The New 90-10 Rule CAPPS Annual Conference September 2008

The New 90-10 Rule CAPPS Annual Conference September 2008 Presenters Robin Almich Almich & Associates 26463 Rancho Parkway South Lake Forest, CA 92630 Robin @almichcpa.com (949) 600-7550 Steven Gombos Ritzert & Leyton P.C. 11350 Random Hills Road Suite 400 Fairfax, VA 22030 sgombos @ritzert-leyton.com 703-934-2660 Peter Leyton Ritzert & Leyton P.C. 11350 Random Hills Road Suite 400 Fairfax, VA 22030 Pleyton @ritzert-leyton.com 703-934-2660 Rick Thomas Salmon Sims Thomas & Associates 12720 Hillcrest Road Suite 900 Dallas, TX 7230 Rthomas @ sstcpa.com 972-392-1143 Overview Provisions of new law  Gray areas open for negotiated rulemaking  Practical tips for compliance  3 Provisions of New Law Now in PPA section instead of definition  Calculation method described in detail  Specific sanctions for violation  Disclosure to public  Reports to Congress  4 Impact of Move to PPA No longer an immediate death penalty  Some additional latitude for DOE enforcement discretion for schools one year out of compliance  But still applies only to for-profit schools  5 Calculation Method Much of current regulation now enacted into law  Several permanent changes  Two temporary changes  Still some areas for regulation  6 Carried Over from Current Regulation Presumption that Title IV funds are used to pay tuition and fees  Cash basis of accounting (with one temporary exception)  Certain of the exceptions to the presumption  7 Revenue Includes Funds From Tuition, fees and other institutional charges for Title IV programs  Activities necessary for education if:   Conducted at facility under school’s control  Conducted under faculty supervision  Required of all students in a program  Certain non-Title IV program revenue (new) 8 Non-title IV Program Revenue Includes funds paid by a student or third party if the program is: • Approved or licensed by State; • Accredited by recognized agency; or • Provides an industry-recognized credential or certification 9 Funds that Overcome the Presumption Grant funds from non-federal agency  Private sources independent of the institution  Contractual arrangement with government agency for training of low-income persons  All tax-favored educational savings plans – New  Certain institutional scholarships  10 “Extra” $2,000 in Stafford Loans For loans disbursed from 7/1/08 to 6/30/11  Treat as revenue received from non-Title IV sources the amount disbursed above the normal Stafford loan limits  Intent was to overcome the presumption  11 Institutional Loans: Phase-In For loans made on or after 7/1/08 and prior to 7/1/12  Can use “net present value” of loans made during the school’s fiscal year on an accrual basis  Estimated in accordance with GAAP  12 Requirements for Institutional Loans Must be: • Evidenced by promissory notes; • Issued at intervals related to enrollment periods; and • Subject to regular repayment and collections. 13 Exclusions Work-study funds, unless the school credits payment to student’s account  LEAP funds  Institutional matching funds  Amounts refunded or returned  Books and supplies cost unless included in institutional charges  14 Sanctions for 1-Year Noncompliance Provisional certification for institution’s next 2 fiscal years  Other means in Secretary’s discretion  15 Sanctions for 2 Consecutive Years Loss of eligibility for at least 2 fiscal years  To regain eligibility, must demonstrate compliance with all eligibility and certification requirements for 2 FYs while ineligible  16 Institutional Loans If you will need some revenue from these in years after 2012, monitor carefully how much you use for current compliance  Possibly use these for transition while other things get up and running  Possibly use these only for students who can’t get gap loans at reasonable rates  Be aware of need to follow additional rules and regulations (fair credit, safeguards, etc.)  17 Present Value of Installment Notes Examples of Student Installment notes.  Terms 5 year Note $3500 at 6% with monthly payments $68 Student  Student pays $1156 or 17 payments over the 5 years.  