washington update 2012 winter legal meeting shelly repp, nchelp january 19, 2012 hilton new orleans...
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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
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 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
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 System
FFELP & Direct Lending Federal Lending Only
Students &
Families
Schools
Lender Servic
es
Guaranty
Agency Services
Federal Government
Students &
Families
Federal Government
Schools
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)