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
1
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)
−
−
−
−
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
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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