CASFAA December 9, 2008 Federal Update

Jeff Baker Federal Student Aid U.S. Department of Education

Dependency Overrides

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Students Seeking Dependency Overrides

The Problem –  Some students who are likely eligible for a dependency override cannot find a school to consider an override at the time they need to submit a FAFSA.

 Web FAFSA products to not allow a dependent student to submit without parental information.

Students Seeking Dependency Overrides

The Solution –  Students who are unable to provide parental data will be able to submit their application through FOTW by indicating they believe that they have a special

circumstance.



Students Seeking Dependency Overrides

Application can be submitted for processing and all appropriate matches will be performed  No EFC will be calculated   These records will have a “special circumstances” flag.

School makes the determination after obtaining documentation.

FFEL Loan Purchase Programs

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

Program Objectives

Ensure that eligible students and parents receive federal student loans for the 2008-2009 academic year  Support the FFEL Program as a successful private/public partnership  Ensure no net cost to the federal government  No statutory authority to provide advance funding  ED’s commitment has value in financial markets.

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FFEL Loan Purchase Programs

 Participation Purchase Program for partially disbursed 2008-2009 FFEL loans through September 30, 2009.

 Loan Purchase Program for fully disbursed 2008 2009 FFEL loans through September 30, 2009.

 Participation Purchase Program for partially disbursed 2009-2010 FFEL loans through September 30, 2010.

 Loan Purchase Program for fully disbursed 2009 2010 FFEL loans through September 30, 2010.

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FFEL Loan Purchase Programs

 Financial Conduit Program  Investors buy Asset Backed Commercial Paper (ABCP) with FFEL loans as collateral.

  Lenders “sell” loans to conduit manager.

 Lender uses net funds used to make new FFEL Program loans.

 Lender continues to service loans.

 Lender may “re-purchase” loans.

Loans may be sold to other parties, OR 

ED Purchases Loans.

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Higher Education Opportunity Act

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HEOA - Pell Grants

 Year Round Awards – Up to two full scheduled awards within on award year.

 Effective with the 2009-10 award year.  Life-Time Limit - Limits the duration of a student’s eligibility to 18 semesters.

 Effective with the 2008-09 award year 11

HEOA - Pell Grants

 Provides a maximum Pell Grant award to any Pell eligible student (Pell eligible EFC) whose parent or guardian was a member of the Armed Forces and died in Iraq or Afghanistan after September 11, 2001.

 Effective with the 2009-10 award year.

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TEACH Grant Program

  High need fields when agreement to serve was completed will remain valid even if field no longer approved Categories of extenuating circumstances under which a recipient of a TEACH Grant may be excused from fulfilling the service obligation can be established by regulations 13

HEOA – Student Loans

  Changes Cohort Default Rate Calculation    From two years to three years Transition Period 30% Penalty Rate Increases “disbursement relief” CDR to 15%.

 Effective October 1, 2011 14

HEOA – Student Loans

 Removes VA Educational Benefits from “Estimated Financial Assistance” for loans and from “Resources” for campus-based aid.

 Effective with the 2010-11 award year.

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HEOA – Student Loans

 Dependent students eligible for unsubsidized without parental FAFSA information.

 Effective on enactment – August 14, 2008  Paper FAFSA or EDE Submission  Special process for Direct Loans 16



Perkins Loans

Increases annual and aggregate loan limits –   Annual $5,500 for undergrad Annual $8,000 for grad   Aggregate $60,000 for grad Aggregate $27,500 for upper division undergrad  $11,000 for all others Effective with the 2008-09 award year.

