A REGULATORY EXTRAVAGANZA

Betsy Mayotte Presents

Starring

• Latest Regulatory Changes

• DC Update

• Reauthorization Update and Predictions

Also Starring..

150% Rule

Agenda• Background

• Basics

• If, And’s, But’s and Maybe’s

• Preparatory Courses

• What ED Will Track

• What Schools Have to Track

• Questions And Words of Encouragement

Background

• Moving Ahead for Progress in the 21st Century (MAP-21)

• Limits subsidy period to 150% of program length

• Intended to encourage students to complete programs in a timely manner

Who Does It Affect

• New borrowers on or after July 1, 2013• Borrowers with no outstanding Stafford, PLUS

or Consolidation loans on or after July 1, 2013

• Perkins loans do not affect trigger

• Consolidating pre 7/1/2013 loans does not change eligibility

BasicsNew Terms

• Maximum Eligibility Period (MEP)– 150% of published length of program

Number of days in months/weeks--------------------------------------------------------------X1.5

Number of days in academic year

• Subsidized Usage Period (SUP) – period of time borrower received direct subsidized loans

• Remaining Eligibility Period (REP)– difference between maximum eligibility period and subsidized usage period

Basics

• Borrowers may only receive interest subsidy for 150% of published length of program

• Includes receiving new subsidized Stafford loans and

• Interest subsidy on existing loans

Basics• If borrower exceeds maximum eligibility period

(MEP):• Borrower may not borrow additional subsidized

Stafford Loans

• Interest will accrue on existing loans beginning on day borrower exceeds MEP and will continue to accrue during• Grace periods• Deferment periods• In-school periods• Eligible IBR periods

Basics

• Borrower is considered to have exceeded maximum eligibility period if:

• They are enrolled 150% of the program length

and• Do not complete the program and• Continue to be enrolled in that program or• Transfer to another program of equal or shorter

length

Calculating the Subsidized Usage

Period• Measured in years:

Number of Days in Loan Period-----------------------------------------------------------

Number of days in academic year

• Rounded down to nearest quarter

• Count only if borrower received Subsidized Loan during timeframe

• Can be prorated in certain circumstances

Calculating the Subsidized Usage

Period• Amount of loan not relevant – one exception:

• Student receives full subsidized annual loan limit for less than academic year:

SUB = 1

Calculating the Subsidized Usage

PeriodExample:1. Academic year September 1 – May 15th = 258 daysLoan period September 1 – May 15th = 258 days

258/258 = SUB of 1 year

2. Academic year September 1 – May 15th = 258 daysLoan period September 1 – December 15th = 107 days107/258 = .41% rounded down to .25 year SUB usage

Unless..Borrower receives full annual sub loan limit then..

SUB usage = 1 year

Calculating the Subsidized Usage

PeriodProration occurs when:

• Enrollment status is less than full time• ¾ time enrollment: SUB x .75• ½ time enrollment: SUB x .50

Example:Academic year September 1 – May 15th = 258 daysLoan period September 1 – May 15th = 258 days

258/258 = SUB of 1 yearBorrower is only ¾ time:

1 x .75 = SUB of .75

Remaining Eligibility Period - REP

Maximum Eligibility Period (150% of program length)

-Subsidized Usage Periods

-------------------------------------------------------Remaining Eligibility Period

Remaining Eligibility Period - REP

Example 1:

Borrower enrolled in 1 year program: MEP = 1.5 years

Borrower receives subsidized loans in this program for 1.5 years – does not complete. SUB = 1.5 years

Borrower transfers to 4 year program: MEP = 6 years-

SUB of 1.5 years----------------------------------------------------------------------

REP = 4.5 years

Remaining Eligibility Period - REP

Example 2:

Borrower enrolled in 4 year program: MEP = 6 years

Borrower receives subsidized loans in this program for 1.5 years – does not complete. SUB = 1.5 years

