The Year That Was and What
Might Be… An Industry
Update and Discussion
Tami Sato, Southern California
College of Optometry
Vicki Shipley, NCHELP
WASFAA April 2011
1
Today’s Road Trip…..







2010 Highlights
Pell Grant Issues
Federal Deficit Looms Large
Issues on the Horizon
FFY 2011 Budget
FFY 2012 Budget
What’s Next?
2
2010 Was Interesting

SAFRA Signed Into Law on March 30,
2010


FAA’s Successfully Met the Challenge of
Rapid Transition to DL




The long debate was over
All eligible students receive loan funds
ED returns bulk of $50 million transition fund
In-school Consolidation Window Open
Until June 30, 2011
College Access Challenge Grant Doubles
3
112th Congress – Gridlock
Included?

House of Representatives



U.S. Senate



242 Republicans
193 Democrats
53 Democrats
47 Republicans
A Shift to the Right

Many new members support
smaller government and
reduced spending
4
Pell Grant Protection Act

Maintain $5,550 maximum grant by “…making tough
choices to save over $100 billion over the next
decade….”

Eliminate year-round Pell (-$8b per year)



Eliminate loan subsidies for graduate Stafford Loans (-$2b)




Unsubsidized loans; 6.8% interest rate
$8.5b in new loan volume
Convert TEACH Grants to Presidential Teaching Fellows ($15b)


Poorly targeted subsidy
Allow split FFEL loans to be combined as “Direct FFELs” (2b)
Convert Perkins to Direct Perkins (-$8.6b)


Ten times more expensive than projected
No evidence that it accelerates graduation
Grants to states awarded to students at schools whose
education programs meet benchmarks
College Completion Incentive Grants (+1.25b)
5
Pell Grant Shortfall

Demand for Pell has Increased Beyond ED &
Congressional Estimates




5.9 million recipients in 08-09 academic year
9+ million recipients estimated for 11-12 academic
year
Statutory Language Precludes Ratable
Reductions When Funding is Insufficient
Didn’t They Fix This in SAFRA?


“Mandatory funds” are contingent on enough
appropriations to fund $4,860 maximum grant
Shortfall could top $20b annually for foreseeable
future
6
Rising Cost of Pell Grants
$30.00
30
Source: USDE
25
I 20
n
B
i
l 15
l
i
o
n
s 10
$12.80
$10.00
$5.80
$5.80
$3.50
5
$1.50
$2.30
0
7
FFY 77
FFY 82
FFY 87
FFY 92
FFY 97
FFY 02
FFY 07
FFY 10
8
Pell Grant Shortfall

Currently $5.7 Billion shortfall for the 2011-12
AY





Appropriations are insufficient to fully fund Pell
Growth in demand not properly projected
“Mandatory” funds provided in SAFRA assume
adequate appropriations
Funding gap for 2011-12 but the CR maintains
maximum Pell at $5,500
2012-13 outlook




Shortfall continues to grow
Appropriations likely to stay stagnant
Growth in Pell appropriations will need to come from
other programs
Fewer sources of mandatory funds
9
School Discussion
– Federal Grants

No ACG and SMART

No 2 Pells in 1 Award Year

Correction to Pell for
cross-over periods
10
FY 2011 Continuing
Resolution

Government Shutdown Averted on 4/8







$38.5 billion in cuts
$13B cut from Labor, Education and HHS
2011-12 Pell Grant of $5,550 is maintained but
eliminates year-round Pell
Eliminates funding for LEAP, Byrd Honors
Scholarship, loan repayment for civil legal assistance
Cuts to GEAR UP, SEOG, TRIO and AmeriCorps
Does not include a provision to block the Department
from finalizing and implementing the Gainful
Employment regulations
Now the real battle begins…..
11
FY 2012 Budget



FY 2012: October 1, 2011 – September
30, 2012
12 Appropriations Bills Needed
Will Congress Agree on a Budget
Resolution?


If they do, Budget Reconciliation is possible
Alternative is Another Continuing
Resolution
12
The Federal Debt Ceiling

What is the Debt Ceiling?





When Will the Debt Ceiling Be Reached?





“…A cap set by Congress on the amount of debt the
federal government can legally borrow.” (CNN)
First debt ceiling set in 1917: $11.5 billion
Current debt ceiling: $14.294 trillion
Total federal debt, as of 2/28/11: $14.142 trillion
Likely to be reached by May 16, 2011
When Treasury can no longer issue or honor redemption
of debt
Could trigger a default, impacting future borrowing costs
Treasury Secretary can “manage” total debt for a short
period of time
Congress Will Likely Insist on Budget Cuts in
Exchange for Raising Debt Ceiling
13
Federal Budget and “Continuing”
Continuing Resolutions




Current Debt Ceiling is $14.3 Trillion –
actual debt is nearly there, creating a
showdown in Congress.
Government will need to borrow $2 trillion
to fund Direct Loans over the next
decade.
Congress has raised the federal debt
ceiling limit 9 times in the past 10 years.
Without another increase, the government
will either default on its bonds or have to
slash spending by about 40%.
14
You are being watched…

Special Audit Services – Improper
Payments Elimination and
Recovery Act of 2010

“Under IPERA, any contractor
performing the aforementioned
requirement will be paid for its
services based on a percentage of
collections… The Department is
seeking information from certified
public accounting firms to assist in the
development of a plan to conduct
payment recapture audits…”
15
“A is for Accountability”
RFP for Audit Services – Purpose:

