Transcript Slide 1

The Changing Landscape
of Student Loans
Patricia Hurley, Glendale Community College
Tami Sato, Southern CA College of Optometry
Vicki Shipley, National Council of Higher Education Loan
Programs (NCHELP)
CASFAA December 2008
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In the Beginning….
HERA and CCRAA
 Back-to-Back Budget Reconciliations
While “Waiting” for Reauthorization
− The Higher Education Reconciliation Act of
2005 (HERA) and the College Cost
Reduction and Access Act of 2007
(CCRAA) shifted approximately $40 billion
of funding from the FFEL Program
participants to increase Pell and other
student aid funding
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Reconciliation Recycles Aid –
No New Money
 Higher Education Reconciliation Act
− Increased loan limits and phase out of the o-fee
 First year Stafford from $2,625 to $3,500
 Second year Stafford from $3,500 to $4,500
− New grant programs
 Academic Competitiveness Grants & National Science and
Mathematics Grants to Attract Talent (SMART) Grants
− Created College Access Initiative
 College Cost Reduction & Access Act
− Increased Pell Grant maximum to $5,400 over five
years, e.g. cost of $11.4 billion
− Temporary interest rate reduction – undergraduate
subsidized Stafford only
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Negotiated Rulemaking
 Master Calendar
 July 1, 2008 – effective date for new
regulations regarding Preferred Lender
Lists and prohibited inducements
 July 1, 2009 – effective date for new
regulations regarding IBR, Public
Service Loan Forgiveness etc
 Neg Reg 2009 – Starts February,
2009?
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Financial Crisis – Congressional
Response - ECASLA
 H.R. 5715 – The Ensuring Continued Access
to Student Loans Act of 2008 (signed into
law 5/7/08)
− Provided the Department of Education with
authority to provide student loan liquidity
− Together with the Treasury Department, the
Education Department announced on May 21,
2008 a plan to ensure access to student loans
(Participation and Purchase/Put programs)
− New Student Loan Conduit Program announced in
November (private sector conduit but loans may
be put to the government). Conduit available in
early 2009 with temporary expansion of the
purchase programs in the interim.
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Congressional Response ECASLA
 HR 6889 – Extension through 6/30/10 of
Student Loan Purchase Authority/Extension
Of Authority To Designate Lenders For
lender-of-last-resort Program [signed into law
10/7/08]
 HR 7072 – Technical corrections in the
Ensuring Continued Access to Student
Loans Act of 2008 (proposed but did not
pass)
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−
Direct Advances
Maintenance of servicing by existing servicer
Use of proceeds
Rehabilitated loans eligible for Participation and
Put programs
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Reauthorization of the Higher
Education Act
 Higher Education Opportunity Act of 2008
(signed into law 8/14/08)
 Makes the “code of conduct” law
 Prohibits lender inducements
 Disclosure regarding preferred lender list
section process (FFEL and private)
 A new Title X on Private Education Loans
 Increased disclosure requirements for FFEL
and private loans
 New reporting requirements for schools,
lenders and guarantors
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FFEL Lender Loan
Disclosures
 Initial
 Repayment
 Deferment
 Forbearance
 Installment bill or statement
 Difficulty making payments
 Delinquency
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PLUS Loan Deferment for:
 In-school period
 Up to six months for post-half time
enrollment
PLUS School Deferment
 Dependent student of Parent PLUS
borrower enrolled at least half time
 Parent must request deferment based
on dependent’s status
 Parent may receive multiple, nonconsecutive in-school deferments
 Effective for loans first disbursed on or
after July 1, 2008
 Parent and Grad PLUS Loans
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PLUS Deferment
 Six month post-enrollment deferment once
enrolled less than half time
 Parent PLUS borrower eligible based on own
enrollment status or dependent student’s
enrollment status
 Grad PLUS borrower eligible based on own
enrollment status
 Parent PLUS borrower must request postenrollment deferment
 Granted automatically for Grad PLUS
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PLUS Deferment
 Post-enrollment deferment
independent of in-school deferment
 Borrower eligible for multiple, nonconsecutive post-enrollment
deferments
 Repayment alignment with Stafford
via forbearance
 Eligibility at loan-level vs. borrowerlevel
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Private Loans
 Estimated $5.8 to $7.1 B of private
loan capacity has left the market
 Private loan costs have and will
continue to rise
 Higher FICO scores required
 Risk tolerance has diminished
 Federal Reserve Board to issue
regulations post reauthorization
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Voter Registration, SSA,
Constitution Day and now…
 Fire Safety
 Missing persons
 Campus emergency response
 Vaccinations
 Textbook costs
 Peer-to-peer file sharing
 Transfer of Credit
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Additions and New Twists…
 Preferred lender arrangements
 Drug-related violations
 Private loan counseling
 Graduation information
 Code of conduct
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Preferred lender list (PLL)
Follows current regulations—
 Schools cannot:
− Assign a lender to a first-time borrower
− Refuse or delay loan certification
