Slide 1

Federal Update

Illinois Student Loan Association

November 19, 2009

Alisa Abadinsky

Director, University Student Financial Services= 3;

University of Illinois

Past President, COHEAO

aabadins@uic.edu

312-413-1971

www.coheao.org

–

12/10/2009

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Presentation Outline

•COHEAO Information

•HEAO Neg Reg – Final Rule

•Congressional Budget Process

•President&#= 8217;s Budget – New Perkins

•HR 3221 <= /div>

•COHEAO̵= 7;s Response

•Impl= ementing TILA Changes for Private Education Loans

<= span style=3D'visibility:hidden'>•

12/10/2009

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COHEAO Announcements

•Join COHEAO! Your membership is needed now more than ever.

•P= erkins is not dead;

–L= ot’s to do no matter what happens in Congress

•COHEAO wor= ks on other issues: accounts receivable management, financial literacy

•Planning a teleconference on Student Loan Final Rule = Implementing HEAO

12/10/2009

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COHEAO Annual Conference: You Can Register Now

&#= 8226;COHEAO Annual Conference

R= 26;January 23-27, 2010 at Pentagon City, Virginia, just across the Potomac Riv= er from Washington, DC

R= 26;This will be the most important COHEAO conference ever.

&= #8211;Rates at hotel, for registration frozen

&= #8211;Register at www.coheao.org.

•

12/10/2009

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HEOA Neg Reg Team 2: School Based Loan Issues

= •Consensus Achieved, Final Rule published October 28, 2009

•Lots of focus on Preferred Lender Lists: Private and FFELP

•Perkins mandatory assignment changes dropped from agenda

<= span style=3D'font-size:88%'>•New “private” loan rules apply to schools

–Federal Reserve published Truth In Lending Act regs – for lenders, including schools

•COHEAO, NASFAA, NAICU, NACUBO, ACE joint comments = submitted to FED.=

•Final regs published July 30, 2009.

<= span style=3D'mso-special-format:bullet;position:absolute;left:-6.32%;font-fami= ly: Arial'>•

12/10/2009

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Stimulus Package: Student aid
American Reco= very and Reinvestment Act

•Pell Grant max increased $500 for 2 yrs

•R= 20;Hope” tax credit raised to $2,500 per year, extended to four years, made 40% refundable

•Work Study funding raised by $200 million for FY2010

•$100 million for tea= cher education

•Huge amounts of funding for K-12 – doubled ED budget.

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Congress’s Budget Process

<= span style=3D'font-size:63%'>•Appropriations for FY 2010 passed in Feb.

–Perkins cancellations increased by $2.837 million,= first increase in years. No FCC

<= span style=3D'font-size:63%'>•FY2010 Budget Resolution

–Final budget passed along party lines <= /span>

•Overall spending is $3.55 trillion - $146.2 billio= n less than Obama’s pro= posal. Includes $530 billion in domestic discretionary spending

•Function 500 (includes Education) is $89.4 billion= in discretionary spend= ing which is $5.6 billion more than FY09

<= span style=3D'font-size:63%'>•Appropriations bills underway

–12 passed House, 5 passed Senate, 0 passed both; Labor-HHS-ED only = passed House

–C.R. through Dec. 18, 2009

<= span style=3D'mso-special-format:bullet;position:absolute;left:-6.32%;font-fami= ly: Arial'>•

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Congress’s Budget Process

•Budget Resolutio= n sets stage for Major Policy changes

= –Reconciliation process tells education committees to write legislation saving $1 billion from education= over next 10 years.

= –Reconciliation passes Senate by simple majority – no filibusters

= –Fast Track to change: That’s where Perkins changes, Pell entitlement, elimination of the FFELP may occur= 3;

<= span style=3D'font-size:86%'>–Wild Card: Health care reform included?

<= span style=3D'mso-special-format:bullet;position:absolute;left:-6.32%;font-fami= ly: Arial'>•

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Obama Budget for 2010

•Financial Aid Changes: <= /div>

•Incr= ease Pell Grant max to $5,550, make an automatic entitlement, incr= ease 1% over CPI every year

•Elim= inate FFEL Program – all schools to DLP for AY2010

•Continue expanded tax credits

•Eliminate Perkins Loan Program

•Create New Perkins L= oan Program

•

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Budget FY 2010 – Perkins

•“New Perkins” program =3D new Unsubsidized Direct Stafford Program

•Funding: $6 bill= ion a year “mandatory” – permanent = appropriation

•Schools: expande= d from 1,800 to 4,400

•Federal share of current loans sent to ED

•5% interest char= ged in school and grace

•All new loan ser= vicing done by ED

–Old loans servic= ed by schools

–New loans by FFE= LP Put/DL Contractors

•Cancellation ben= efits same as Stafford

<= span style=3D'mso-special-format:bullet;position:absolute;left:-4.43%;font-fami= ly: Arial'>•

