Post on 15-Dec-2015
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The Inside Track on Federal Loan ProgramsILASFAA ConferenceApril 16, 2008 Vicki ShipleyNational Council of Higher Education Loan Programs (NCHELP)
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Agenda
What was CCRAA - 2007 HERA - 2006
What is HEA Reauthorization Regulations – Neg Reg 2008 and 7/1/08 new
regulations Financial Market Turmoil
What will be – Presidential Elections
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Growth of Stafford, PLUS, and Nonfederal Loan Dollars in Constant (2006) Dollars (in Billions), 1996-97 to 2006-07
Source: Trends in Student Aid, College Board, 2007.
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What Was
Higher Education Reconciliation Act (HERA)
Cut $18 billion from FFELPIncreased annual loan limits for first and
second year undergradsReduced origination feesMade provisions of the Taxpayer Teacher
Protection Act permanentReduced Lender insurance from 98% to
97%
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What Was
College Cost Reduction and Access Act (CCRAA) Cut almost $20 billion from FFELP (lenders & GA’s) Reduced SAP on all new loans disbursed on or after
10/1/07 Increased Lender paid origination fee Decreased interest rates on new undergrad
subsidized Stafford loans for five years Eliminated Exceptional Performer Instituted an auction plan for Parent PLUS loans College Access Challenge Grants
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College Cost Reduction and Access Act Pell Grant Funding Not Guaranteed
Depends on Appropriations And on demand
Interest Rate Reduction is Temporary and for New Loans, Only Applies only to Undergraduate Subsidized Stafford Loans Phases in beginning 7/1/08 Ends 6/30/12
Parent PLUS Loan Auction Begins 7/1/09 Two lenders per State Auction winners get right of first refusal for Consol. of PLUS Loans
Economic Hardship Deferment & Repayment Expanded Military Deferment Public Service Loan Forgiveness
FFEL Borrowers can benefit via consolidation into FDLP
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Big Cuts to Lenders & Guarantors - CCRAA
Program Savings
40 basis point SAP cut for non-profit lenders &55 basis point SAP cut for for-profit lenders
$12.4 B
97% insurance for lenders until 2012,
then insurance cut to 95% and
and exceptional performer status eliminated
$1.1 B
Senate PLUS auction proposal $2 B
Lender origination fee increase from 0.5% to 1.0%
$2.2 B
Guarantor retention cut from 23% to 16% $1.9 B
Guarantor Administrative Maintenance Fee cut $2.6 B
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Big Cost Items - CCRAA
Program Cost
Interest rate reduction for undergrad subsidized Stafford loans from 6.8% to 3.4% over 4 years with sunset after the 4th year
$6.1 B
Increase Pell grant maximum to $5,400 over five years
$11.3 B
Income-based repayment option which caps payment amount at 15% of income for
borrowers who meet economic hardship definition
$1 B
Funding for “quasi-mandatory programs” (Upward Bound, Minority Serving
Institutions, and TEACH)
$1 B
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2007 College Cost Reductionand Access Act
Legislative Provisions
Increased Pell Grant Maximum to $5,400over five years
Interest rate reduction for undergradsubsidized Stafford loans from 6.8% to 3.4% over four years
Income-based repayment option—caps payments at 15% of income for borrowers who meet economic hardship requirements
Elimination of 20/220 Pathway Deferment
Apparent Results
Increasing Pell grants
Four years of decreasing Stafford loan interest rates
Greater flexibility for students with lower income
Consequences
Lack of permanent funding when demand is increasing and will continue to increase
Largest impact on neediest students (loss of borrower benefits, return of origination fees)
More direct to consumer marketing
More government between students and schools
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Student Loan Investigations
Targets of the Investigation
Financial incentives to schools
Financial incentives to school employees
Direct-to-Consumer marketing practices
Apparent Results
Creation of “Code of Conduct” for Lenders and Financial Aid Offices
Additional state and federal legislation
Funds pledged for consumer education
Consequences
Erosion of trust in school financial aid offices and lenders
Small, local lenders abandoning student loan programs
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Legislative “Sunshine” Provisions (HR 890, S 486, S 1642)
Legislative Provisions
Schools required to develop and enforce code of conduct
Department to develop model disclosures for lenders & schools
Preferred lender lists trigger reporting requirements for lenders and schools
Apparent Results
Codes of Conduct created to protect students
Increased communications to students regarding loan options, eligibility, terms and disclosures
Consequences
Increased reporting requirements for lenders and schools
Increased legal exposure
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Additional Uncertainties
Parent PLUS Loan Auctions Slated to begin in 2009Two lenders from each state will win
rights to offer PLUS loans for two years
Leads to great instability in the marketplace
What about competition and choice?
