The Year That Was and What Might Be… An Industry Update and Discussion

Tami Sato, Southern California College of Optometry

Vicki Shipley, NCHELPWASFAA April 2011

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Today’s Road Trip…..

2010 Highlights Pell Grant Issues Federal Deficit Looms Large Issues on the Horizon FFY 2011 Budget FFY 2012 Budget What’s Next?

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2010 Was Interesting

SAFRA Signed Into Law on March 30, 2010 The long debate was over

FAA’s Successfully Met the Challenge of Rapid Transition to DL All eligible students receive loan funds ED returns bulk of $50 million transition fund

In-school Consolidation Window Open Until June 30, 2011

College Access Challenge Grant Doubles

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House of Representatives 242 Republicans 193 Democrats

U.S. Senate 53 Democrats 47 Republicans

A Shift to the Right Many new members support smaller

government and reduced spending

112th Congress – Gridlock Included?

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Pell Grant Protection Act

Maintain $5,550 maximum grant by “…making tough choices to save over $100 billion over the next decade….” Eliminate year-round Pell (-$8b per year)

Ten times more expensive than projected No evidence that it accelerates graduation

Eliminate loan subsidies for graduate Stafford Loans (-$2b) Poorly targeted subsidy

Allow split FFEL loans to be combined as “Direct FFELs” (-2b) Convert Perkins to Direct Perkins (-$8.6b)

Unsubsidized loans; 6.8% interest rate $8.5b in new loan volume

Convert TEACH Grants to Presidential Teaching Fellows (-$15b) Grants to states awarded to students at schools whose

education programs meet benchmarks College Completion Incentive Grants (+1.25b) 5

Pell Grant Shortfall

Demand for Pell has Increased Beyond ED & Congressional Estimates 5.9 million recipients in 08-09 academic year 9+ million recipients estimated for 11-12 academic

year Statutory Language Precludes Ratable

Reductions When Funding is Insufficient Didn’t They Fix This in SAFRA?

“Mandatory funds” are contingent on enough appropriations to fund $4,860 maximum grant

Shortfall could top $20b annually for foreseeable future

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Pell Grant Shortfall

Currently $5.7 Billion shortfall for the 2011-12 AY Appropriations are insufficient to fully fund Pell Growth in demand not properly projected “Mandatory” funds provided in SAFRA assume

adequate appropriations Funding gap for 2011-12 but the CR maintains

maximum Pell at $5,500 2012-13 outlook

Shortfall continues to grow Appropriations likely to stay stagnant Growth in Pell appropriations will need to come from other

programs Fewer sources of mandatory funds

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School Discussion – Federal Grants

No ACG and SMART

No 2 Pells in 1 Award Year

Correction to Pell for cross-over periods

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FY 2011 Continuing Resolution Government Shutdown Averted on 4/8

$38.5 billion in cuts $13B cut from Labor, Education and HHS 2011-12 Pell Grant of $5,550 is maintained but

eliminates year-round Pell Eliminates funding for LEAP, Byrd Honors

Scholarship, loan repayment for civil legal assistance Cuts to GEAR UP, SEOG, TRIO and AmeriCorps Does not include a provision to block the Department

from finalizing and implementing the Gainful Employment regulations

Now the real battle begins…..

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FY 2012 Budget

FY 2012: October 1, 2011 – September 30, 2012

12 Appropriations Bills Needed Will Congress Agree on a Budget

Resolution? If they do, Budget Reconciliation is possible

Alternative is Another Continuing Resolution

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The Federal Debt Ceiling

What is the Debt Ceiling? “…A cap set by Congress on the amount of debt the

federal government can legally borrow.” (CNN) First debt ceiling set in 1917: $11.5 billion Current debt ceiling: $14.294 trillion Total federal debt, as of 2/28/11: $14.142 trillion

When Will the Debt Ceiling Be Reached? Likely to be reached by May 16, 2011 When Treasury can no longer issue or honor

redemption of debt Could trigger a default, impacting future borrowing costs Treasury Secretary can “manage” total debt for a short

period of time Congress Will Likely Insist on Budget Cuts in

Exchange for Raising Debt Ceiling13

Federal Budget and “Continuing” Continuing Resolutions Current Debt Ceiling is $14.3 Trillion –

actual debt is nearly there, creating a showdown in Congress.

Government will need to borrow $2 trillion to fund Direct Loans over the next decade.

Congress has raised the federal debt ceiling limit 9 times in the past 10 years.

Without another increase, the government will either default on its bonds or have to slash spending by about 40%.