based on the borrower’s choice of
lender or guarantor
 This is required regardless of whether
a school provides a PLL
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PLL
 Follows current regulations, but school
must also disclose:
 If and how each lender on PLL is
affiliated
 Why the school entered into each
preferred lender arrangement
 Maximum federal grant and loan aid
available under Title IV
− Information must be published on school’s
Web site and in all financial aid materials
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PLL—private loans
 If a school provides a PLL for private
loans, the list must include at least two
unaffiliated private loan lenders
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For Schools, It’s All About --Transparency & Accountability
 Code of Conduct
 Consumer Information
 New Cohort Default Rate Calculation
 Private Loan Information (Title X)
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School Code of Conduct
 Requires schools, as part of Program
Participation Agreement, to “establish,
follow, and enforce” a code of conduct
regarding student loans that prohibits
conflicts of interest
− Must publish the code on the school’s
Web site
− Must inform staff of the code of conduct at
least annually
 Effective August 14, 2008
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School Code of Conduct
 Allows schools to accept from lenders
and guarantors:
− Entrance and exit counseling services, as
long as the school's staff is in control of
the counseling, and the counseling does
not promote the products or services of
any specific lender
− Professional development training
− Activities, programs, and materials related
to loan, default aversion and prevention,
financial literacy, counseling, or debt
management
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School Code of Conduct
 Permits school personnel to accept
reasonable expense reimbursement for
service on lender and guarantor:
− Advisory board,
− Commission, or
− A group established by a lender,
guarantor, or group of lenders or
guarantors
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California Code of Conduct
Resources
 CA Office of the Attorney General
 www.ag.ca.gov/ethics/
 Interactive on-line ethics course
 Pamphlets, books, etc.
 Fair Political Practices Commission
 www.fppc.ca.gov
 Conflict of Interest guidelines for public
agencies/institutions
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Unintended Consequences
 FAO workload overload
 Impressions
 Information overload
 Closer relations with other offices on
campus
 Others???
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Accountability – New CDR
Est. Average increases cohort from 2 yrs
to 3 yrs
Current 2- yr
New 3-yr
Private 4-yr
2.8%
4.5%
Private 2-yr
7.4%
12.2%
Public 4-yr
3.5%
5.3%
Public 2-yr
8.1%
12.9%
Proprietary 4-yr
7.3%
13.7%
Proprietary 2 yr
9.9%
19/5%
Proprietary < 2-yr
8.9%
18.5%
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Revised thresholds
 Ineligible if CDR 30% for 3 years
− First year at 30%
 School must create Default Management task force
 Identify factors causing default & remedy plan
 Plan must be submitted to Secretary
− Second year at 30%
 Assess, analyze and review plan from first year
 Submit corrective changes to Secretary
 Secretary will review and respond
 Appeal basis
− Mitigating circumstances
− Loan participation rate < 15%
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HEOA Stafford Entrance
Counseling
 Currently no assistance from lenders or GA
 Consumer information
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Loan impact on other aid
MPN
Interest accrual/capitalization
Eligibility requirements
Effect of withdrawing
Sample repayments
Average indebtedness of other students in same
program
 Default and consequences
 NSLDS
 Contact information
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HEOA Stafford Exit
Counseling
 GA and lender(?) assistance permitted
 Information required
 Repayment plans –
 income sensitive/based/contingent
 Sample total interest paid monthly payments for
each
 Debt management strategies
 Terms and conditions of
forgiveness/cancellation
 Default consequences
 Consolidation
 Tax benefits
 NSLDS system
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Direct Lending
 Deferment for Public Service
 Nurses, Government employees, public
health, early childhood education, teaching
high needs area/subject
 Active military duty
 Up to 60 mos no interest accrual
 Income-Based Repayment (IBR)
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Other Issues
 New additional $2000 unsub
 Dependent students –
 Only unsub if parents refuse to complete
FAFSA
 school must comply with 90/10 rule
 PLUS –
 In-school deferment for student or parent
 Grad PLUS –
 In-school deferment
 Interest capitalization
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More other issues
 Rehabilitation of defaulted loans
 Limited to once per loan
 Grad pre-requisities/5th year teacher
certification
 Clarification that loan limit is $7000
 Loan forgiveness – Stafford, Direct,
Grad PLUS
 service in national need
 civil legal assistance attorneys
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Current Issues
 Availability of Stafford Loans
 Availability of Private Education Loans
 Direct Lending/FFELP balance
 Cost of education, declining resources
& student indebtedness
 Program redesign recommendations –
one grant/loan/work
 Increased oversight & regulations?
 Obama agenda
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Thank You!
 Questions?
 Comments?
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