vasfaa legislative update

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved.

Vice President, Government Affairs and Services

VASFAA LEGISLATIVE UPDATEScott Buchanan

5/21/2012


2

The most important number

168


3

November 6, 2012


4

The 2nd most important number

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20124%

5%

6%

7%

8%

9%

10%

11%

Unemployment Rate


5

Major Political Issues

► Jobs and the economy–College costs and student loans

► Debt and the deficit–Investment in higher education


6

America’s Investment in Higher Education is Sizable and Growing

Sources: College Board, 2011 Trends in Student Aid, McKinsey & Company

29 31 32 34 36 39 44 51 56 60 63 71 88 102 10626 29 32 35 38 42 46 51 55 58 63 6977

96 107

1 2 4 5 5 6 67 7 7 8

812

1616

71 76 83 88 9199

109121

131 137145

155

168

167175

1.62.0

2.5 3.5 4.05.0

7.09.4

13.016.0

19.021.1

10.3

6.86.0

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

96-97 97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11

Total Postsecondary Education Spend

State and Federal LoansGrantsOtherFamily ContributionPrivate Student Loans

$129$140

$410$387

$213$190

$263$239

$174$165

$153

$324

$355

$298$279

Distribution %Family Contribution 55% 54% 54% 53% 53% 52% 51% 51% 50% 49% 49% 48% 47% 43% 43%Grants 20% 21% 21% 21% 22% 22% 22% 21% 21% 21% 21% 21% 22% 25% 26%State and Federal Loans 23% 22% 21% 21% 20% 20% 21% 21% 21% 21% 21% 22% 25% 26% 26%Other 1% 2% 3% 3% 3% 3% 3% 3% 3% 3% 3% 2% 3% 4% 4%Private Student Loans 1% 1% 2% 2% 2% 3% 3% 4% 5% 6% 6% 7% 3% 2% 1%

+236%


7

85% of All Loans Outstanding are Federal Student Loans

Source: Department of Education Annual Performance and Accountability Reports, FY 2006 to FY 2011, Notes to the Principal Financial Statements, Credit Programs note; Federally-owned FFELP is calculated based on receivables in purchase program and participated loans sold to the Department; private education loan volume estimate based on SLM outstanding and estimate of market share

0

100

200

300

400

500

600

700

800

900

1,000

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011

Federal Student Loans

Private Education Loans

($ in billions)


8AY 08-09 AY 09-10 AY 10-11

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$7.7

$8.9

$10.5

Parent PLUS

+37%

AY 08-09 AY 09-10 AY 10-11$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$4.3

$5.8

$6.8

Grad PLUS

+57%

PLUS Programs Growing at Double Digit Rates


9

$119 Billion New Loans Forecast for 2013

$21 Billion Expected to Default

(in millions)

FY 13 Net

Disbursements

Lifetime Default

Rate

Expected Defaults

over Life of Loans

Stafford Sub 31,842 24% 7,760 Stafford Unsub 65,189 17% 10,841

PLUS 21,869 10% 2,119

Total 118,900 20,720

Administration Expects to Originate $119 Billion New Loans in 2013Forecasts that $21 Billion Will Default

Source: Budget of the U.S. Government, Fiscal 2013; Federal Credit Supplement, and Appendix


10

Budget Challenges

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

-$400

-$200

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

(in b

illio

ns)

Expiring TaxCuts/Medicare

Payments

Forecast

2012 to 2021$10.6 Trillionadditional deficits


11

College Degree Greatly Enhances Likelihood of Employment for Young Adults

Source: Bureau of Labor Statistics. Current Population Survey, March 2012

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2007 2008 2009 2010 2011 2012

Unemployment Rates for 20-24 Year Olds

College graduates (B.A. or more) High school diploma or less

45.7%51.1%

71.4% 75.1%

15.2%

21.7%

12.9%13.1%

15.6%

11.5%

5.7%4.8%

23.5%15.7%

9.9% 6.9%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

No college Some college, no degree

Associate degree College graduates

Status for All Non-Enrolled, 20-24 year olds

Employed Full-time Employed Part-time

Unemployed, Looking Not in Workforce


12

► Changing the debate – Increasing spending to reducing debt– Last year recommendations from fiscal commissions

generally ignored and President’s 2012 budget had no deficit reduction

– Since then massive $2 trillion reduction package► Not all spending the same

– Discretionary spending—i.e. annual appropriations—easier to target

– Pell Grants protected so far…but at the expense of other higher education programs

