Washington Update2012 Winter Legal Meeting

Shelly Repp, NCHELP

January 19, 2012 Hilton New Orleans Riverside, New Orleans, LA

Washington Update 2012 Political Landscape Budget Control Act Student Financial Assistance The Administration’s Initiatives

2012 Political Landscape

Currently - Gridlock FY 2011 appropriations Debt limit increase FY 2012 appropriations Payroll tax extension

2012 Elections - President Presidential election

Republican primary season in full swing President Obama begins to posture for general

election

2012 Elections - House Current distribution

242 Republicans 192 Democrats 1 vacancy

All House seats up in 2012 Reapportionment due to 2010 Census

8 states gain members Texas +4 Florida +2

10 states lose members New York -2 Ohio -2

2012 Elections - Senate Current makeup

51 Democrats 47 Republicans 1 Independent 1 Independent Democrat

33 Senate seats up in 2012 23 currently held by Democrats 10 currently held by Republicans

Budget Control Act

Budget Control ActAggregate Debt Level

Budget Control Act2012 Appropriations

 Discretionary Spending(Billions of $; excludes war funding)

    Budget Authority

 FY 2011 Enacted  1,050 FY 2012 President's Request  1,139 FY 2012 House Budget Resolution  1,019

 FY 2012 Budget Control Act  1,043 FY 2012 Omnibus Appropriations 1,043

Budget Control Act Increase in debt limit approved at 11th hour Discretionary spending cut by $917 billion

over 10 years Additional action needed

Super Committee charged with recommending at least $1.2T in savings - FAILED

Balanced Budget Amendment - FAILED $1.2T Sequestration – TRIGGERED, effective

January 1, 2013 Assuming one of these paths is taken, debt

limit will increase enough to cover expenses through the 2012 election

Budget Control ActSequestration Sequestration

Uniform reduction in discretionary appropriations and direct spending Reductions half from defense and half from non defense

functions, totaling $1.2 trillion (minus interest savings) Certain programs protected, including Pell For student loans, origination fee increase

Congress can still enact targeted cuts or revenue increases to avoid the sequester

Student Financial Assistance

Challenges For Schools Accountability

More compliance responsibilities Financing shift from state to federal

States are providing less funding Greater reliance on federal dollars and tuition

revenue

Federal Student Financial Assistance Financial aid now seen as area for savings

Pell Grants – maximum grant ($5,550) preserved but eligibility cut Students qualifying for less than 10% of maximum award will no

longer receive grants Students without high school diploma or GED can no longer qualify

by passing an “ability to benefit” test Reduces current 18 semester lifetime award limit to 12 semesters Income threshold to automatically qualify for maximum grant

reduced from $30,000 to $23,000 Stafford subsidies

Elimination of interest subsidies for grad & professional students as part of the Budget Control Act

Omnibus appropriations measure eliminated interest subsidy during grace period for other Stafford loans for 2012-13 and 2013-14

What about in-school interest?

Federal Student Financial Assistance Lender Return

Lenders have option prior to April 1, 2012 to permanently convert index for special allowance from 3-month commercial paper (financial) to 1-month LIBOR

Applies to loans disbursed 1/1/2000 and after and commences with SAP for 2nd calendar quarter of 2012

Applies to all loans held by a lender and all loans all loans for which a beneficial owner has right to make this election

Exceptions Lender not legally permitted to make election without

approval of 3rd parties Rating agency says it will down grade

FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 090.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

National Student Loan Cohort Default and Unemployment Rates

DefaultsUnemployment

Source for Unemployment Rate: Bureau of Labor Statistics. FY for Unemployment rate is one year ahead of Cohort Default Rate.

Student Loan Defaults

Services?

Changes to the Delivery SystemFFELP & Direct Lending Federal Lending Only

Students &

Families

Schools

Lender Servic

es

Guaranty

Agency Services

Federal Government

Students &

Families

Federal Government

Schools

The Administration’s Initiatives

Department of Education Initiatives Gainful employment/Program Integrity

Currently issue for for-profit institutions and certificate programs at other institutions

Continued high unemployment for graduates may fuel the case to expand the approach to other types of institutions (i.e. law schools, business schools)

MoveOn.org Petition

Occupy Wall Street

Protests

Administration

Reaction

New Student

Loan Programs

Presidential Initiatives Special Consolidation “Pay as you Earn” Plan

Presidential Initiatives Special Direct Consolidation Loans

Eligibility limited to split loan borrowers (in-school and defaulted FFELP loans are not eligible)

Available now through June 30, 2012 Incentive – 0.25% interest rate reduction on FFELP

loans Not a traditional consolidation loan Key issue – Are FFELP borrower benefits included

in base loan rate?

Presidential Initiatives Pay As You Earn

Will be available to new borrowers in 2008 who receive a loan in 2012

Income contingent repayment plan for direct loans only

Caps payments at 10% of discretionary income Shortens repayment period from 25 to 20 years –

remaining balance is discharged Revised regulations required (currently subject to

negotiated rulemaking)

Maintaining the Infrastructure:Providing Services after FFELP Voluntary Flexible Agreements

Goal is to ensure continuation of services Unfortunately, Department of Education policies

are limiting VFA potential

Maintaining the Infrastructure:Providing Services after FFELP NFP Servicing Program

20+ organizations participating Currently limited to 100,000 accounts per

organization Local servicing versus national servicing

Negotiated Rulemaking Began last week 25 issues included on revised agenda Main goal – develop regulations to implement

“pay as you earn” plan/changes to income contingent repayment regulations

Information posted on FSA website (http://www2.ed.gov/policy/highered/reg/hearulemaking/2011/loans.html)and NCHELP website (http://www.nchelp.org/?page=158)

Questions