History Lessons in Financial Aid: No fairies or leprechauns here

1. History Lessons in Financial Aid:No fairies or leprechauns here presented by Julie Meyer & Michelle Mohn Special thanks to Dave Rice in researching and preparing these materials

2. Today’s Agenda • Four eras • The early years prior to 1979 • The 1980s • The 1990s • The first decade of the new millennium • Four issues • The economy • Regulations • Processing and technology • The competition

3. The Nation’s 1st University • Harvard established 1636 • 1643 = First Harvard scholarship program • 1840 = First student loan offered at Harvard

4. Key Dates • 1636 = Our nation’s first postsecondary institution, Harvard, is established • 1958 = National Defense Student Loan Program (precursor to Perkins Loan Program) • 1965 = The Higher Education Act (HEA) creates the Federally Insured Student Loan Program (FISL) • 1966 = NASFAA created • 1967 = MASFAP created

6. More Key Dates • 1978 = Guaranteed Student Loan (GSL) Program • 1992 = GSL renamed FFELP & DL created • 2006 = Higher Education Reconciliation Act (HERA) • 2007 = College Cost Reduction and Access Act (CCRAA) • 2008 = ECASLA (June) and HEOA (August) • 2009 = Our nation’s first African-American President takes office

7. The Early Years 1979 and before

8. GI BILLAct of June 22, 1944The Servicemen's Readjustment Act of 1944 put higher education within the reach of millions of veterans of World War II and later military conflicts. The GI Bill of 1944 President was Franklin D. Roosevelt Large numbers of WWII veterans returning home

9. The Cold War & Space Race • Sputnik program 1957 • President was Dwight “Ike” Eisenhower • New focus on science and technology to compete with the Soviet Union

10. Response to Sputnik President Eisenhower in front of a Saturn 1 vehicle at the Marshall Space Flight Center dedication on September 8, 1960

11. LBJ’s educational message Higher education opportunities for lower and middle class families Utilization of postsecondary resources to help combat poverty Improved libraries on campuses Assistance to smaller colleges

12. 1950 and 1970: The economy

13. Student Loan Terms • 5% interest subsidy for student loan borrowers: • while in school • for families with incomes of less than $15,000 • Loan limits • Annual = $1,500 • Aggregate = $9,000 • Loan funding sources • Federal government • Private lenders (beginning October 16, 1968)

14. Early SFA Regulations • Minimal FISL regulations defining: • Borrower eligibility and school certification requirements • Loan terms (interest rates, etc.) • Federal Student Aid Handbook 1979 • Reference document explaining regulatory requirements • 1979-80 edition: • 10 chapters • About 150 pages • Table of contents less than a page

15. Early Processing and Technology • The FISL experiment (and failure) • Zero technology • Loans processed 100% manually and via paper • Stories commonly told by FAOs • Lost applications • Loans that were never funded/disbursed • Processing turnaround time (TAT) = months long

16. The Early Competition • Private lenders enter the market October 16, 1968 • Lenders reluctant to sink investment dollars into borrowers with little to no income and no proven credit history • No real competition between private lenders and federal government

17. The 1980s

18. Early Technology • Pacman hit video arcades in 1981

19. Reaganomics Reagan was a proponent of large tax cuts, a strong military (“peace through strength”), and “trickle down” economics

21. The end of the cold war The Berlin Wall is torn down in 1989, representing an end to the “iron curtain”

22. The 1980’s Economy

23. 1980’s Student Loan Terms • High, high interest rates nationally • Student loan rates rise, ranging between 8% and 14% • Fees on student loans introduced August 23, 1981 • Guarantee Fee = 3% • Origination Fee = 5% • Generous revenues for lenders • Change in special allowance so that yield floats according to the Treasury-Bill auctions (T-Bill plus 3.5%)

24. Regulations in the 1980s • Federal laws and regulations steadily increase • Guaranteed Student Loan Program (GSL) created 1978 • Guarantors offered individual policy guidance • January 1, 1981: • Grace period introduced • Loan limits segmented • Additional loan types created • During 1986: • Exit counseling requirement introduced • Disbursement and delivery rules made more complex • Deferments become significantly more difficult to obtain • Refund rules and formulas introduced • Lender of Last Resort (LLR) created