Borrower transfers to 1 year program: MEP = 1.5 years-

SUB of 1.5 years----------------------------------------------------------------------

REP = 0 years

Remaining Eligibility Period - REP

Example 3:

Borrower enrolled in 1 year program: MEP = 1.5 years

Borrower receives subsidized loans in this program for 1 year SUB = 1 years

Borrower transfers to 1 year program: MEP = 1.5 years-

SUB of 1 years----------------------------------------------------------------------

REP = .5 years

Effect to Subsidy Benefits

Borrowers lose eligibility for interest subsidies when:

• They have reached the 150% of the allowable subsidized usage period AND

• They did not complete the program AND• They continue at least half time enrollment in

that program OR• They enroll in a new program of equal or lesser

program length

Effect to Subsidy Benefits

• Borrower loses:• Eligibility for new subsidized Stafford loans• Eligibility for further subsidy on existing loans

• Is not retroactive

• Borrower responsible for interest regardless of further borrowing• Lost subsidies cannot be recaptured

• Loans that lose subsidy eligibility remain Subsidized Stafford loans

Effect to Subsidy Benefits

Examples:

4 year program, borrower attends and receives subsidized loans for 4 years, does not complete

program SUP = 4 years

1. Borrower transfers to another 4 year program, completes after 3 more years of receiving sub loans1. Interest begins accruing beginning of year 7

2. Borrower transfers to two year program1. Interest begins accruing 1st year of that program

Effect to Subsidy Benefits

Examples:

4 year program, borrower attends and receives subsidized loans for 4 years, does complete program

SUP = 4 years

3. Borrower enrolls in two year program1. Interest does NOT begin accruing on prior loans2. Borrower has no further subsidized loan

eligibility

Effect to Subsidy Benefits

Examples:

2 year program, borrower attends and receives subsidized loans for 3 years, does not complete

program SUP = 3 years

4. Borrower transfers to 4 year program1. Interest does NOT begin accruing on prior loans2. Borrower has 3 more years of REP

Effect to Subsidy Benefits

Examples:

2 year program, borrower attends and receives subsidized loans for 4 years, does not complete

program SUP = 3 years

4. Borrower transfers to 4 year program1. Interest continues to accrue on prior loans2. Borrower has 3 more years of REP

Preparatory Courses

• Preparatory courses for Undergrad enrollment count towards the total MEP allowed for the undergrad program itself• 150% rule does not supersede 12 month max

allowed for prep courses to receive federal aid

• Preparatory courses for graduate school based on borrowers most recent undergrad program of study• If max SUP is used, no new Subsidized loans but

interest will not accrue on prior loans

Teacher Certification Courses

• Teacher certification courses where credential is awarded by school treated the same as other undergrad or grad

• Teacher certification courses where credential is not awarded by school treated separately from other SUP periods

• Total of all TCC considered when determining MEP

• TCC subsidy usage not considered when totally other undergrad subsidy usage

• Exceeding subsidy usage for TCC does not cause interest to accrue

What ED Will Track

• The Department will track and report to you a students:• Subsidized usage period• Whether they are a new 7/1/2013 borrower• Loss of subsidy• Maximum eligibility period• Remaining eligibility period• Loss of subsidy benefits (NSLDS)

What You (Schools) Will Track

• Schools must report to COD• SAY/BBAY dates• Loan period dates• Changes to these dates• Do not include summer header/trailers unless

borrower is receiving subsidized loans for that period

• Effective for all loans 1st disbursed on or after July 1, 2013• Regardless if borrower is affected by subsidy

rules

What You (Schools) Will Track –

this year• When reporting enrollment, schools must report to

NSLDS:• Credential level

• Indicate if prep or teacher prep course

• Length of program in years, months or weeks

• CIP code

What You (Schools) Will Track – next

year• Schools must report to COD

• Same items as prior year plus• Enrollment “level” (full time, half time, etc)• Credential level• Program flag• CIP code• Length of program