NET PRESENT VALUE $1,018   Terms 5 year Note $3500 at 12% with monthly payments $78 Student  Student pays $1326 or 17 payments over the 5 years  NET PRESENT VALUE $1,039 Sample Student Ledger Start date 7/1/2008  Method of billing – quarterly  Assume all charges are institutional charges  Company fiscal year end - 12/31/2008  Program length - 2 years  Student Title IV status - Independent  Ledger Card Transactions Charges Payments Balance Sample A 7/1/2008 Tuition charges 7/1/2008 Institutional loan @ 8% apr 7/1/2008 Student cash payment 8/2/2008 Pell grant 8/4/2008 Sub 8/4/2008 Unsub 8/4/2008 New unsub 5,000 (1,000) (75) (1,437) (1,167) (1,333) (667) 5,000 4,000 3,925 2,488 1,321 (12) (679) 8/10/2008 Cal Grant 8/15/2008 Refund to student 10/1/2008 Tuition charges 10/4/2008 Pell grant 10/4/2008 Sub 10/4/2008 Unsub 10/4/2008 New unsub 10/4/2008 Institutional loan @ 8% apr 12/31/2008 refund to student 12/31/2008 Lab fee 100 5,000 (800) 1,479 (1,479) 5,000 (1,437) (1,167) (1,333) (667) (1,000) 604 3,563 2,396 1,063 396 (604) 100 Summary of Transaction Data Total institutional charges Total Title IV receipts (old loan programs) Total new unsub received (new loan program) Cal Grant (state grant funds) Student cash payments Institutional loan Stipends paid to student Net total funds received 10,100 7,874 1,334 800 75 2,000 (2,083) 10,000 Ledger Card Transactions Charges Payments Balance Sample B 7/1/2008 Tuition charges 7/1/2008 Institutional loan @ 8% apr 7/1/2008 Student cash payment 8/2/2008 Pell grant 8/4/2008 Sub 8/4/2008 Unsub 8/4/2008 New unsub 5,000 (1,000) (75) (1,437) (1,167) (1,333) (667) 5,000 4,000 3,925 2,488 1,321 (12) (679) 8/10/2008 Cal Grant 8/15/2008 Refund to student 10/1/2008 Tuition charges 10/4/2008 Pell grant 10/4/2008 Sub 10/4/2008 Unsub 10/4/2008 New unsub 10/4/2008 Institutional loan @ 8% apr 12/31/2008 refund to student 12/31/2008 Lab fee 100 5,000 (800) 1,479 (1,479) 5,000 (1,437) (1,167) (1,333) (667) (2,000) - 3,563 2,396 1,063 396 (1,604) (1,604) (1,504) Summary of Transaction Data Total institutional charges Total Title IV receipts (old loan programs) Total new unsub received (new loan program) Cal Grant (state grant funds) Student cash payments Institutional loans Stipends paid to student Net total funds received 10,100 7,874 1,334 800 75 3,000 (1,479) 11,604 Unanswered Questions   For institutions that pay stipends/living expenses to students, how will the stipends be allocated to the new unsubsidized loans and institutional loans under the presumption rule? In regards to new institutional loans, should we establish reserve rates under Generally Accepted Accounting Principles at the time of the first loan made to the first student even if we have no experience rate? If so where should we look for guidance? 24 Unanswered Questions   Once we have established reserve rates for institutional loans, what happens if our institutional loans perform better or worse in the following year(s)? Do we get an add back or a deduction in the following year(s). What and/or how should we post the institutional loans to our student ledger cards? 25 Unanswered Questions  For financial statement purposes do we only get to count the amount of the institutional loan that has been earned at the end of our fiscal year? Would this also apply to the 90/10 calculation since the amount of the institutional loan may not be earned at the reporting date? 26 Unanswered Questions Assuming that a student receives the old unsubsidized loan and the new unsubsidized loan simultaneously and the disbursement received results in a credit balance (Title IV credit balance for compliance purposes) that has to be paid to the student, is the credit balance deducted in the 90/10 calculation from the new unsubsidized loan or the old unsubsidized loan? Note that if there are also regular student cash payments, institutional loans and/or other alternative loans, we have additional considerations.  Do we need to reprogram our 90/10 calculations to capture all of this data?  27 Questions?