25. 1980’s Processing &Technology • Processing 90% manual; technology beginning to be introduced • University of Missouri implements one of the first home-grown FAMS in country • WhizKid introduced in 1985 by USA Funds • Large number of participating lenders and most processed in house • 750 lenders in Missouri

26. Competition in the 1980s • Friendly competition on a small scale • Technology and products • Lender competition • Guarantor competition • Each state = designated guarantor • Two main “national” guarantors competing against state-designated guarantors • USA Funds • Higher Education Assistance Foundation (HEAF)

27. The 1990s

29. President Bill Clinton • Proposed direct lending during his campaign

31. The 1990’s Economy

32. 1990’s Student Loan Terms • Interest rates decline dramatically • Student loan fees decline • Lenders, servicers, and guarantors introduce fee subsidies, borrower benefits, and other aggressive pricing strategies • Trend begins of cutting revenues to lenders, servicers, and guarantors • Smaller, hometown lenders exited program • Remaining lenders began using servicers heavily

33. Regulations in the 1990s • 1992 Reauthorization • Cohort Default Rates (CDRs) introduced • Schools with high CDR not eligible to participate in Title IV • 30-day delayed delivery of loan funds • Common forms and reporting formats • Common Manual introduced in 1995 • Variable interest rates • Stafford rate based on the 91-day T-Bill with a cap of 8.25%

34. 1990’s Processing &Technology • Early 1990s = School-based software (SBS) • Late 1990s = Web-based loan delivery products • After 1992 reauthorization • Numbers of lenders declined • Servicing gained efficiencies and decreased costs • Common forms and formats • CommonLine • Common application • Central Disbursing Agents (CDAs) • NSLDS replaced the paper FAT

35. Competition in the 1990s • Competition heats up • DL program created by 1992 reauthorization • Complete phase out of FFELP planned (did not happen) • FFELP response: collaboration • Common Manual • CommonLine • ELM • CDAs • Competition factors • Pricing • Anti-inducement regulations

36. The First Decade of the New Millennium

37. Hurricane Katrina August 2005

38. http://news.aol.com/story/_a/flood-puts-city-in-iowa-at-gods-mercy/20080612191009990001http://news.aol.com/story/_a/flood-puts-city-in-iowa-at-gods-mercy/20080612191009990001

39. http://www.walletpop.com/loans/what-the-wall-street-crisis-means-for-you?icid=100214839x1210519818x1200650140http://www.walletpop.com/loans/what-the-wall-street-crisis-means-for-you?icid=100214839x1210519818x1200650140

40. The Year 2000

41. The New Millennium & Student Loans • Interest rates stay low • Student loan fees • Origination Fee is phased out by the HERA • 1% FDF required by HERA • Massive cuts to revenues by CCRAA • “Credit crunch” begins late 2007 • LLR plans updated in preparation

42. President Barack Obama

43. Regulations • All Title IV programs heavily micro-managed • FSA Handbook grown to 8 volumes comprised of 8-10 chapters each • FINAID-L • Continuous year-round legislation • Higher Education Reconciliation Act (HERA) – 2005-06 • College Cost Reduction and Access Act (CCRAA) – 2007 • Ensuring College Access (ECASLA) – 2007 • Higher Education Opportunity Act (HEOA) – 2008

44. Processing andTechnology • 90-99% of FAFSAs and loan applications processed online • Electronic signature • Master Promissory Note (MPN) • Student loan change transactions • Private/alternative loans • LLR procedures allow school-based participation

45. Competition • Early 2000s: Competition frenzied; financial aid community flooded with sales visits and pressure • Controversy over student loan marketing practices • Cuomo investigations • New focus on ethics and conflicts of interest • Post credit crunch • Competition cools down • Pricing changes • Liquidity concerns

46. The Future To understand where we might be headed, we must first understand where we have been . . . And why

47. The Future • National discussions about the future of financial aid and student loans • NASFAA’s “national conversation” • College Board report September 2008 • President Obama’s budget proposal • Competitive PLUS Auction

48. Questions? Julie Meyer Michelle Mohn Financial Aid Director St. Louis College of Health Careers (314) 652-0300 mmohn@slchcmail.com Marketing Director MDHE (573) 526-3026 julie.meyer@dhe.mo.gov