• Effective for all loans 1st disbursed on or after July 1, 2013• Regardless if borrower is affected by subsidy

rules

Counseling

• For new borrowers on or after July 1, 2013 schools must• Provide “robust” entrance counseling about

150% rule prior to 1st disbursement

• Schools “encouraged” to provide info to affected borrowers who receive counseling prior to 7/1/2013

• 5/16/2013 announcement contains materials• Will be added to Direct Loan entrance

counseling October, 2013

Questions? Resources

• ED Q and A http://ifap.ed.gov/150PercentDirectSubsidizedLoanLimitInfo/FAQ.html

• NASFAA Q and A (login may be required) http://www.nasfaa.org/Main/orig/2013/Your_Questions_Answered__The_150_Percent_Rule.aspx

• DCL on reporting requirements• http://www.ifap.ed.gov/dpcletters/GEN1313.html

• May 16th announcement – includes counseling requirements• http://www.ifap.ed.gov/eannouncements/051613DirectSubsidizedLoanLimit15

0PercentAnnounce1.html

• DCL overviewing 150% rule• http://www.ifap.ed.gov/eannouncements/062013DirectSubsidizedLoanLimit15

0PercentEA2.html

2013-2014 NEGOTIATED RULEMAKING(S)

Student Loan Neg Reg

• Effective July 1, 2014• Post-270 day forbearance• Rehabilitation of defaulted loans• Administrative Wage Garnishment• Closed School Discharge• Transfer of credits• Regaining Title IV eligibility

PLUS Loans• NPRM for PLUS released• Draft rule would allow loan approval for

borrowers with one or more debts with a total combined outstanding balance greater than $2,085 that:– are 90 or more days delinquent as of the date of

the credit report, or– have been placed in collection or charged off (as

defined earlier in paragraph (c)(1)) during the two years preceding the date of the credit report

• Borrower who have successful appeal must complete loan counseling

Other Neg Reg Topics

• Cash management– Addresses how funds are delivered to

students– Goal to ensure student choice,

transparency and no fees for federal aid delivery

– Introduces “sponsored account”– Sets framework for ED delivery

mechanism

Other Neg Reg Topics

• State authorization of distance education

• State authorization of foreign locations of US schools

• Retaking coursework

• Clock to credit hour conversion

OTHER NEW RULES AND REMINDERS

NSLDS Reporting• Student enrollment must be reported at:

– Academic program level– Institutional (campus) level– Program level retroactively to July 1, 2014

• Schools must report no less than once every two months

• Effective for all submissions to NSLDS on or after October 1st, 2014

High School Diplomas

• Clarifies that for these purposes, there is not such thing as an “online GED program” only an online GED test

• Must have test results or transcripts from GED publisher showing test scores

• Certificate of high school completion not sufficient

• High schools do not have to be accredited, but diplomas must be recognized by the state the school is located in

• Clarifies that you can admit a student who doesn’t have a diploma

• Must be beyond compulsory age• Cannot award aid

• Foreign diplomas ok if comparable to U.S. secondary school• School can use outside foreign diploma service to do this

evaluation

Interest Rates

• New rate structure applies to all loans first • disbursed on or after July 1, 2013.

• Annual fixed rates based on 10 Year T-Bill, • plus margin.

• Applies to loans first disbursed between • July 1 and June 30.

• Rate applies for the life of the loan.

Origination Fee• Subsidized and Direct Unsubsidized Loan Fee

– 1.072 percent for loans first disbursed on or after December 1, 2013 and before October 1, 2014;

– 1.073 percent for loans first disbursed on or after October 1, 2014 and before October 1, 2015.

• Direct PLUS Loan Fee– 4.288 for loans first disbursed on or after

December 1, 2013 and before October 1, 2014– 4.292 percent for loans first disbursed on or after

October 1, 2014 and before October 1, 2015

Defense of Marriage Act

• Expands definition of marriage to include same sex couples

• Who are married in a jurisdiction that recognizes the marriage• Place of celebration rule• Place of resident not relevant

• Does not change non-married couples living together regardless of state recognition (domestic partnerships etc.)

