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The Inside Track on the Federal Loan Programs


The Inside Track on the Federal Loan Programs Janet Dodson NSLP SUNYFAP 2009 April, 2009 * – PowerPoint PPT presentation

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Title: The Inside Track on the Federal Loan Programs

The Inside Track on the Federal Loan Programs
  • Janet Dodson
  • NSLP
  • SUNYFAP 2009
  • April, 2009

  • The New Congress and New Administration
  • The Stimulus Package and the Presidents 2010
    Budget Proposal
  • Possible new public policies and impact on higher
  • A New Student Loan Program for America
  • Parent PLUS Pilot Auction
  • 2009 Negotiated Rulemaking

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

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

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

New Congress - 111th
  • Senate
  • was 51 Democrats 49 Republicans
  • now 56 Democrats - 41 Republicans
  • plus one Independent and one Independent Democrat
  • Minnesota race will be determined by courts
  • House
  • was 236 Democrats -198 Republicans
  • one vacancy
  • now 254 Democrats 178 Republicans
  • three vacancies

New Department of Education
  • Arne Duncan -- Secretary of Education
  • Carmel Martin -- Assistant Secretary for
    Planning, Evaluation and Policy Development
  • Marshall Smith Special Assistant
  • Robert Shireman now a full time employee

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

Priorities in Congress
  • Healthcare Reform
  • Stem Cell Research
  • Prescription Drugs
  • Immigration Reform
  • Mexico City Policy
  • Regulatory Reform
  • No Child Left Behind Reauthorization
  • Columbian Free Trade Agreement
  • Vietnam Free Trade Agreement
  • Fast Track
  • Federal Aviation Administration Authorization

Priorities in Congress
  • Omnibus Energy Bill
  • Intelligence Authorization
  • FISA (Foreign Intelligence Surveillance Act)
  • Defense Authorization
  • Torture/water boarding
  • Cuba
  • Net neutrality
  • Broadband expansion
  • Patent Reform
  • Intellectual property protection
  • Alternative Minimum Tax

American Recovery and Reinvestment act
  • Helping Students and Families
  • Research Funding
  • Infrastructure
  • Job Training
  • State Fiscal Relief

American Recovery and Reinvestment act
  • Recovery Program Plans by May 1st for each
  • Additional transparency
  • to provide weekly and monthly
    financial reporting on stimulus spending

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

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

American Recovery and Reinvestment act
  • State fiscal relief
  • state stabilization fund
  • 48.3 billion to be distributed via population
  • 39.5 billion to education (K-12 and public
  • 8.8 billion to governors
  • state application
  • maintenance of effort required

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

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
  • significant increases in bond financing costs

Impact for schools (cont.)
  • Level funding for federal and state grant
  • economists predict 1 trillion annual deficit for
    each of the next three years
  • thirteen states forced to reduce enacted budgets
    in fiscal 2008

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

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
    July 1, 2010
  • makes campus-based aid more widely available
    through a modernization of the Perkins loan

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

Presidents 2010 budget proposal
  • College completion access
  • makes the 2,500 American Opportunity tax credit
  • create a new five-year, 2.5 billion Access and
    Incentive fund to support efforts to help
    low-income students succeed and graduate from
  • includes an evaluation component to ensure best
  • triples number of graduate fellowships in science
    to spur innovation 

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
  • Obama challenged his critics to offer
    constructive, alternative solutions.
  • Source CQ Today 3/17/09

Design principles a student loan program for
  • Stabilize funding and encourage continued
    competition and choice for students, families and
  • Standardized borrower terms
  • Student/borrower advocacy for the life of the
  • Comprehensive school services

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

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

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

Discussion DRAFT
FFELP and school successes
  • Providing consistent source of low-cost aid for
    students and families
  • 750 billion student aid for millions of students
    over 43 years
  • Student loan repayment rates average over 94
    percent for the past eight years
  • We have overcome challenges
  • budget reconciliations
  • financial market failures

PLUS loan pilot auctionApril 9, 2009 cancelled.
  • Program established under CCRAA
  • requires pilot program to auction FFELP parent
    PLUS Loans
  • auction will be held in each state every two
  • All eligible loans will be insured by FFELP
    guaranty agency
  • Effective for first-time parent PLUS borrowers,
    for loan periods beginning on or after July 1,
    2009 and ending June 30, 2011

PLUS Loan Pilot Auction
  • March 3, 2009 Federal Register notice provides
    invitation for eligible lenders to participate in
    Competitive Loan Auction pilot program
  • Important dates
  • April 1 deadline for submission of
    pre-qualification information
  • April 1 deadline for submission of PLUS Lender
    of Last Resort (LLR) applications
  • April 15 auction will be conducted
  • April 24 winning bidders announced
  • Will it be postponed YES IT WAS!!!

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
Interim final regulations published 8/9/06
Final regulations published 11/1/06 effective
Final regulations published 11/1/07 effective
NPRM published 7/1/08
Neg reg public hearings announced 8/19/08
Final regulations published 10/23/08 effective
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

Neg reg team I agenda
  1. Determining borrower eligibility for in-school
  2. Borrower notification when the transfer, sale, or
    assignment of a loan results in a change in the
    party to whom payments must be sent
  3. Lender and guaranty agency prohibited inducements
  4. Lender forbearance and borrower contact
  5. Applicability of the service members Civil Relief
    act to FFEL and Direct Loan borrowers and related
    FFEL lender special allowance payment calculations

Neg regteam I agenda (cont.)
  1. Guaranty agency notifications to borrowers in
    default financial and economic literacy for
    rehabilitated borrowers
  2. PLUS loan deferments and interest capitalization
  3. Consolidation loan borrower eligibility and
    applicant disclosures
  4. Consumer credit reporting after loan
    rehabilitation eligibility for loan
  5. FFEL and Direct loan teacher loan forgiveness

Neg regteam I agenda (cont.)
  1. Required education loan borrower disclosures by
    FFEL lenders
  2. Consumer education information provided by
    guaranty agencies
  3. New audit requirement for FFEL school lenders and
    eligible lender trustees (ELTs) originating FFEL
    loans for an institution or school-affiliated
  4. Loan discharges based on total and permanent
  5. Required education loan borrower disclosures by

Neg regteam II agenda
  1. Required disclosures for covered entities
  2. Program participation agreement (PPA) code of
  3. Disclosures of reimbursements for service on
    advisory boards
  4. PPA private education loan certification
  5. Information and dissemination activities
  6. Exit counseling
  7. PPA preferred lender lists

Neg regteam II agenda (cont.)
  1. Cohort default rate calculation, institutional
    eligibility, and default prevention plans
  2. Entrance counseling
  3. Direct loan borrower disclosures
  4. Mandatory assignment of defaulted loans
  5. Expansion of teacher, head start, and law
    enforcement cancellation categories
  6. Addition of new public service cancellation
  7. Military service cancellation

Estimated changes in CDRs
Type of School Default Rate
2 years (current rate) 3 years (new rate)
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
Source New America Foundation
  • 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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