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HEOA – Regulations

Dec ’08 – Announcement of Formation of Committees and Solicitation of Nominations for Negotiators  Dec ’08 – Committees Established  Feb thru April ’09 – Negotiations  Aug ’09 – NPRM Published in the Federal Register  Nov ’09 – Final Rule Published  Jul ’10 – Rules Become Effective 18

Recent Legislation

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

Recent Legislation

Higher Education Reconciliation Act (HERA) – February 8, 2006    College Cost Reduction and Access Act (CCRAA) – September 7, 2007 Ensuring Continued Access to Student Loans Act of 2008 (ECASLA) – May 7, 2008  Extended by HR 6899 Higher Education Opportunity Act (Reauthorization) – August 14, 2008 20

    

ACG and National SMART Grants

Eligible Non-Citizens Eligible At least half-time enrolment Students in certificate programs eligible, if program is at least one year in length and offered at a two or four-year degree granting institution.

Awards based on student’s grade level instead of “academic year” Effective July 1, 2009 – by HEOA 21

FFEL/DL Annual Loan Limits

Grade Level 1 st -yr Dependent 2 nd -yr Dependent Upper Division Dep.

1 st -yr Independent 2 nd -yr Independent Upper Division Indep.

Graduate/Professional Base Amount $3,500 $4,500 $5,500 $3,500 $4,500 $5,500 $8,500 Additional Unsubsidized

$2,000 $2,000 $2,000

$6,000 $6,000 $7,000 $12,000 22

FFEL and DL Interest Rates

   Reduced interest rates on undergraduate subsidized loans only from current 6.8% to     6.0% for loans disbursed on or after 7/1/2008 5.6% for loans disbursed on or after 7/1/2009 4.5% for loans disbursed on or after 7/1/2010 3.4% for loans disbursed on or after 7/1/2011 Beginning 7/1/2012, rates revert to 6.8% Unsubsidized Stafford Loans and all Stafford's for graduate students remain at 6.8% fixed 23

  

Need Analysis

Increases student income protection allowances Excludes from specified list of untaxed income -  Welfare payments    Earned income credit amounts Special fuel tax credit Excluded foreign income  Untaxed Social Security Benefits Effective for 2009-2010 24

Dependency Criteria

  Independent student definition –    Is an orphan, in foster care, or a ward of the court, or was at any time when the student was 13 years of age or older.

Is, or was, an emancipated minor or is in legal guardianship in the student’s state of legal residence.

Has been verified as an unaccompanied youth who is a homeless child or youth.

Effective for 2009-2010 25

Auto Zero EFC and SNT

 Increases Auto Zero EFC income level from $20,000 to $30,000 (indexed to CPI)  Increases time from 12 to 24 months for receipt of means tested benefits  Adds Dislocated Worker in addition to type of tax return and means tested benefits  Effective for 2009-2010 26

Professional Judgment Dependency Overrides

 Adds dislocated worker and homelessness as examples of when an FAA can use professional judgment  Provides that an FAA can use a dependency override made by another FAA within the same award year  Both effective for the 2009-2010 award year 27

2007-2008 Rulemaking

 TEACH Grant  NPRM Published March 24, 2008  Final Rule Published June 23, 2008  Rules Effective July 1, 2008  Title IV Loan Programs  NPRM Published July 1, 2008  Final Rule Published October 23, 2008  Rules Effective July 1, 2009 28

2007-08 TEACH Final

   Effective for the 2008-2009 award year.

Must be repaid as Direct Unsubsidized Loan if student does not –  Teach for at least four years within eight years of ceasing enrolment in the TEACH Grant eligible program, as a   Highly Qualified Teacher At a Title I school  In a specified subject area.

“In for a dollar, in for four years.” 29

2007-08 TEACH Final

    Up to $4,000 per year for first undergraduate or post-baccalaureate (non degree) program - $16,000 aggregate Up to $4,000 per year for graduate student - $8,000 aggregate Prorated amounts for less than full-time enrolment Award, when combined with other assistance, cannot exceed cost of attendance (No EFC) 30

2007-08 TEACH Final

 TEACH Grant recipient must teach in a high need field in the majority of classes taught.