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What Is
Reauthorization Senate reauthorization: S. 1642 (passed
95-0 on July 24, 2007) The Higher Education Amendments of 2007
House reauthorization: H.R. 4137 (passed 354-58 on February 7, 2008) The College Opportunity and Affordability Act
Conference going on now at the staff level HEA extended until April 30, 2008 Student loans “reauthorized” via HERA and
CCRAA
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HEA Reauthorization
Both the House and the Senate reauthorization bills address:
Student Loan Sunshine provisions Preferred lender lists Increase Pell Grant authorization levels Address other discretionary grant programs Authorize the Perkins Program Needs Analysis FAFSA Simplification Institutional PPA Many new extra disclosures
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HEA Reauthorization
• Issues include• Financial literacy• Student loan information – disclosure to 3rd
parties• Additional auction study• Code of conduct• Private loan issues• Multiple disclosures • Entrance and exit counseling• Service on Boards of Directors and on Advisory
Councils• Guarantor/DL audit requirements
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House vs. Senate on Select Issues H.R. 4137 Pell: increases authorization
to $9,000 beginning 2009-2010 through 2013-2014
Preferred Lender Lists: Requires not less than
three unaffiliated lenders College Costs
Creates a Higher Education Price Increase Watch List
Disclosures by lenders Model form to be
developed by Secretary
S. 1642 Pell: increases authorization
$5,400 2008-2009 $5,700 2009-2010 $6,000 2010-2011 $6,300 2011- 2012
Preferred Lender Lists: Requires not less than
three unaffiliated lenders College Costs
Creates a Higher Education Price Increase Watch List
Disclosures by lenders Model form to be
developed by Secretary
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House vs. Senate on Select IssuesH.R. 4137 Model form to include:
Interest Rate or potential range of rates
Any fees associated with the loan
Repayment terms Opportunity for deferment or
forbearance An example of the total cost of
the loan over its life Consequences of Default Contact info for lender Any philanthropic contributions
made by the lender to the institutions
Entrance and Exit Counseling Permitted as long as the
institution remains in control and lender does not promote products or services
S. 1642 Model form to include:
Interest rates on the loan Same educational loan costs Repayment plans available,
when interest will be capitalized All borrower benefits and the
percentage of all borrowers qualifying and percentage of borrowers who received the benefits the previous year
Entrance and Exit Counseling Prohibits Lenders and
Guarantors from performing any function on behalf on the institution that is required to be performed by institutions
(11/1/07 regs specifically prohibit guarantors and lenders from performing in-person entrance/exit counseling)
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Private Student Loans
Congressional Issues: Federal borrowing first Full disclosure of loan terms & additional
new disclosures Assurance of no conflicts of interest between
lenders and schools• Co-branding• Revenue sharing
Bankruptcy exceptions House Rolls Up Into HEA Reauthorization
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Reauthorization Conference Committee
College Cost Provisions – reporting vs. “Watch List”
State Maintenance of Effort Requirement
Sunshine Act – Code of Conduct - Inducements
FAFSA Simplification
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What Is
Negotiated Rulemaking (Neg Reg) New regulations effective 7/1/08 from 2007 Neg Reg
– inducements, preferred lender lists etc. 2008 neg reg topics:
• Direct Loan Public Service Loan Forgiveness• Income Based Repayment (IBR)• Conforming Economic Hardship Deferment with IBR• Definition of Not-For-Profit Loan Holder• Harmonizing HEROES Waivers with other Benefits
Provided to Returning and Active Duty Military Final Loans Team Meeting: April 14 - 15, 2008 Regulations will be effective July 1, 2009 and must be
published in final form by November 1, 2008 Don’t forget to read the preamble!