Debt Ceiling and Deficit Politics


13

Budget Control Act of 2011

10-year savings

Discretionary SpendingEstablishment of caps -756Program integrity 15 Subtotal -741

Mandatory SpendingProgram integrity -16Pell Grants 17Student Loans, etc. -22 Subtotal -20

Debt Service -156Total Effect -917Joint Committee Target -1,200Total Deficit Reduction -2,117


14

Budget Control Act Requires $43B Cut from Discretionary in 2012

Net Interest; 221; 6%

Mandatory/Entitlement

spending, $2,213, 58%

Non-defense spending; 650;

17%

Defense spend-ing; 703; 19%

Includes all education spendingexcept student loans and small Pell Grant add-onPell Grants needs $24b


15

Will Cuts Come From Entitlements?

Social Security; $726

Medicare/Medicaid/

Health, $852

Unemploy-ment, $120Other income security; $284

Federal/Military Re-

tirement, $144

Other; $88


16

► Reductions in fiscal discretionary limits from fiscal 2013 to 2021, could by up to $100 billion a year

– 50% of the cuts from the Department of Defense – 48% of the cuts from all other non-defense programs (not listed below) – 2% of the cuts from Medicare

► The sequester cannot touch the following programs (from the Balanced

Budget and Emergency Deficit Control Act of 1985 as amended): – Pell Grants – Social Security – The Postal Service – Class Act (Voluntary long-term health care benefits created in ObamaCare) – Most unemployment benefits, veterans benefits and low income payments– All "emergency designations“, "unanticipated circumstances,” disaster relief

► Not exempt: – Department of Education, administrative money and other higher ed– Special rule for student loans, origination fees increased by sequester percentage

Sequester if Congress Takes no Action…


17

► 2011 Full Year Continuing Resolution– Additional $5B in appropriations (equivalent to

$50B over 10 years)– End Summer Pell Grants

• Reducing program costs by $35B over 10 years• $8.8B in mandatory Pell savings added to

appropriations► Budget Control Act

– Added $17B in 2012 and 2013 to Pell from savings due to elimination of grad students’ in-school interest

Pell in the Past


18

Pell Grants Need $77 Billion to Maintain Current Grant Levels

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Current appropriation Prior year funding Mandatory funding Cost to Fully Fund Pell Grants

$77 billion shortfall

Source: Congressional Budget Office, March 2012 Baseline Projections for the Student Loan and Pell Grant Programs


19

► Costs of Pell continue to rise► Costs of higher education rise beyond even

unfunded Pell Maximum► Tough and painful choices are evidenced by

House and Senate appropriations:– House – Reduce cost of Pell by more effectively

targeting the neediest with more constraints– Senate – Increase investment in Pell by reducing other

education subsidies like interest subsidy while in grace► The deficits could make these choices even

tougher

Pell in the Future


20

► Interest rate was always scheduled to return to 6.8%

► Both federal loan rates are arbitrary► Rate, Pell, and IBR share the same

problem► No impact to students seeking jobs today► All say they want it, but disagree on how to

pay for it

The Interest Rate


21

► Looming election will cripple Congress► Clock is ticking► Past legislative gimmicks have come

home to roost► Impossible to be able to spend enough► Overeducated and underskilled► Lack of proper market forces means

resistance to correction► Occupy vs. “Entitlements for the Entitled”

Legislative and Public Policy Realities


22

► Pell Grants: What’s the right approach?► Loan subsidies: Coming or going? Or neither?► Spending cuts: What programs may be on the

chopping block? What needs to be protected?► Defaults on the Rise: What will be Washington

reaction and enrollment impacts?► American family reaction to economy: How will

changes in savings, borrowing, cost decisions impact your campus?

Key Issues Impacting Schools

vasfaa legislative update

Documents

proprietary information

sallie mae

appendix confidential

loans outstanding

budget challengesconfidential

student loans debt

budget control act

participated loans