Defense of Marriage Act

• As of December 13, 2013• Students submitting the 2013-2014 FAFSA

for the first time list themselves or parents legally married if they are in fact legally married

• Students who have already submitted the 2013-2014 FAFSA:• If parent or student wishes to update

status you MUST allow• Associated 2013-2014 package changes

must also occur

Gainful Employment

• Background• GE programs defined as:• Proprietary institutions –

– All programs, except for - • Liberal Arts Undergraduate degree Preparatory

non-certificate coursework necessary for enrollment in an eligible program

• All other institutions– Non-degree programs of less than two years

other than preparatory coursework

ANZFAA 2014 *Chart by ACE

Gainful Employment*

WASHINGTON UPDATE

Default Rates

• National rate reduced from 14.7% to 13.7%

• Foreign school rate reduced from 4.6% to 3.8%

• ED made adjustments for some split-servicing borrowers

Presidents Higher Education Initiative

• “A Better Bargain for the Middle Class – Making College More Affordable– Paying for Performance

– Promoting Innovation and Competition

– Ensuring that Student Debt Remains Affordable”

Presidents Higher Education Initiative

• Pay As You Earn expansion

• College Scorecard and Navigator

• Financial Aid Shopping Sheet

• Net Price Calculator

• Financial Aid Shopping Sheet

REAUTHORIZATION PREDICTIONS

Background

Can’t We All Just Get Along?U.S. Tax revenue:

$2,170,000,000,000Federal budget: $3,820,000,000,000New debt: $ 1,650,000,000,000National debt: $14,271,000,000,0002011 budget cut: $ 38,500,000,0002013 budget cut: $85,000,000,000

Annual family income: $21,700Money the family spent: $38,200New debt on the credit card: $16,500Outstanding balance on the credit card: $142,710Budget cuts: $385 and $850

Not Running for Re-election - HouseSpencer Bachus, R-Ala. Michele Bachmann, R-MN.John Campbell, R-Calif. Howard Coble, R-N.C.Jim Gerlach, R-Pa.Tim Griffin, R-Ark. Tom Latham, R-IowaJim Matheson, D-Utah, Carolyn McCarthy, D-N.YJohn Tierney, D-MA  

Mike McIntyre, D-N.C Howard "Buck"McKeon, R-Calif George Miller, D-Calif James P. Moran, D-Va Bill Owens, D-N.Y Jon Runyan, R-N.J Henry A. Waxman, D-Calif Frank R. Wolf, R-Va   

Not Running For Re-election - Senate

Max Baucus, D-Mont.

Saxby Chambliss, R-Ga.

Tom Coburn, R-Okla.

Tom Harkin, D-Iowa

Mike Johanns, R-Neb.

Tim Johnson, D-S.D.

Carl Levin, D-Mich.

Jay Rockefeller, D-W.Va.

Background• Washington Resolutions

– Lose weight– Be stricter with the kids

• ED Resolutions– Set ground rules for with the kids– Install more security, monitoring, set parental controls

• High Level Reauthorization Proposals– The good, the bad etc..

• General Chatter

Bills Offered to Date• Senate Reauthorization Bills

• Higher Education Affordability Act (HEAA) • Financial Aid Simplification and Transparency (FAST) Act

• House Reauthorization Bills:

• Simplifying the Application for Student Aid Act (H.R. 4982) • Empowering Students Through Enhanced Financial

Counseling Act (H.R. 4984) • Strengthening Transparency in Higher Education Act (H.R.

