Student Loan Update

1. Student Loan Update NASSGAP Fall 2009 Conference October 5, 2009 Brett E. Lief, President National Council of Higher Education Loan Programs

2. FFEL as we knew it in 2006 is gone. It will not return.The question is, “What will student loans look like in the future?”

3. Building a Foundation • Investigations by NY Attorney General Andrew Cuomo • Back-to-Back Budget Reconciliations • The Deficit Reduction Act of 2005 and the College Cost Reduction and Access Act of 2007 shifted approximately $40 billion of funding from the FFEL Program to increase Pell and other student aid funding

4. Building a Foundation • Deficit Reduction Act • Increased loan limits • New grant programs • Created College Access Initiative • College Cost Reduction & Access Act • Increased Pell Grant maximum to $5,400 over five years, e.g. cost of $11.4 billion

5. The Results • All recent increases in federal student aid occurred without one new dollar

6. Changing Priorities

7. New Higher Education Priorities Determined on the Campaign Trail • President Obama’s higher education platform during the campaign • Access and success for all eligible students • Simplify FASFA • Support college outreach programs (GEAR UP, TRIO) • Expand Pell • Eliminate lender “subsidies” in student loans

8. House Higher Education Priorities –Student Aid and Fiscal Responsibility Act • Student Aid and Fiscal Responsibility Act • CBO “savings” of $87 billion • 100% federal Treasury funding of student loans by July 1, 2010 • No changes in loan amounts • Subsidized Stafford Loans variable rate after 7/1/2013 • T-Bill + 2.5%, capped at 6.8% • Revamping the Perkins Program • Mandatory Funds for Pell Grants • FAFSA Simplification • Funding for Community Colleges and other items • Approx. $10 billion for “deficit reduction” • Passed 253 to 171 on September 18th

9. House Higher Education Priorities • Uses $40 Billion of “Savings” • Establishes a “Permanent Mandatory Appropriation” for Pell • Maximum Pell Grant will $5,550 for AY 2010-11 • Maximum Pell Grant would increase by CPI + 1% in future years • If CPI = 3%, 2011-12 Pell Maximum would be $5,775 (rounded up to nearest $5) • Pell Grant appropriations cannot go down

10. House Higher Education Priorities – Perkins Loans of the Future • Recall Perkins Revolving Funds • Increase Annual Lending from $1billion to $6 billion per year • Changes in Loan Terms: • Remove In-School Interest Subsidy • Retain 5% fixed interest rate • 1% origination fee • 6 month grace period • Package Perkins Loans After Stafford Loans • Redistribute Funds Based on • New “Fair Share” Formula • Factors such as relative proportion of Pell Grant recipients who graduate & relative cost of institution compared to peers • Federal Government Assumes Servicing • All Effective 7/1/2010

11. House Higher Education Priorities –College Access & Completion Innovation Funds • Three Funds: • College Access Challenge Grant • State Innovation Completion Grants • Innovation in College Access and Completion National Activities • Focus is on Access & Retention • States are Primary Recipients • Schools & Non-Profits could have direct access to some funds

12. Senate Higher Education Priorities • HELP Committee Set to “Mark-Up” • Senate Floor Consideration is Next • Reconciliation or Regular Order? • 50 votes or 60 votes? • Significant Floor Amendments? • Reconciliation?

13. A Year in Review, A New Proposal and Possible Outcomes

14. A Year in Review • Averted approximately $60 billion in defaults in FY 08 • Approximately 7,500 financial aid/college nights • Over 1.2 million students and parents participated in financial aid/college nights • Over 2,700 training workshops • Over 17,500 secondary school counselors trained • Approximately 11.5 million brochures published -- in multiple languages • Approximately 4.3 million phone call and email contacts.  NCHELP Survey, October 2009

15. Proposal that Saves and Preserves School Choice and Services • Allows schools to choose a service provider, including loans originated as Direct Loans • Eliminates all differences in loan terms and conditions between FFEL and Direct loans on new loans • Allows for continued origination of loans by private non-profit lenders, albeit with required sale to ED

16. Proposal that Saves and Preserves School Choice and Services • Expands borrower assistance and advocacy through guarantors—includes default aversion and financial literacy • Requires servicer risk-sharing of 3 percent on loans that default during first four years of repayment • Sets aside 1/3 of college access and completion fund to support non-profits, guarantors and state agencies on financial literacy and similar outreach efforts

17. Proposal that Saves and Preserves Choice and Services • Expands the Asset-Backed Commercial Paper conduit to allow for the financing on consolidation loans made between May 1, 2003 and July 1, 2009

18. Proposal that Saves and Preserves School Choice and Services Benefits: • Equals the mandatory savings in the official budget score for H.R. 3221 • falls short over 10 years when discretionary spending associated with loans is considered • Eliminates school transition risk • Leaves much of FFEL infrastructure in place

19. Proposal that Saves and Preserves School Choice and Services The Goal is to Preserve: • Choice and competition • Services demanded by students and schools • 35,000 jobs that support a successful student loan experience

20. Possible Outcomes • Greater reliance on federal funds • Federal goals could become school and state unfunded mandates • FAFSA simplification • Federal Direct Perkins Loans • Federal priorities impacting school and state priorities • Academic progress/graduation rates • Stimulus package fund usage • Implementation of the “Golden Rule” • Those who have the gold rule!

21. Questions