The Department performs recovery audits on various
grants, loans, and contracts in order to identify
overpayments as a result of improper or erroneous
actions. The President signed into law the Improper
Payments Information Act (IPERA) in 2010. Under
IPERA, any contractor performing the
aforementioned requirement will be paid for its
services based on a percentage of collections.
The Department is seeking information from certified
public accounting firms to assist in the development
of a plan to conduct payment recapture audits in
accordance with IPERA.
16
Other Education Issues

For-Profit Schools






Regulatory Burden



NASFAA survey is timely & informative
Reauthorization of No Child Left Behind


Gainful Employment
90/10 Rule
Proportion of Pell Grant funds received
Influence of hedge funds?
Additional Senate hearings
Could include voc-tech program changes
College Completion
Major Obstacles to Higher Ed Legislation in this
Congress
17
Direct Loan Issues Going
Forward

Time to Look in Rear View Mirror





Comments, Concerns, Suggestions
Must Be Communicated to ED & Congress
Split Borrowers






ED resolving DL/ECASLA splits
Additional servicers coming soon
PLUS Loan Approvals


How was DL transition experience?
What could have been done better?
What can be done to prepare for DL reconciliation?
About twice as many denials under FFELP vs. FDLP
Implications of parents over-borrowing?
Training Needs and Formats
Other service gaps?
Additional TIVAS? Not-for-Profit Servicing Contracts
18
School Discussion – School
Services

Training needs


Loan Counseling


Online and in-person training
Debt Management
DL School Services



Process efficiency
Accessibility of Data (MPN, PIN)
Accuracy and timeliness of online data
19
Issues on the Horizon

3-Year Cohort Default Rate




Projections are that some rates will double or
more
2012 & 2013: both 2-year and 3-year rates
calculated -- sanctions based only on 2-year
rate
2014: sanctions based on 3-year CDR begin
Perkins Loans



Will the program expire?
Will revolving funds be recalled?
Will ED’s proposal to create “Direct Perkins
Loans” be re-tooled?
20
3-Year Cohort Default Rate





Beginning FY 2009 the institutional cohort default
rate calculation will be based on the three most
recent fiscal years available
Expands the timeframe during which defaulted
borrowers are counted from two to three years and
creates a transition period
Applies for any fiscal year in which 30 or more
current or former students enter repayment on an
applicable FFEL or DL
Default rate threshold raised from 25% to 30% along
with new sanctions (for the 2011 CDR published
9/2014)
ED will publish an annual cumulative default rate by
institution type
21
School Discussion – Loan
Funding

Federal credit-based Loans



Private Loans




Parent PLUS Approval is
UP and we love it!
What’s next?
Students choose private loans over GPLUS
New disclosures – How do they work for your
students?
Perkins Concerns ?
3-Year Cohort Default Rate?
22
Program Integrity
Final Regulations
•
•
•
Issued October 29, 2010
Contains 13 ¾ issues
Effective July 1, 2011
•
•
Except 600.20(d) – gainful employment
information collection requirements (date
TBD) and Subpart E of part 668 – Verification
and updating of student aid application
information (effective July 1, 2012)
No rules are eligible for early
implementation
23
School Discussion Verification


No verification for the retrieved IRS
data
True or False:


Less data elements to verify will
reduce the burden for students and FAA
True or False:

Schools’ legacy system
will be easily adjusted to
accommodate annually
changing verification
data elements
24
School Discussion:
Misrepresentation

Expanded definition includes


“erroneous or misleading statements”
made directly or indirectly to “any member
of the public”, “by person with whom the
eligible school has an agreement”
True or False:

Schools do not have to be
concerned . . .
25
School Discussion – R2T4


Is it time for schools to reconsider
taking attendance?
Are you ready to calculate R2T4 for
short modules?
26
School Discussion –
Program Integrity





SAP
Disbursement provision for books and
supplies for Pell recipients
Revised definition of a credit hour
Evaluation of the validity of HS diploma
Gainful employment reporting
requirements
27
Gainful Employment (GE)




GOP-controlled House pushing hard for ED
to rescind rules on GE – received bipartisan
support in earlier CR to block ED from
carrying out new GE rules
Democrat-controlled Senate, led by Senator
Harkin, Chair of the Senate HELP
Committee, strongly favors tough rules for
programs of less than one year (targeting forprofit institutions)
Many believe GE would be applied across all
sectors once put in place
Final FFY 2011 CR put GE back on the table
28
Private Loans – Growth and
Access
25
20
I
n
B 15
i
l
l
i 10
o
n
s
5
0
FFY
00
FFY
01
FFY
02
Source: College Board
FFY
03
FFY
04
FFY
05
FFY
06
FFY
07
FFY
08
FFY
09
FFY
10
29
The Future Looks
Challenging







Rising students’ indebtedness
Pell Shortfalls
PLUS loan defaults
Doing more with less
Impact of the new disbursement
provision
Impact of the Gainful Employment
requirements
Other issues??
30
What to Do, What to Do…


Educate New Members,
Re-educate returning Members


Share Stories of Student Aid
Recipients



Don’t Take Support for Granted
Student aid changes lives
Involve Your Campus Leadership
Prepare for a Long Battle
31
Thank You!
32