 “Other” high-need fields must be listed in the Department of Education’s Nationwide Listing of Teacher Shortage Areas at the time the recipient begins qualified teaching. 31

2007-08 TEACH Final

 Institutional Eligibility    See DCL GEN-08-07, posted to IFAP on June 3, 2008 Institutional Choice whether to participate An institution that offers one or more TEACH Grant-eligible programs may participate in the TEACH Grant Program 32

TEACH Grant Statistics

Number of Approved TEACH Grant Schools Number of Originating and Disbursing Schools Amount of Originations Number of TEACH Originations Number of TEACH Originations Actual Disbursement Amount Average TEACH Grant Award ATS Notes Received 611 179 $12,992,725 3,754 $4,639,083 $3,462 5,821 33

2007-2008 Loans Final

  Definition of Not-for-Profit Holder  FFEL Only Income-based Repayment Plans  FFEL and Direct Loans   Public Service Loan Forgiveness  Direct Loan only Economic Hardship and Military Service Deferments  FFEL, Direct Loans, and Perkins 34 34

2006-2007 Regulations School Lender Relationships (Effective 7-1-08)

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FFEL Loan Certification

 A school may not:  Refuse or delay certification based on borrower’s choice of lender or GA  Assign lender to first-time borrower  Refuse to certify or certify a reduced amount; except on a case-by-case basis  Includes “school as lender” 36

FFEL Preferred Lender Lists

     School may choose to have preferred lender list (includes web processes) List must have at least 3 unaffiliated lenders Must disclose method/criteria for lender inclusion on the list Must provide comparative information Must include prominent statement advising borrowers that use of school preferred lender not required 37

Prohibited Inducements

 Affects FFEL lenders and guaranty agencies  Creates concept of “rebutable presumption” for prohibited and allowed activities  Includes a non-exhaustive list of prohibited activities  Includes a list of allowed activities 38

A Rational Approach to Federal Student Aid

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Mandates

“ The entire financial aid system— including federal, state, institutional, and private programs—is confusing, complex, inefficient, duplicative, and frequently does not direct aid to students who truly need it .” - The Secretary of Education’s Commission on the Future of Higher Education 40

Mandates

Congress, in passing the HEOA, required the Department of Education to issue a report on efforts to simplify the FAFSA that includes looking at the elimination of income data elements, as well as other items.

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    

Issues – Federal Student Aid

The application is complex and intimidating.

Much of the data are unverifiable.

Current EFC formula is arbitrary, difficult to understand, lacks clarity and relevance, and subject to “gaming.” Result of application (EFC) is “how much the student will NOT receive.” Multiplicity of programs is confusing.

 

Principles for Reform

Access to Aid  Application will request information that is easily obtainable and verifiable.

 Application will only ask questions necessary to determine eligibility and award levels.

Federal Student Aid  Targets the neediest students;     Is independent of other aid; Is predictable; Is portable, and Distributes aid through fewer programs.

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A Simplified FAFSA

 Only ask for information needed to determine federal aid eligibility, aid types, and amounts.

 Two pages - no instruction pages(s).

 Fewer than 30 questions – Identification - Contact Information - Eligibility - Dependency - Income / Exemptions - Certifications - Colleges and states to which information will be sent 44

Simple FAFSA

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Rational Approach

 Establish–  Federal Student Aid Target (FSAT)  Federal Student Aid Commitment (FSAC)  Consolidate aid programs into one grant (Pell), one loan (DL/FFEL) and one work study (FWS) program.

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

Federal Student Aid Target (FSAT)

Maximum amount of federal subsidized aid (Pell Grant, subsidized loans, and FWS).

 Amount increases annually by CPI.



For example –-



100% of average Tuition & Fees, Books & Supplies, and Meals & Housing at community colleges.

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Federal Student Aid Commitment (FSAC)

 Student’s portion of FSAT based on AGI and IRS Number of Exemptions, related to HHS Poverty Levels.



Example: --



Grants up to 250% of poverty level gets maximum award amount;



Sub loans and FWS up to 400% of poverty level;

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

Unsubsidized Aid

Includes unsubsidized Stafford and PLUS loans;  Applies only after all other aid is awarded;  Covers difference between cost of attendance and all other sources of aid;  Includes annual loan limits for unsubsidized Stafford.

