits from consideration for campus-based aid and subsidized loans

Clarifies that guaranty agencies and lenders may conduct entrance and exit counseling on campus

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HERA signed into law 2/8/06

Interim final regulations published 8/9/06

Final regulations published 11/1/06 effective 7/1/07

CCRAA signed into law 9/27/07

Final regulations published 11/1/07 effective 7/1/08

ECASLA signed into law 5/7/08

CCRAA NPRM published 7/1/08

HEOA signed into law 8/14/08

Neg reg public hearings announced 8/19/08

YOU ARE

HERE

ECASLA extension signed into law 10/7/08

CCRAA Final regulations published 10/23/08 effective 7/1/09

GEN-08-12 published 12/31/08

Legislative and Regulatory Timeline

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2009 Negotiated Rulemaking

December 31, 2008 Federal Register notice Five teams will cover the following topics:

− Team I: Loans — Lender/General Loan Issues

− Team II: Loans — School-based Loan Issues

− Team III: Accreditation

− Team IV: Discretionary Grants

− Team V: General and Non-Loan Programmatic Issues

Final rules by November 1, 2009, with implementation no later than July 1, 2010

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Neg Reg – Team 1 Agenda Determining Borrower Eligibility for In-School Deferment Borrower Notification When the Transfer, Sale, or

Assignment of a Loan Results in a Change in the Party to Whom Payments Must be Sent

Lender and Guaranty Agency Prohibited Inducements Lender Forbearance and Borrower Contact

Requirements Applicability of the Servicemembers Civil Relief Act to

FFEL and Direct Loan Borrowers and related FFEL Lender Special Allowance Payment Calculations

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Neg Reg – Team 1 Agenda (con’t)

Guaranty Agency Notifications to Borrowers in Default; Financial and Economic Literacy for Rehabilitated Borrowers

PLUS Loan Deferments and Interest Capitalization

Consolidation Loan Borrower Eligibility and Applicant Disclosures

Consumer Credit Reporting After Loan Rehabilitation; Eligibility for Loan Rehabilitation

FFEL and Direct Loan Teacher Loan Forgiveness

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Neg Reg—Team 1 Agenda (con’t.)

Required Education Loan Borrower Disclosures by FFEL Lenders

Consumer Education Information Provided by Guaranty Agencies

New Audit Requirement for FFEL School Lenders and Eligible Lender Trustees (ELTs) Originating FFEL Loans for an Institution or School-Affiliated Organization

Loan Discharges Based on Total and Permanent Disability

Required Education Loan Borrower Disclosures by Lenders

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Neg Reg—Team II Agenda

Program Participation Agreement (PPA): Code of Conduct

Disclosures of Reimbursements for Service on Advisory Boards

PPA: Private Education Loan Certification Information and Dissemination Activities Exit Counseling PPA: Preferred Lender Lists Required Disclosures for Covered Entities

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Neg Reg – Team II Agenda – con’t

Cohort Default Rate Calculation, Institutional Eligibility, and Default Prevention Plans

Entrance Counseling Direct Loan Borrower Disclosures Mandatory Assignment of Defaulted Loans Expansion of Teacher, Head Start, and Law

Enforcement Cancellation Categories Addition of New Public Service Cancellation

Categories Military Service Cancellation

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Estimated changes in CDRs

Source: New America Foundation

2 years (current rate)

3 years (new rate)

4-year

Private 2.8 4.5

Public 3.5 5.3

For-profit 7.3 13.7

2- to 3-year

Private 7.4 12.2

Public 8.1 12.9

For-profit 9.9 19.5

Less than 2-year

Private 9.0 18.7

Public 5.7 9.7

For-profit 8.9 18.5

Type of School Default Rate

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Never give in, never give in, never, never, never, never--in nothing, great or small, large or petty--never give in except to convictions of honor and good sense.

Author: Winston Churchill

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Thank you!

QUESTIONS