4983)

Higher Education Affordability Act

• College Dashboard/college navigator• ED complaint system• Mandatory award letter format• Expand loan counseling• Streamline income based plans• Adds PLUS to CDR• Allow schools to reduce annual loan

limits

Income Based Payment Plans

Congressman Tom Petri (R-WI) introduced a bill in December, 2012 that would require new student loan borrowers to pay their federal loans back on an income based plan where the appropriate payments would be withheld from the borrower’s paycheck and sent directly to the Department of Education.

The payment would be no more than 15% of the borrower’s income over and above 150% of the poverty line. All loan subsidies would be eliminated as would existing repayment, deferment and forbearance options.

Any remaining balance would be forgiven after 25 years. Accrued interest would be limited to 50% of the original loan balance. This plan is modeled after existing student loan programs in the United Kingdom, Australia and New Zealand.

More Information: http://petri.house.gov/press-release/petri-introduces-student-loan-bill

CONS

• Eliminates complex repayment option rules and application process.

• Eliminates or greatly reduces delinquency and default.

• Limits interest for low-income borrowers who may take longer to pay debt.

New American Foundation, NASFAA, TICAS (for delinquent borrowers only), Committee for Economic Development

• Does not account for other types of education debt such as private, parent PLUS, institutional or state loans.

• Long – term outcome and cost, if any, to taxpayer unknown.

• Some borrowers end up paying more in the long run under this plan

May result in perception that debt management no longer needed

OTHER SUPPORTERS

PROS

COMMENTS

STUDENT INFORMATION

While most agree that higher education is generally an investment that results in increased lifetime earnings, most also agree that there are those some programs where the cost benefit analysis just might not be there. Many students also enter some programs unprepared and drop-out before prior to completion which results in debt without accomplishing the increased earning potential. Other students, who do successfully complete a program of higher education, do so by accumulating debt levels that are unsustainable based on the earnings expected for their field of study. Several entities have suggested proposals to attempt to minimize these results.

Such Proposals Include:

A ratings plan has been touted by the administration as a way to help families compare college programs. Some proposals also call for publication of graduation and placement rates

CONS

• May curtail over-borrowing• Better informed consumer• Would likely reduce budgetary outlays for loan

program• May change middle and high school preparedness

behaviors in some families

New American Foundation, NASFAA,

Some studies show that such information cannot always be processed correctly by the families that need it most

There’s no such thing as too much information as long as there are resources to help families understand it.

OTHER SUPPORTERS

PROS

COMMENTS

PARENT PLUS LOANS

While there has been significant focus on the effects of education debt on students, such debt can be equally or even more difficult for parents. Unlike Stafford loans, Parent PLUS loans have no annual or aggregate loan limit other than the cost of attendance. While a credit check is required, debt to income ratio, a fairly accurate predictor of borrower ability to repay a loan, is not a component of the eligibility criteria.

While PLUS loans can be consolidated, they are not eligible for many of the forgiveness options and none of the income based repayment options. There are discussions among many industry groups as to what can and should be done within this program to assist these borrowers.

Some Suggestions Include:

• Adding a debt to income ratio component to the eligibility criteria

• Allowing Parent PLUS borrowers to utilize Income Based Repayment

• Phase out PLUS loans entirely, moving that market to private lending

CONS

Debt to income ratio requirement would likely reduce delinquencies and defaultsIBR would assist existing PLUS borrowers with high debt levels

Has not been publically proposed to date, but actively discussed within the industry

Phasing out PLUS would require families to utilize less advantageous, likely more expensive loansRestricting eligibility would increase private borrowingAllowing IBR would increase budgetary costs.

OTHER

SUPPORTERS

PROS

DEBTMANAGEMENT

With education debt burdens such a focus of the recent Presidential elections, and default and debt statistics a frequent topic in the media, the availability and timing of debt management services is a common topic during reauthorization discussions. As the largest provider of student loans, clearly the Department of Education needs to be provided adequate funding for debt management services. There are various proposals being put forward to improve the content and timing of debt management communications to borrowers.