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Budget FY 2010 Perkins

•Administration says:

•2.7 million more students get loans

•Loans targeted to needy students and the schools they attend: Schools with many Pell recipients

•Colleges encoura= ged to control tuition

–Current formula = sends more funds to schools with higher tuitions. New formula would encourage cost control and targeting of grants to prevent excessive indebtedness

•Budget rules req= uire ED servicing

–Arcane federal accounting/scoring rules

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Federal Student Aid Conference

&#= 8226;Presentations:

–http://www.ifap.ed.gov/presentations/2009FSAConference= .html

R= 26;22. Overview of the Federal Direct Perkins Loan Prog= ram

R= 26;23. Perkins Loan Program - Status of Existing Loan Portfolios – CANCELED

&#= 8226;31. Experimental Sites - A New Beginning

•

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House Loan Bill, HR 3221: What The Administration Wants

•Education and La= bor Committee approved July 22; 30-17 vote

–Part= isan: all Dems, only 2 R’s voted yes.

•House passed Sep= t. 17, 2009, 253-171 (4 Dems voted no, 6 Reps voted yes)

•Senate HELP Comm= ittee staff drafting a bill based on House proposal, President’s budget proposals

–Most= of the attention on FFELP vs. DLP, only recently more on Perkins&= #13;

•Senate Committee Action expected ???

–Watch Health Care Legislation in the Senate

12/10/2009

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House Bill, HR 3221

•T= he Student Aid and Fiscal Responsibility Act

= 211;Republicans attacking “fiscal responsibility” moniker

•Creates Fe= deral Direct Perkins Loan Program in Part D of the HEA, the direct loan section.

•Current Pe= rkins Program, Part E, repealed as of July 1, 2010.

&= #8211;Existing loans retain same terms

= 211;Some students would have both types of “Perkins”

12/10/2009

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House Bill and Perkins

•Same Terms as Di= rect Unsubsidized Stafford Loans except interest rate is 5%, allocation is limited, loan limits same as current Perkins, added to Stafford limits.

–Interest charged during in-school, grace periods;

–Grace period red= uced to 6 months

–Loan cancellatio= ns same as Direct – after 10 years of repayment in public service occupations, various t= eacher cancellations

–Institutions req= uired to pay matching funds (5%?) in unspecified amount into escrow account “For the purpose of providing loan benefits to borrowers.”= 3;

•One = ED idea: Schools pay in-school interest

•Servicing and collections of New Loans by ED’s DL contractors

<= span style=3D'mso-special-format:bullet;position:absolute;left:-4.43%;font-fami= ly: Arial'>•

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House Bill and Perkins: A New Way to “Control Costs”

•Complex new allo= cation formulas designed to pressure schools to hold down tuition and fees, enroll low-income students

•Half of funds allocated according to self-help need of current Perkins schools (they are held harmless)&#= 13;

•Quarter of funds allocated among schools whose average tuition and fees, minus average institutional aid and discounts, is less than the average for th= e school’s sector. Sectors same as those created by = HEAO for cost reporting

•Quarter of funds allocated based on how many students who ever got a Pell Grant are graduated.

12/10/2009

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HR 3221 and Perkins

•Schools can cont= inue servicing existing loans or assign to ED. Administrative fee paid of .50% of outstanding= = interest and principal

–Federal share of repayments sent to ED, institutional share can be used for any purpose.

•For existing Per= kins, voluntary assignment clearly restored, with institution allowed to keep its share.

•Compromises on defaulted loan repayments are repealed.

•Mandatory assign= ment OK if institution fails to maintain acceptable collection record – knowingly or not.

12/10/2009

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HR 3221: Other Issues

•Terminates FFEL Program 7/1/10

•Servicing done b= y ED contractors, but non-profits get to service 100,000 new loans a year made at schools in their home states. <= /span>

•College completi= on and Innovation Fund: $600 million annually in grants for 5 years, controlled by State’s, can go for def= ault prevention

•Grad and prof. students can still get subsidized Staffords (change from 1st= vers= ion of the bill)

•Sub Stafford rat= es variable after 2012: T-bill plus 2.5%, capped at 6.8%. <= /div>

•Pell Grants NOT = an entitlement: Appropriated amount plus extra increased from <= span style=3D'position:absolute;top:51.74%;left:9.73%;width:84.45%;height:4.25%= '>$490 to $690 a year, then increased at CPI plus 1%= after that.

•Community college Initiative: $2.5 billion for modernization and construction, plus <= /span>funds for workforce development =

•$5 billion for modernization, repair of public schools

•$1.2 billion for HBCUs.

•Early Learning Challenge Grant Program – states offer grants for birth to 5 years <= /span>programs.