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Policy/Budget Considerations

  Select “Dials”  FSAT: percentage of cost of attendance at which type of school  Determine “Levers”  Maximum spending with current allocations  FSAC: percentages of HHS poverty level to be used for grant, subsidized loan, and work study Optimized spending to ensure access and success 50

2,000 4,000 6,000 8,000 10,000 12,000

Examples of Dials and Levers

12,000 10,000 Unsubsidized Unsubsidized

Sub Loan Max = $5,500 Sub Loan Max = $6,000

8,000 6,000 4,000

Pell Max = $4,800 Pell Max = $4,800

2,000 0 Lo w to $ 0 $1 to $ 3K $3 K to $ 6K $6 K to $ 9K $9 K to $ 12 $1 K 2K to $ 15 $1 K 5K to $ 18 $1 K 8K to $ 21 $2 K 1K to $ 25 $2 K 5K to $ 29 $2 K 9K to $ 32 $3 K 2K to $ 36 $3 K 6K to $ 40 $4 K 0K to $ 44 $4 K 4K to $ 48 $4 K 8K to $ 51 $5 K 1K to $ 55 $5 K 5K to $ 58 $5 K 8K to $ 62 $6 K 2K to $ 68 $6 K 8K to $ 71 $7 K 1K to $ 73 $7 K 3K to $ 80 $8 K 0K to $ 88 ab K ov e $8 8K Pell Sub Loan 0 Low to $0 $3K to $6K $9K to $12K $15K to $18K $21K to $25K Pell $29K to $32K $36K to $40K $44K to $48K $51K to $55K Sub Loan $58K to $62K $68K to $71K $73K to $80K above $88K 12,000 14 12 10 8

Subsidized Loans

6 Unsubsidized 4 2

Pell Grants

Low to $0 $3 to $6 $9 to $12 $15 to $18 $21 to $25 $29 to $32 $36 to $40 $44 to $48

Income Level (in thousands of $)

$51 to $55 $58 to $62 $68 to $71 $73 to $80 above $88 10,000 8,000 6,000 4,000 2,000

Sub Loan Max = $5,200 Pell Max = $4,800

Unsubsidized 0 Lo w to $0 $1 to $ 3K $3 K to $6 $6 K K to $9 $9 K K to $1 $1 2K 2K to $ 15 $1 K 5K to $ $1 18 K 8K to $ $2 21 K 1K to $ $2 25 K 5K to $ $2 29 K 9K to $ $3 32 K 2K to $ $3 36 K 6K to $ $4 40 K 0K to $ 44 $4 K 4K to $ $4 48 K 8K to $ $5 51 K 1K to $ $5 55 K 5K to $ $5 58 K 8K to $ $6 62 K 2K to $ $6 68 K 8K to $ $7 71 K 1K to $ 73 $7 K 3K to $ $8 80 K 0K to $ 88 ab K ov e $ 88 K Pell Sub Loan 51

$1 to $3,000 $3,001 to $6,000 $6,001 to $9,000 $9,001 to $12,000 $12,001 to $15,000 $15,001 to $18,000 $18,001 to $21,000 $21,001 to $25,000 $25,001 to $29,000 $29,001 to $32,000 $32,000 to $36,000 $36,001 to $40,000 $40,001 to $45,000 $45,001 to $48,000 $48,001 to $51,000 $51,001 to $55,000 $55,000 to $58,000 $58,001 to $64,000 $64,001 to $68,000 $68,001 to $71,000 $71,001 to $73,000 $73,001 to $82,000 $82,001 to $87,000 $87,001 to $92,000

Simple Look-Up Table

(For Illustrative Purposes Only)

"Single Persons, or

$21,000 Spouse $29,000 $36,000 $45,000 $55,000 $64,000 $73,000 $82,000 $92,000 $92,000 52

What Does This Mean For Students?

   

A FAFSA that encourages access; Real-time feedback on probable Federal Student Aid;

Better awareness of state and institutional value-added aid

, and Predictability for persistence.

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