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Times Change and We Change With Them

Times Change and We Change With Them. Rocky Mountain Association of Student Financial Aid Administrators October 2008 Brett Lief, President National Council of Higher Education Loan Programs. Changing Times. The Current Times In the Beginning. . . Time Goes On. The Current Times.

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Times Change and We Change With Them

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  1. Times Change and We Change With Them Rocky Mountain Association of Student Financial Aid Administrators October 2008 Brett Lief, President National Council of Higher Education Loan Programs

  2. Changing Times • The Current Times • In the Beginning. . . • Time Goes On

  3. The Current Times • Insatiable demand for student aid • Number of students seeking postsecondary education and training will increase by two million by 2013 then level off • Slowing economy has already resulted in substantial increases in enrollment • Economic difficulties (job loss, stagnant salaries, decline in home value) increase demands on federal program • Postsecondary education and training costs continue to rise

  4. The Current Times • Federal and state grant and scholarship funding will lose “purchasing power” • Market constriction has severely limited access, and will continue to limit availability, of private loans • Less available home equity and higher financing costs will prevent families from using this payment method as a convenient resource

  5. The Current Times • So far, students have access to federal Stafford loans although there are some areas at risk

  6. In the beginning there was an uninterrupted source of low-cost student loans. . . and then . . .

  7. Robbing Peter & Pauline to Pay for Pell • 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 participants to increase Pell and other student aid funding

  8. Robbing Peter & Pauline to Pay for Pell • Deficit Reduction Act • Increased loan limits • First year Stafford from $2,625 to $3,500 • Second year Stafford from $3,500 to $4,500 • New grant programs • Academic Competitiveness Grants & National Science and Mathematics Grants to Attract Talent (SMART) Grants • 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

  9. All recent increases in federal student aid occurred without one new dollar

  10. What Was Not Known • Complete seizure of financial markets • Financing costs for student loans are averaging 125 points higher than a year ago • Finaid.org reports that 137 lenders have exited or suspended their participation in FFELP lending and 35 lenders have suspended their private loan programs • Failed securitizations have become the norm

  11. Congressional Response • H.R. 5715 – The Ensuring Continued Access to Student Loans Act of 2008 • Provided the Department of Education with authority to provide student loan liquidity • Together with the Treasury Department, the Education Department announced on May 21, 2008 a plan to ensure access to student loans

  12. Congressional Response • HR 6889 – Extension of Student Loan Purchase Authority/Extension Of Authority To Designate Lenders For Lender-of-last-resort Program [law enacted October 7, 2008] • HR 7072 – Technical corrections in the Ensuring Continued Access to Student Loans Act of 2008 • Direct Advances • Maintenance of servicing by existing servicer • Use of proceeds • Rehabilitated loans eligible for Participation and Put programs

  13. Time Goes On

  14. The Bigger Financial Picture • Themes originating during the Troubled Asset Relief Program (TARP) deliberations • Increased regulation • More stringent oversight • Greater transparency • Executive compensation • The government as “partner”

  15. When All The Eggs Are In One Basket • Possible concerns for schools • 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”

  16. What we are facing • Increasing demand for student aid • FAFSA simplification (from 120 questions to less than 30) • ED Secretary estimates 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

  17. What we are facing • Expansion of Pell grant funding through CCRA • Currently costs $400-500 million to increase grants $100 • Estimate cost of over $1 billion by 2012 • Current Pell grant shortfall of $5.9 billion (Recent Continuing Resolution included $2.5 billion paydown) • Estimated total federal student aid shortfall in excess of $10 billion • Estimated total student loan volume of $500 billion in first term of new president

  18. What we must prevent -- • The Advisory Committee on Student Financial Assistance projects 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

  19. Questions?

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