Washington Update: Legislative and Regulatory Developments NYSOBBA Annual Conference Syracuse, New York June 10,

1. Washington Update: Legislative and Regulatory Developments NYSOBBA Annual Conference Syracuse, New York June 10, 2013 Harrison M. Wadsworth Executive Director, COHEAO Principal, Washington Partners, LLC hwadsworth@wpllc.net 202-289-3910 www.coheao.org 1

2. The 113th Congress House Senate* • 233 Republicans • 201 Democrats • One vacancy • Previous Congress at its end: • 241 Republicans • 190 Democrats • 4 Vacancies • 54 Democrats* • 45 Republicans One Vacancy: Mass. (Kerry seat) • Previous Congress: • 53 Democrats • 47 Republicans * Dems include two independents who caucus with D’s

3. Senate HELP Committee • Health, Education, Labor & Pensions Com. New Democrats: Tammy Baldwin (WI) Chris Murphy (CT) Elizabeth Warren (MA)

4. Senate HELP Committee • Health, Education, Labor & Pensions Com. New Republican: Tim Scott (SC)

5. Senate HELP Committee Leadership • Health, Education, Labor & Pensions Com. • Tom Harkin (D-IA) Chairman, Also Chairs Appropriations Subcommittee on Labor, HHS, Education • New Ranking Republican: Lamar Alexander replaced Lamar Alexander (R-TN) Mike Enzi (R-WY)

6. House Education & Workforce Committee Leadership Chairman Kline (R-MN) Ranking Dem. Miller (CA) Higher Ed Subcommittee Ranking Dem. Hinojosa (TX) Higher Ed Subcommittee Chairwoman Foxx (R-NC)

7. Ed and Workforce New Members Republicans Matt Salmon, AZ Susan Brooks, IN Richard Hudson, NC Luke Messer, IN Joe Courtney, CT Brett Guthrie, KY Democrats Jared Polis, CO Gregorio Sablan, MI John Yarmuth, KY Frederica Wilson, FL Suzanne Bonamici, OR Marcia Fudge, OH

8. Subcommittee on Higher Education and Workforce Training

9. Subcommittee on Financial Institutions and Consumer Credit – Fin. Serv. Com.

10. Elections: Some Perkins Champions Did Well (on a Bipartisan Basis) • Rep. Cathy McMorris Rodgers (R-WA) now GOP Conference Chair • Rep. Tim Bishop (D-NY) won and remains leading voice among House Dems • Rep. Jaime Herrera-Butler (R-WA) gets Appropriations Committee post

11. The Federal Budget Debate: Some Key Players

12. Stepping Back From the Fiscal Cliff Massive tax increase averted, saving economy from recession and stock market from depression

13. Oops One tax increase went through for all who work: FICA up 25% + other increases for people making over $250K

14. For Those Who Prefer to Pay Less Tax Made Permanent (or at least until Congress changes them again): • Lower “Bush” marginal federal income tax rates for vast majority of taxpayers • Expanded Coverdell Education Savings Accounts • Exclusion for employer-provided educational assistance • Student loan interest deduction • The exclusion from income of amounts received under certain scholarship programs • Tax-exempt private activity bonds for qualified education facilities

15. More Happy Tax News… The following provisions were temporarily extended: • The American Opportunity Tax Credit (5 year extension) • The above-the-line deduction for qualified tuition related expenses. (2 years: 2012 and 2013) • The deduction for certain expenses of elementary and secondary school teachers. (2 years: 2012 and 2013) • Tax credit for research and experimentation expenses. (2 years: 2012 and 2013)

17. “Sequestration” Happened • Budget Control Act of 2011 set in law discretionary spending caps for 10 years (FY ‘12-FY ’21) • Supercommittee (remember that?) 2011 failure triggered sequestration as of March 1, 2013 • $1.176 trillion in automatic cuts between FY 13-21. (Cuts reduced $24 billion in 1/1/13 deal) • 50% from defense, 50% from nondefense programs. • Most education cuts start July 2013.

18. Sequestration for 2013 Education Cuts • FY 13 = fixed percentage across-the-board cuts. • “Cliff” deal of 1/1/13 reduced 2013 cuts to $83 billion – 5.1% for discretionary • Pell grants exempt through AY13-14. • Loan origination fees up 5.1% to 1.051% for new Stafford, 4.204% for PLUS as of 3/1 • Cuts to SEOG, GEARUP, TRIO, Work Study • Cuts to NIH, NSF, NEH, DOE, other research but NSF cuts partially restored • FY 14-21 – lowers discretionary caps instead of across the board cuts • Squeezes education $$; Pell no longer exempt.

