The Inside Track on the Federal Loan Programs by floofiedoo

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									The Inside Track on the Federal Loan Programs
Janet Dodson
NSLP SUNYFAP 2009 April, 2009


• 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 • Parent PLUS Pilot Auction • 2009 Negotiated Rulemaking

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

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

The gap we must overcome
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


New Congress - 111th
• Senate
– was 51 Democrats – 49 Republicans – now 56 Democrats - 41 Republicans
• plus one Independent and one Independent Democrat • Minnesota race will be determined by courts

• House
– was 236 Democrats -198 Republicans
• one vacancy

– now 254 Democrats – 178 Republicans
• three vacancies

New Department of Education
• Arne Duncan -- Secretary of Education
– Carmel Martin -- Assistant Secretary for Planning, Evaluation and Policy Development – Marshall Smith – Special Assistant – Robert Shireman – now a full time employee


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


Priorities in Congress
• Healthcare Reform
– Stem Cell Research – Prescription Drugs

• Immigration Reform
– Mexico City Policy

• Regulatory Reform • No Child Left Behind Reauthorization

• Columbian Free Trade Agreement • Vietnam Free Trade Agreement • Fast Track • Federal Aviation Administration Authorization

Priorities in Congress
• Omnibus Energy Bill • Intelligence Authorization
– FISA (Foreign Intelligence Surveillance Act)

• Cuba • Net neutrality
– Broadband expansion

• Patent Reform
– Intellectual property protection

• Defense Authorization • Alternative Minimum – Torture/water boarding Tax

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


American Recovery and Reinvestment act
• ―Recovery Program Plans‖ by May 1st for each program • Additional transparency
– – to provide weekly and monthly financial reporting on stimulus spending


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

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


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

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‖

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

Impact for schools (con’t.)
• 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


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 19 committees

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 July 1, 2010 – makes campus-based aid more widely available through a modernization of the Perkins loan program 20

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

President’s 2010 budget proposal
• 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

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

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

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

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

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 27 economic distress

Discussion DRAFT


FFELP and school successes
• Providing consistent source of low-cost aid for students and families
– $750 billion student aid for millions of students over 43 years

• Student loan repayment rates average over 94 percent for the past eight years • We have overcome challenges
– budget reconciliations – financial market failures

PLUS loan pilot auction April 9, 2009 cancelled.
• Program established under CCRAA:
– requires pilot program to auction FFELP parent PLUS Loans

– auction will be held in each state every two years

• All eligible loans will be insured by FFELP guaranty agency • Effective for first-time parent PLUS borrowers, for loan periods beginning on or after July 1, 2009 and ending June 30, 2011

PLUS Loan Pilot Auction
• March 3, 2009 Federal Register notice provides invitation for eligible lenders to participate in Competitive Loan Auction pilot program • Important dates:
– April 1: deadline for submission of pre-qualification information – April 1: deadline for submission of PLUS Lender of Last Resort (LLR) applications – April 15: auction will be conducted – April 24: winning bidders announced

• Will it be postponed – YES IT WAS!!!


Legislative and regulatory timeline
HERA signed into law 2/8/06 CCRAA signed into law 9/27/07 ECASLA signed into law 5/7/08 HEOA signed into law 8/14/08 ECASLA extension signed into law 10/7/08 GEN-08-12 published 12/31/08

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

NPRM published 7/1/08

Neg reg public hearings announced 8/19/08

Final regulations published 10/23/08 effective 7/1/09



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

Neg reg – team I agenda
1. 2. 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 service members Civil Relief act to FFEL and Direct Loan borrowers and related FFEL lender special allowance payment calculations

3. 4.

Neg reg—team I agenda (con’t.)
6. Guaranty agency notifications to borrowers in default; financial and economic literacy for rehabilitated borrowers 7. PLUS loan deferments and interest capitalization 8. Consolidation loan borrower eligibility and applicant disclosures 9. Consumer credit reporting after loan rehabilitation; eligibility for loan rehabilitation 10. FFEL and Direct loan teacher loan forgiveness

Neg reg—team I agenda (con’t.)
11. Required education loan borrower disclosures by FFEL lenders 12. Consumer education information provided by guaranty agencies 13. New audit requirement for FFEL school lenders and eligible lender trustees (ELTs) originating FFEL loans for an institution or school-affiliated organization 14. Loan discharges based on total and permanent disability 15. Required education loan borrower disclosures by lenders 36

Neg reg—team II agenda
1. Required disclosures for covered entities 2. Program participation agreement (PPA): code of conduct 3. Disclosures of reimbursements for service on advisory boards 4. PPA: private education loan certification 5. Information and dissemination activities 6. Exit counseling 7. PPA: preferred lender lists

Neg reg—team II agenda (con’t.)
8. Cohort default rate calculation, institutional eligibility, and default prevention plans 9. Entrance counseling 10. Direct loan borrower disclosures 11. Mandatory assignment of defaulted loans 12. Expansion of teacher, head start, and law enforcement cancellation categories 13. Addition of new public service cancellation categories 14. Military service cancellation


Estimated changes in CDRs
Type of School Default Rate

2 years (current rate) 4-year Private Public 2.8 3.5

3 years (new rate) 4.5 5.3

For-profit 2- to 3-year Private Public For-profit Less than 2Source: New America Foundation year



8.1 9.9

12.9 19.5

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


Thank you! QUESTIONS


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