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
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
2
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
3
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
4
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
5
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
6
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
7
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
8
Priorities In Congress
 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
9
American Recovery and
Reinvestment Act
 Helping Students and Families
 Research Funding
 Infrastructure
 Job Training
 State Fiscal Relief
10
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
11
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
12
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
13
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
14
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”
15
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
16
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
17
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.”
18
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
19
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.”
20
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
21
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
22
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
23
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
24
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
25
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
26
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
27
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
28
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
29
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
30
31
Discussion DRAFT
31
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
32
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
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
YOU
ARE
HERE
33
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
34
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
35
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
36
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
37
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
38
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
39
Estimated changes in CDRs
Type of School
Default Rate
2 years (current
rate)
3 years (new
rate)
4-year
Private
2.8
4.5
Public
3.5
5.3
For-profit
7.3
13.7
Private
7.4
12.2
Public
8.1
12.9
For-profit
9.9
19.5
2- to 3-year
Less than 2year
Source: New America
Foundation
Private
40
9.0
18.7

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
41
Thank you!
QUESTIONS
42