19. FY 13 Education Appropriations Report • Final Appropriations Bills Passed March 21, 5 months, 21 days after start of Fiscal Year 2013 • Education Funding Frozen at 2012 levels, minus sequestration cuts • Small very targeted exceptions: political science research funding transferred to NSF • Military tuition assistance funds mostly restored • Process was bi-partisan and done before March 27 deadline giving some hope for less rancor

20. Back to Work! • Next Deadline: Expiration of the suspension of the debt ceiling in May leads to possible crisis sometime this fall.

21. Well maybe

22. Reality Check • Congressional Republicans strategically retreated on taxes (not very far) and punted on the debt ceiling (it is a loser of a political issue – just ask Newt Gingrich) • “We don’t have a trillion-dollar debt because we haven’t taxed enough; we have a trillion-dollar debt because we spend too much.” — --Ronald Reagan, March 28, 1982, and since paraphrased numerous times by Republican leaders.

23. Aren’t We Forgetting Something???

24. Pell/Student Aid Cuts Already Enacted Eliminated the interest subsidy for graduate student loans and for the six-month grace period for undergrads for two years; Limited to 150% of program length the period an undergrad can receive a subsidized Stafford loan; Eliminated summer Pell and reduced to 12 the number of semesters a student can receive a grant; Eliminated ATB and made it more difficult for some low-income students to automatically qualify for the maximum Pell grant; and Cut eligibility for the minimum award.

25. Pell/Student Aid Cuts Enacted • College students have contributed or will contribute $4.6 billion out of their pockets to deficit reduction. • More than 145,000 students have lost their Pell grant. • Maintaining Subsidized Stafford interest rates at 3.4% also costs roughly $6 billion per year • [more on that later]

26. The Perkins Picture 2012-13: • No funds appropriated for Perkins in because President didn’t ask for them AND all programs level funded in ’13 with no reviews. • BUT: Perkins remains popular in Congress, the Program continues at least through FY 2015, and the Department advises that schools should make loans- no excess cash! • Can Transfer Funds from Work Study to Perkins fund

27. Student Aid and the Future • Is remaining Stafford Loan subsidy for undergrads soon to be an “offset?” • Are fixed interest rates done? • Back to the future: variable rates? • Doubling of subsidized Stafford interest rates looms • How to pay for it?

28. Student Loan Rates • Myriad of proposals to change Stafford, PLUS rates before 1 July when subsidized rates go from 3.4 to 6.8% • House passed bill May 23: annually changing interest rates with caps • President, some senators proposed annually varying fixed rate, no cap • Others: extend 3.4% rate 2 years while HEA changes considered 28

29. Crossing To the Next Topic 29

30. Regulations and Rules • Higher Education Act requires “negotiated rulemaking” to write or change regulations in most cases. • Negotiating committee of interested parties appointed by Secretary of Education • Study abroad issues can be tricky • 1st “Foreign School” negotiation in 2010; • New negotiation starting September . 2013 30

31. NegReg 2013 • Postponed from 2012, topics added • Agenda open for comment until 4 June • Financial aid fraud and abuse • Campus debit cards used for Title IV funds • Gainful Employment (court decision) • Cash management – shortening time to give cash to students, looking at how Title IV funds used while held by institution 31

32. NegReg 2013 Agenda… • PLUS Loan adverse credit definition • Clock to credit hour conversion • Clery Act (Crime reporting) changes made by VAWA update of 2013. • State authorization of distance ed programs (court decision) • State authorization of foreign locations of US institutions 32

33. College Cost: Bipartisan Concern • “College Price Increases out of control” • “Student Loan debt burden excessive” • Debt “bubble?” • Whose fault is it? • Something must be done! • Colleges Are Targeted for “something”

34. College Prices and Costs • Obama campaign highlighted cost of college • Full PR campaign launched with allies in consumer groups, blogs, other media, CFPB • Promised to halve the rate of HE price increases • Risk sharing by colleges • Obama will push already announced initiatives, including campus-based program changes • But…Congress needs to go along for anything big to happen

35. President’s Plan: Use Campus Based Programs to Control College Costs • “Address rising college tuition costs” by "rewarding colleges and universities that act responsibly in setting tuition, providing the best value, and serving needy students well.” • Proposal: new “Unsubsidized Perkins Loan” program now with up to $8.5 billion in loan volume (was $8 bil). • Current Perkins volume is about $1 billion a year. • Like previous proposals, ED would originate and service Perkins Loans, which would look the same to students as Unsubsidized Stafford Loans: • Congress: Not the least bit interested • Using “Fair Value Accounting” it costs the government $7.2 billion over 10 years – Republicans favor FVA