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You are being watched… Special Audit Services – Improper

Payments Elimination and Recovery Act of 2010 “Under IPERA, any contractor

performing the aforementioned requirement will be paid for its services based on a percentage of collections… The Department is seeking information from certified public accounting firms to assist in the development of a plan to conduct payment recapture audits…”

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“A is for Accountability”

RFP for Audit Services – Purpose: The Department performs recovery audits on various

grants, loans, and contracts in order to identify overpayments as a result of improper or erroneous actions. The President signed into law the Improper Payments Information Act (IPERA) in 2010. Under IPERA, any contractor performing the aforementioned requirement will be paid for its services based on a percentage of collections. The Department is seeking information from certified public accounting firms to assist in the development of a plan to conduct payment recapture audits in accordance with IPERA.

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Other Education Issues

For-Profit Schools Gainful Employment 90/10 Rule Proportion of Pell Grant funds received Influence of hedge funds? Additional Senate hearings

Regulatory Burden NASFAA survey is timely & informative

Reauthorization of No Child Left Behind Could include voc-tech program changes

College Completion Major Obstacles to Higher Ed Legislation in this

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Direct Loan Issues Going Forward

Time to Look in Rear View Mirror How was DL transition experience? What could have been done better? What can be done to prepare for DL reconciliation?

Comments, Concerns, Suggestions Must Be Communicated to ED & Congress

Split Borrowers ED resolving DL/ECASLA splits Additional servicers coming soon

PLUS Loan Approvals About twice as many denials under FFELP vs. FDLP Implications of parents over-borrowing?

Training Needs and Formats Other service gaps? Additional TIVAS? Not-for-Profit Servicing Contracts

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School Discussion – School Services

Training needs Online and in-person training

Loan Counseling Debt Management

DL School Services Process efficiency Accessibility of Data (MPN, PIN) Accuracy and timeliness of online data

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Issues on the Horizon 3-Year Cohort Default Rate

Projections are that some rates will double or more

2012 & 2013: both 2-year and 3-year rates calculated -- sanctions based only on 2-year rate

2014: sanctions based on 3-year CDR begin Perkins Loans

Will the program expire? Will revolving funds be recalled? Will ED’s proposal to create “Direct Perkins

Loans” be re-tooled?

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3-Year Cohort Default Rate Beginning FY 2009 the institutional cohort default

rate calculation will be based on the three most recent fiscal years available

Expands the timeframe during which defaulted borrowers are counted from two to three years and creates a transition period

Applies for any fiscal year in which 30 or more current or former students enter repayment on an applicable FFEL or DL

Default rate threshold raised from 25% to 30% along with new sanctions (for the 2011 CDR published 9/2014)

ED will publish an annual cumulative default rate by institution type

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School Discussion – Loan Funding

Federal credit-based Loans Parent PLUS Approval is

UP and we love it! What’s next?

Private Loans Students choose private loans over GPLUS New disclosures – How do they work for your

students?

Perkins Concerns ? 3-Year Cohort Default Rate?

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Program Integrity Final Regulations

• Issued October 29, 2010 • Contains 13 ¾ issues• Effective July 1, 2011

• Except 600.20(d) – gainful employment information collection requirements (date TBD) and Subpart E of part 668 – Verification and updating of student aid application information (effective July 1, 2012)

• No rules are eligible for early implementation

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School Discussion - Verification

No verification for the retrieved IRS data True or False:

Less data elements to verify will reduce the burden for students and FAA

True or False: Schools’ legacy system

will be easily adjusted to accommodate annually changing verification data elements

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School Discussion: Misrepresentation

Expanded definition includes “erroneous or misleading statements”

made directly or indirectly to “any member of the public”, “by person with whom the eligible school has an agreement”

True or False: Schools do not have to be

concerned . . .

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School Discussion – R2T4

Is it time for schools to reconsider taking attendance?

Are you ready to calculate R2T4 for short modules?

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School Discussion – Program Integrity

SAP Disbursement provision for books and

supplies for Pell recipients Revised definition of a credit hour Evaluation of the validity of HS diploma Gainful employment reporting

requirements

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Gainful Employment (GE) GOP-controlled House pushing hard for ED

to rescind rules on GE – received bipartisan support in earlier CR to block ED from carrying out new GE rules

Democrat-controlled Senate, led by Senator Harkin, Chair of the Senate HELP Committee, strongly favors tough rules for programs of less than one year (targeting for-profit institutions)

Many believe GE would be applied across all sectors once put in place

Final FFY 2011 CR put GE back on the table

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Private Loans – Growth and Access

Source: College Board 29

The Future Looks Challenging

Rising students’ indebtedness Pell Shortfalls PLUS loan defaults Doing more with less Impact of the new disbursement

provision Impact of the Gainful Employment

requirements Other issues??

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What to Do, What to Do…

Educate New Members, Re-educate returning Members

Don’t Take Support for Granted Share Stories of Student Aid

Recipients Student aid changes lives

Involve Your Campus Leadership Prepare for a Long Battle

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Thank You!

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