The Inside Track on Federal Loan Issues

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The Inside Track on Federal Loan Issues

• Tami Sato, Southern CA College of Optometry
• Vicki 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 Presidents 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

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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
  bachelors degree within the decade due to
  financial barriers

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New Congress - 111th

• Senate
• Was 51 Democrats 49 Republicans
• Now 56 Democrats - 41 Republicans
• Plus 1 Independent and 1 Independent Democrat
• Minnesota race will be determined by courts
• House
• Was 236 Democrats -198 Republicans
• One vacancy
• Now 254 Democrats 178 Republicans
• Three 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 Obamas Priorities

• Economic Stimulus
• Strengthen Economy/Create Jobs
• Cabinet Confirmation Hearings
• Tax Relief
• Alternative Minimum Tax
• College Tax Credit
• Labor Workforce Development
• Protecting 401Ks
• 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 Families
• Research Funding
• Infrastructure
• Job Training
• State 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 2010
• 7 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 years
• Covers tuition fess, books and course materials
• Partially 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 application
• Maintenance 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 Bill
• Does 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 Alexanders 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 weeks
• 1,000 phone calls
• 1,200 faxes
• 4,000 e-mails
• Consumer Bankers Association electronic petition
• 6,000 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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Presidents 2010 Budget Proposal

• Loan Proposals
• Due to turmoil in the financial markets, the
  Presidents 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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Presidents 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 (Obamas budget predicted
  24B over 5 years and 48B over 10 years)
• CBO estimates that the Presidents 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 dont 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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NASFAAs One Loan Program Model

• Combine positive features of three federal loan
  programs
• Not DL, Not FFELP, Not PSL
• Fixed interest rate
• Single point of contact
• Multiple 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 terms
• Student/borrower advocacy for the life of the
  loan
• Comprehensive 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 Delivery
• Developing 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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Discussion DRAFT
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House Technical Correction Legislation (HR 1777)

• Postpones PLUS loan auctions
• Guaranty 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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Legislative and Regulatory Timeline
ECASLA extension signed into law 10/7/08
HEOA signed into law 8/14/08
HERA signed into law 2/8/06
CCRAA signed into law 9/27/07
ECASLA signed into law 5/7/08
GEN-08-12 published 12/31/08
YOU ARE HERE
Interim final regulations published 8/9/06
Final regulations published 11/1/06 effective
7/1/07
Final regulations published 11/1/07 effective
7/1/08
CCRAA NPRM published 7/1/08
Neg reg public hearings announced 8/19/08
CCRAA Final regulations published 10/23/08
effective 7/1/09
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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 (cont)

• 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 RegTeam 1 Agenda (cont.)

• 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 RegTeam 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 cont

• 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
Type of School Default Rate
Source New America Foundation
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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