•$10 billion for deficit reduction

–New CBO estimates don’t count

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“New Perkins”: COHEAO V= iews

•COHEAO comments submitted as Testimony to House Education and Labor Committee (see web site):

•Increased funding welcome

•Expansion to more schools welcome

–With funding, le= ss controversy over allocation formula

•Keep servicing at schools, if they wish

–Funding stream necessary to pay servicing costs

•Keep in-school interest benefit for students

•Keep Perkins uni= que cancellation benefits

•Institutions ret= ain their contributions (historic matches plus interest and fees, plus overmatches or loans) if revolving funds sent to Washington

•

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“New Perkins” COHEAO Views Included in House bill:

•Existing borrowe= rs retain cancellation benefits, schools are reimbursed their share

•Institutional ma= tch supported, similar to longstanding match requirements (lots of new cash not possible) <= /span>

•Current institut= ions “held harmless”: receive new allocations of at least the annual average over past five years.

–Can compete for additional allocations

•Allocation of ne= w funds based on % of low income st= udents so all institutions receive mi= nimum threshold of funding

•Retain 5% fixed interest rate

•Retain campus-ba= sed student allocation process

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“New Perkins”:
Three Major Flaws<= /span>

•In-School Intere= st Benefit dropped: 5% interest accrues from time loans made

–For undergrad: a= dds $5,000 to debt after 4 years

–It’s a num= bers game: Money would be taken from student interest payments and spent on other federal “priorities”

–ED Justification: better than “private” loans

•All new loan ser= vicing transferred to national Direct Loan servicing contractors

–Possibly also FF= ELP non-profits in some states

–Schools complete= ly out of the servicing picture

–Responsible for “match”, default rates

•Perkins’ u= nique cancellation benefits killed

–ICBR supposed to substitute, along with DL’s cancellation after 10 years of payments while in public service job.

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TILA Changes for Private Education Loans

= •HEOA amen= ds Truth in Lending Act (TILA) by adding disclosure and timing requirem= ents that apply to creditors making private education loans which are defined as loans for postsecondary education loan expenses.

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TILA Final Rule

= •Federal R= eserve System published final rule on August 14, 2009 = •Complianc= e is Optional until February 14, 2010 •http://frwebgate.acc= ess.gpo.gov/cgi-bin/getdoc.cgi?dbname=3D2009_register&docid=3DE9-18548-filed.pdf

<= span style=3D'visibility:hidden'>•

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Private Education Loan Definition

= •It is an extension of credit that is not made, insured, or guaranteed under Title IV of HEA. = •Is extend= ed to a consumer expressly, in whole, or in part, for postsecondary = educational expenses regardless of whether the loan is provided by the educational institution that the student attends.

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Private Education Loan Exceptions=

R= 26;Does not include an extension of credit in which the covered education= al is the creditor if:

= 211;The term of the extension of credit is 90 days or less – Emergency Loans

–An interest rate will not be applied to the credit balance and the t= erm of the extension of credit is one year or less , even if the credit is payable in 4 or more installments –Tuition Payment Plans

•

12/10/2009

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TILA Required Disclosures

&#= 8226;Application Disclosure

&= #8211;Generic program information

&= #8211;Provided on or with application

&#= 8226;Approval Disclosure

&= #8211;Loan specific APR, fee information

&= #8211;Estimated payment schedule

&= #8211;Cost examples

&= #8211;Right to accept by a date certain

•

12/10/2009

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Disclosures Continued

&#= 8226;Final Disclosure

&= #8211;Similar to Approval Disclosure

&= #8211;Right to cancel by a date certain

– <= /div>

R= 26;Sample disclosure forms beginning on page 41237 of the Final Rule = 3;

&= #8211;Safe harbor for reliance on sample forms

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Disclosures Continued

= •Departmen= t of Education Private Education Loan Applicant Self-Certification Form •OMB Process. Federal Register Notice 10/2/09 for 60 day comment period. = A 30 day comment period will follow. •Draft form found at = http://edicsweb.ed.gov/browse/browsecoll.cf= m?pkg_serial_num=3D4046

<= span style=3D'visibility:hidden'>•

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Implementing Disclosures

&#= 8226;The Federal Reserve disclosures:

–Solicitation may be provided without regard to ESIGN Act

= 211;Approval and Final disclosures must be provided in accordance with ESIGN&= #13;

R= 26;Department of Education Private Education Loan Application Self-Certification Form must be signed by borrower before loan is = consummated.

•

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Timing of Disclosures

= •Approval Disclosure: Provides borrower 30 days to accept the loan, generally without changes to the loan terms. = •Final Dis= closure: 3 day delay disbursement during which time the borrower may ca= ncel the loan.

<= span style=3D'visibility:hidden'>•

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QUESTIONS and COMMENTS?

•Alisa Abadinsky &= #13;

•Director, University Student Financial Services

•University of Illinois

•Past President, COHEAO

•aabadins@uic.edu

•312-413-1971

•= www.coheao.org

•

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