The Inside Track on Federal Loan Issues

1. The Inside Track on Federal Loan Issues Tami Sato, Southern CA College of Optometry Vicki Shipley, National Council of Higher Education Loan Programs (NCHELP) WASFAA April 2009 1

2. Agenda • The New Congress and New Administration • The Stimulus Package and the President’s 2010 Budget Proposal • Possible new public policies and impact on higher education • A New Student Loan Program for America • 2009 Negotiated Rulemaking

3. 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

4. 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

5. 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 bachelor’s degree within the decade due to financial barriers The Gap we must Overcome

6. New Congress - 111th • Senate • Was 51 Democrats – 49 Republicans • Now 56 Democrats - 41 Republicans • Plus 1 Independent and 1 Independent Democrat • Minnesota race will be determined by courts • House • Was 236 Democrats -198 Republicans • One vacancy • Now 254 Democrats – 178 Republicans • Three vacancies

7. New Department of Education • Arne Duncan -- Secretary of Education • Martha Kanter – Nominee for Under Secretary • Carmel Martin -- Assistant Secretary for Planning, Evaluation and Policy Development • Marshall Smith – Special Assistant • Robert Shireman – Special Assistant • Dan Madzelan – Acting Assistant Secretary

8. President Obama’s Priorities • Economic Stimulus • Strengthen Economy/Create Jobs • Cabinet Confirmation Hearings • Tax Relief • Alternative Minimum Tax • College Tax Credit • Labor & Workforce Development • Protecting 401K’s • FY2010 Budget Priorities

9. Healthcare Reform Stem Cell Research Prescription Drugs Immigration Reform Mexico City Policy Regulatory Reform No Child Left Behind Reauthorization Omnibus Energy Bill Intelligence Authorization FISA (Foreign Intelligence Surveillance Act) Defense Authorization Torture/water boarding Columbian Free Trade Agreement Vietnam Free Trade Agreement Fast Track Federal Aviation Administration Authorization Cuba Net neutrality Broadband expansion Patent Reform Intellectual property protection Alternative Minimum Tax Priorities In Congress

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

11. American Recovery and Reinvestment Act • “Recovery Program Plans” by May 1st for each program • Additional Transparency • www.recovery.gov – to provide weekly and monthly financial reporting on stimulus spending

12. 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

13. 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

14. American Recovery and Reinvestment Act • State Fiscal Relief • State Stabilization Fund • $48.3 billion – to be distributed via population formula • $39.5 billion to education (K-12 and public colleges) • $8.8 billion to governors • State application • Maintenance of Effort required

15. 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”

16. 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 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. 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 committees

18. Budget Process –The Role of Congress • Budget Bills • House Bill • Includes reconciliation instructions to Education and Labor Committee to reduce budget by $1 B • Senate Bill • Does not include similar reconciliation instructions • Includes amendment by Senator Lamar Alexander • “to maximize higher education access and affordability by ensuring that institutions of higher education and their students are able to continue to participate in a competitive student loan program, in order to maintain a comprehensive choice of student loan products and services.”

19. Budget Process –Citizen Impact on Congress • Senator Alexander’s Amendment was due to him hearing from constituents • Letters to the Senator from school groups • Expressions of concern to other members of Congress over the past few weeks • 1,000 phone calls • 1,200 faxes • 4,000 e-mails • Consumer Bankers Association electronic petition • 6,000+ signers

20. House Budget Committee Report Language “The Committee urges the Committee on Education and Labor to review options for the student loan program that will maintain a role for FFELP lenders in the student loan program, and to look to ways to achieve savings that capitalize on current infrastructure and minimize the disruption to students and the employees of FFELP lenders who currently serve 75 percent of loans at American colleges, universities, and community colleges.”

21. Budget Process –After Spring Recess • The Budget Bills • Bills proceeds to a conference committee • Committee must merge House and Senate versions • Primarily done by staff over Spring recess • Currently, it appears that the reconciliation instructions will be included and the Alexander Amendment will be omitted • Both pieces are still “in play” – constituent lobbying may play a factor • Committee report will be considered by both House and Senate and then bill goes to the President for signature

22. President’s 2010 Budget Proposal • Loan Proposals • Due to “turmoil” in the financial markets, the President’s budget requests that Congress end the entitlements for financial institutions that lend to students by eliminating the FFEL Program by 7/1/10 • Makes campus-based aid more widely available through a modernization of the Perkins Loan Program