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Income-Based Repayment
New repayment option available 7/1/2009 for borrowers experiencing “partial financial hardship”
Eligibility and minimum monthly payment is re-evaluated annually
Government pays the interest on qualifying subsidized Stafford loans for not more than 3 years (not counting periods of Economic Hardship deferment)
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Income-Based Repayment
The repayment period can extend beyond 10 years regardless of the amount of the eligible debt but not beyond 25 years
Includes a loan forgiveness provision after experiencing a partial financial hardship and 25 years of eligible payments
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Income-Based Repayment
The repayment period can extend beyond 10 years regardless of the amount of the eligible debt but not beyond 25 years
Includes a loan forgiveness provision after experiencing a partial financial hardship and 25 years of eligible payments
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Income-Based Repayment
Any loan amount that is cancelled may be taxable in the calendar year it is cancelled
IBR may not always be the best/lowest repayment option for a borrower – should consider impact of eligibility for an Economic Hardship deferment
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Public Service Loan Forgiveness New loan cancellation provision for Direct
Loan borrowers not in default who: Have made 120 monthly payments on an
eligible loan starting after 10/1/2007 Must have been “directly and full-time”
employed in public service during the entire repayment period
FFEL borrowers may consolidate into DL to get this benefit but ALL payments must have been in DL
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Economic Hardship Deferment POSSIBLE Change to the HRD Elimination of the debt-to-income ratio calculation for
purposes of determining eligibility as of 7/1/09 Currently borrowers are eligible for this deferment if
their total debt is more than 20% of their income and if their income minus their loan payments leaves them with no more than 220% of the income considered poverty level in the U.S.
“Big Cost” Item—ED estimated the 10-year cost of maintaining this provision at $1.1 billion
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What Is
Market IssuesSubprime mortgage issues creep into
student loansCongress taking noticeTreasury and the Fed Chairman
taking noticeWe must keep conversation alive to
avoid major disruptions for students
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Financial Market Turmoil & Instability For student loans it’s a liquidity problem and
not a credit problem Lenders are dropping out of the FFEL
program ED projects $60 billion in new FFELP loans
will be needed for 6.7 million borrowers for academic year 2008/09
FFELP lenders have financed more than $350 billion in student loans the last 35 years without any disruption – will this be the case for 2008/09?
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Student Loan Financing
Top 100 originating lenders – banks originate 55% and non banks 44%
Holder status – 76% of the outstanding student loan volume is with non banks and 24% with banks
Banks depend on secondary markets – allows them to “recycle” funds used to make new loans
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Options???
Lender of Last Resort (LLR) Direct Lending The FFELP community wants federal
intervention to provide liquidity in the financing markets (i.e. the Federal Reserve System should work to provide liquidity to all types of student loan originators in order to restore a smooth functioning of this market sector and to avoid negative economic outcomes)
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Kennedy/Miller Bills
S. 2815 and H.R. 5715 – bills to prevent potential disruptions in federal student loans caused by the volatility in the capital markets
Increased annual and aggregate unsubsidized Stafford loan limits
Delay PLUS loan repayment Delinquent mortgage payments considered
“extenuating circumstances” for exception to the PLUS adverse credit determination
Changes to LLR (from borrower to school-based) and ED to be a temporary secondary market
S. 2815 would increase the maximum Pell Grant for students with a negative EFC by up to $750
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Kanjorski/Kerry Bills
Designed to pump money temporarily into the student loan market
Permits the 12 regional banks that make up the Federal Home Loan Bank system to invest their surplus funds into securities backed by student loans and accept such securities as collateral
The banks would also be able to make money available to the banks and thrifts in their regions for student loans
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What will be – the Presidential Election
Senator Barack Obama (D-IL)Senator Barack Obama (D-IL)
Supports increasing PellSupports increasing Pell Supports elimination of FFELPSupports elimination of FFELP Simplify FAFSASimplify FAFSA
Senator Hillary Clinton (D-NY)Senator Hillary Clinton (D-NY)
Increase Hope tax creditIncrease Hope tax credit Adjust Pell annually to take into Adjust Pell annually to take into
account increased college costsaccount increased college costs Supports elimination of FFELPSupports elimination of FFELP
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Presidential Election
Senator John McCain (R-AZ)
Wants more disclosure of academic earmarks
Expand education benefits for military veterans
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Thank You!
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Questions/Comments?