Schools also want the ability to require additional and more robust entrance and exit counseling as part of a default management and financial literacy program. There is also a call for more information being made available during the college application stage including cumulative federal and private debt levels as well as graduation rates and anticipated earnings.

CONS

• Lower delinquencies and defaults; higher successful repayment rates

• Overall improved financial literacy of this group of consumers creates beneficial trickle down for overall economy

NCHER, TICAS, NASFAA, New America Foundation, Young Invincible

Expensive. Hard sell in current U.S. budget situation especially when up against consistent Pell shortfallsPrice ED willing to pay may not be reasonable

OTHER SUPPORTERS

PROS

ADDITIONAL READING

http://ticas.org/files/pub/TICAS_RADD_White_Paper.pdfhttp://younginvincibles.org/wp-content/uploads/2012/11/Student-Perspective-on-Federal-Financial-Aid-Reform.pdf

Reducing Cost of Education

The high cost of higher education has become a significant cause for concern and one that is represented in several distinct ways in the various published reauthorization proposals. The proposal published by The Campaign for the Future of Higher Education, a coalition of multiple faculty groups, would create a small (they say ½% would be enough) financial transaction tax whose revenue would, in part, be used to reduce the tuition cost for all public institutions with much of the rest going towards student advising and higher skilled instructors.

Another suggestion from this group would eliminate all federal financial aid and use the funds to reduce tuition at public institutions. Another group, The Education Trust, has a similar proposal where existing federal aid dollars would be directed to states to keep tuition costs down and create a more robust college ready program for high school students.

A more recent proposal would require schools to pay a portion of defaults

CONS

Reduces education debt for future studentsIncreases access for low and middle class families

Funding would be at risk during future lean budget years, leaving higher education costs and fewer payment resourcesFinancial transaction tax would be a very difficult sell to Republican leaders, making it’s passing unlikely

http://futureofhighered.org/workingpapers/http://www.edtrust.org/sites/edtrust.org/files/Doing_Away_With_Debt.pdfhttp://www.newamerica.net/publications/policy/rebalancing_resources_and_incentives_in_federal_student_aid

PROS

ADDITIONAL READING

SIMPLIFYINGAID

Almost every proposal paper to date has contained language about simplifying the federal financial aid system. In some cases the suggested solution is to create a single loan, single grant program and eliminate all other existing forms of federal aid.

Others suggest eliminating the FAFSA and award aid based strictly on information contained within the W-2 or directly from the IRS. Others take less drastic approaches such as eliminating the PLUS loan for Graduate students but increasing unsubsidized loan limits.

CONS

• Easier for consumers to understand and compare various aid packages

• Reduces administration costs

• Do nothing to address existing education debt• “One size fits all” approach can often unintentionally

leave intended recipients behind• Some proposals not as simplified as first appear,

creating additional rules that would result in existing outcomes

TICAS, The Young Invincible,

PROS

SUPPORTERS

This proposal was a large part of Presidential Candidate Mitt Romney’s Higher Education policy platform during the election.

COMMENTS

Questions on

Reauth?

Other Proposals?

This summary was intended to give a brief overview of some of the more significant reauthorization proposals that are currently being discussed within the industry. There are dozens more proposals and suggestions offered that were not mentioned due to limited support, small potential impact or likeliness of approval based on the current environment.

While due in 2013, reauthorization of the Higher Education Act is unlikely to be completed this year, leaving significant time for these and other proposals to gain or lose momentum as the political and public climate changes.

Resources• NSLDS Reporting

– http://www.ifap.ed.gov/eannouncements/092614ReminderPrgmLevelEnrollmentReportingRequirement.html

• Gainful Employment– http://

www2.ed.gov/policy/highered/reg/hearulemaking/2012/gainfulemployment.html

Resources• College Scorecard

– http://collegecost.ed.gov

• DOMA– http://

www.ifap.ed.gov/dpcletters/GEN1415.html

• VAWA– https://

www.ifap.ed.gov/dpcletters/GEN1413.html