23. President’s 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 • College Completion & Access • Makes the $2,500 American Opportunity Tax Credit permanent • Create a new five-year, $2.5 billion Access and Incentive Fund to support efforts to help low-income students succeed and graduate from college • Includes an evaluation component to ensure best practices • Triples number of graduate fellowships in science to spur innovation 

24. CBO Budget Projections • Cost to make Pell an entitlement - $116B over 5 years and $293 over 10 years • Elimination of FFELP will save $47B over 5 years and $94B over 10 years (Obama’s budget predicted $24B over 5 years and $48B over 10 years) • CBO estimates that the President’s budget proposals will add $4.8 trillion to the baseline deficits over the 2010-19 time period • If proposals enacted – 2009 deficit would be $1.8 trillion and 2010 would be $1.4 trillion

25. 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 don’t need more point-scoring – we need more problem-solving.” • Obama challenged his critics to offer “constructive, alternative solutions.” Source: CQ Today 3/17/09

26. NASFAA’s One Loan Program Model • Combine positive features of three federal loan programs • Not DL, Not FFELP, Not PSL • Fixed interest rate • Single point of contact • Multiple funding sources (including Education Finance Bonds) • Servicing with bidding contracts

27. Design Principles - A Student Loan Program for America • Stabilize funding and encourage continued competition and choice for students, families and schools • Standardized borrower terms • Student/borrower advocacy for the life of the loan • Comprehensive school services

28. 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

29. 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

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

31. Discussion DRAFT 31

32. House Technical Correction Legislation (HR 1777) • Postpones PLUS loan auctions • Guaranty agencies able to sell rehabilitation loans to the Department of Education • Remove GI Bill benefits from consideration for campus-based aid and subsidized loans • Clarifies that guaranty agencies and lenders may conduct entrance and exit counseling on campus

33. 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 YOU ARE HERE Interim final regulations published 8/9/06 Final regulations published 11/1/06 effective 7/1/07 Final regulations published 11/1/07 effective 7/1/08 CCRAA NPRM published 7/1/08 Neg reg public hearings announced 8/19/08 CCRAA Final regulations published 10/23/08 effective 7/1/09

34. 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

35. Neg Reg – Team 1 Agenda • Determining Borrower Eligibility for In-School Deferment • Borrower Notification When the Transfer, Sale, or Assignment of a Loan Results in a Change in the Party to Whom Payments Must be Sent • Lender and Guaranty Agency Prohibited Inducements • Lender Forbearance and Borrower Contact Requirements • Applicability of the Servicemembers Civil Relief Act to FFEL and Direct Loan Borrowers and related FFEL Lender Special Allowance Payment Calculations

36. Neg Reg – Team 1 Agenda (con’t) • Guaranty Agency Notifications to Borrowers in Default; Financial and Economic Literacy for Rehabilitated Borrowers • PLUS Loan Deferments and Interest Capitalization • Consolidation Loan Borrower Eligibility and Applicant Disclosures • Consumer Credit Reporting After Loan Rehabilitation; Eligibility for Loan Rehabilitation • FFEL and Direct Loan Teacher Loan Forgiveness

37. Neg Reg—Team 1 Agenda (con’t.) • Required Education Loan Borrower Disclosures by FFEL Lenders • Consumer Education Information Provided by Guaranty Agencies • New Audit Requirement for FFEL School Lenders and Eligible Lender Trustees (ELTs) Originating FFEL Loans for an Institution or School-Affiliated Organization • Loan Discharges Based on Total and Permanent Disability • Required Education Loan Borrower Disclosures by Lenders

38. Neg Reg—Team II Agenda • Program Participation Agreement (PPA): Code of Conduct • Disclosures of Reimbursements for Service on Advisory Boards • PPA: Private Education Loan Certification • Information and Dissemination Activities • Exit Counseling • PPA: Preferred Lender Lists • Required Disclosures for Covered Entities

39. Neg Reg – Team II Agenda – con’t • Cohort Default Rate Calculation, Institutional Eligibility, and Default Prevention Plans • Entrance Counseling • Direct Loan Borrower Disclosures • Mandatory Assignment of Defaulted Loans • Expansion of Teacher, Head Start, and Law Enforcement Cancellation Categories • Addition of New Public Service Cancellation Categories • Military Service Cancellation

40. Estimated changes in CDRs Type of SchoolDefault Rate Source: New America Foundation

41. 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

42. Thank you!QUESTIONS