36. Moving Beyond Perkins: Some More Key COHEAO Issues • Consumer Financial Protection Bureau • Bankruptcy Law Changes • Private Loan Issues/CFPB • Telephone Consumer Protection Act • Coalition Continues – maybe next year for action on autodialing to cell phone restrictions • Financial Literacy • Other AR issues

37. Ongoing Student Loan/Higher Education Consumer Issues to Monitor in the 113th • HEA—will it happen? Mini Reauth in 2013? • CFPB, particularly interaction with ED • Shopping sheet • Direct Loan servicer RFI – tug of war with ED? • Re-fi market? • Private loan servicing standards? • Troubled loan RFI • Loan repayment and federal loan servicing • Is IBR a panacea? • Complexity an ongoing issue • PLUS Loans: underwriting issues • Too lax or too tough?

38. CFPB • CFPB here to stay, all agree • More focus on institutional loans later • Leadership in Question • Deputy Director Date departed January 31, Cordray may return to Ohio to run for Gov. • Senate unlikely to confirm him • Elizabeth Warren on Senate Banking and HELP Committees • Constant stream of initiatives

39. Private Student Loan Ombudsman  FUNCTIONS OF OMBUDSMAN:(1) in accordance with regulations of the Director, receive, review, and attempt to resolve informally complaints from borrowers of loans described in subsection (a), including, as appropriate, attempts to resolve such complaints in collaboration with the Department of Education and with institutions of higher education, lenders, guaranty agencies, loan servicers, and other participants in private education loan programs;

40. Ombudsman (2) establish a memorandum of understanding with the (Ed Dept.) student loan ombudsman to ensure coordination in providing assistance to and serving borrowers seeking to resolve complaints related to their private education or Federal student loans;(3) compile and analyze data on borrower complaints regarding private education loans; and(4) make appropriate recommendations to the Director, the Secretary, the Secretary of Education, (and Congressional Committees) See: http://www.dodd-frank-act.us/Dodd_Frank_Act_Text_Section_1035.html.

41. Office of Financial Education • Active on the Financial Literacy and Education Commission and the President’s Advisory Council on Financial Capability. • Created “Shopping Sheet” • Part of Office of Consumer Education & Engagement • Same CFPB silo as “Office of Students,” “Office of Seniors,” “Office of Servicemembers,” etc. • Office headed by Gail Hillebrand, formerly senior attorney with Consumers Union.

42. Complaints • System controversial with industry because complaints are not verified before posting. • Banks say exemption for smaller banks (<$10 billion) unfair to large ones • SL complaints reflect market share, but headlines don’t make that distinction • 4% total complaints – 4,600– 3/28 CFPB Report • Anecdotally: companies act fast on CFPB queries – 94% response rate makes it popular with consumers

44. Collection Agency Focus By CFPB • Dodd-Frank Act requires supervision of certain non-bank covered persons: • All providers of private student loans • ‘‘larger participant[s] of a market for other consumer financial products or services, as the Bureau defines by rule.” • Complaint database also launched for public complaints – both on student loans and collections in general • Default problem is SL category

45. CFPB Examinations • Review of collection agencies with more than $10 million in annual revenues • About 175 agencies/law firms nationwide, with 60% of total collections • Three examinations reported underway: • NCO • Allied Interstate • West Asset Management

46. Bankruptcy Law Proposals • Current law: all education loans as defined by tax law are dischargeable in bankruptcy when there is undue hardship to debtor or dependents • Recent study: very few try to discharge, thinking it’s impossible, but it’s not! • Bills call for dropping undue hardship requirement for private loans only • Government loans would remain non-dischargeable including from any “government units”

47. Telephone Consumer Protection Act • Joint 2012 reform effort thwarted when 49 state AGs opposed bi-partisan Terry-Towns bill allowing more calls to cell phones. • Primary reason:  pre-emption, telemarketing • Alliance for Mobile Information: New coalition led by US Chamber of Commerce to continue the reform effort to permit use of auto-dialers to call cell phones • Action will most likely happen next year (hopefully).  

48. Tax Reform: Lofty Goal with HE Issues • Major re-write of federal tax code for first time since 1986 being discussed Issues affecting higher education: • Charitable donation deduction -- cut? • Tax exempt bonds: limit use? • Tax credits for tuition, employers etc. (very hard to use to offset Pell Grants) • Student loan interest deduction • Role of non-profits in politics

49. Bye for Now!