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The Changing Landscape of Student Loans

Patricia Hurley, Glendale Community CollegeTami Sato, Southern CA College of Optometry

Vicki Shipley, National Council of Higher Education Loan Programs (NCHELP)

CASFAA December 2008

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In the Beginning…. HERA and CCRAA

Back-to-Back Budget Reconciliations While “Waiting” for Reauthorization− The Higher Education Reconciliation Act

of 2005 (HERA) and the College Cost Reduction and Access Act of 2007 (CCRAA) shifted approximately $40 billion of funding from the FFEL Program participants to increase Pell and other student aid funding

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Higher Education Reconciliation Act− Increased loan limits and phase out of the o-fee

First year Stafford from $2,625 to $3,500 Second year Stafford from $3,500 to $4,500

− New grant programs Academic Competitiveness Grants & National Science and

Mathematics Grants to Attract Talent (SMART) Grants

− Created College Access Initiative College Cost Reduction & Access Act

− Increased Pell Grant maximum to $5,400 over five years, e.g. cost of $11.4 billion

− Temporary interest rate reduction – undergraduate subsidized Stafford only

Reconciliation Recycles Aid – No New Money

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Negotiated Rulemaking

Master CalendarJuly 1, 2008 – effective date for new

regulations regarding Preferred Lender Lists and prohibited inducements

July 1, 2009 – effective date for new regulations regarding IBR, Public Service Loan Forgiveness etc

Neg Reg 2009 – Starts February, 2009?

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Financial Crisis – Congressional Response - ECASLA

H.R. 5715 – The Ensuring Continued Access to Student Loans Act of 2008 (signed into law 5/7/08)− Provided the Department of Education with

authority to provide student loan liquidity − Together with the Treasury Department, the

Education Department announced on May 21, 2008 a plan to ensure access to student loans (Participation and Purchase/Put programs)

− New Student Loan Conduit Program announced in November (private sector conduit but loans may be put to the government). Conduit available in early 2009 with temporary expansion of the purchase programs in the interim.

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Congressional Response - ECASLA HR 6889 – Extension through 6/30/10 of

Student Loan Purchase Authority/Extension Of Authority To Designate Lenders For lender-of-last-resort Program [signed into law 10/7/08]

HR 7072 – Technical corrections in the Ensuring Continued Access to Student Loans Act of 2008 (proposed but did not pass)− Direct Advances− Maintenance of servicing by existing servicer− Use of proceeds− Rehabilitated loans eligible for Participation and

Put programs

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Reauthorization of the Higher Education Act

Higher Education Opportunity Act of 2008 (signed into law 8/14/08)

Makes the “code of conduct” law Prohibits lender inducements Disclosure regarding preferred lender list

section process (FFEL and private) A new Title X on Private Education Loans Increased disclosure requirements for FFEL

and private loans New reporting requirements for schools,

lenders and guarantors

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FFEL Lender Loan Disclosures

InitialRepaymentDefermentForbearance Installment bill or statementDifficulty making paymentsDelinquency

PLUS Loan Deferment for:

In-school periodUp to six months for post-half time

enrollment

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PLUS School Deferment

Dependent student of Parent PLUS borrower enrolled at least half time

Parent must request deferment based on dependent’s status

Parent may receive multiple, non-consecutive in-school deferments

Effective for loans first disbursed on or after July 1, 2008

Parent and Grad PLUS Loans

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PLUS Deferment

Six month post-enrollment deferment once enrolled less than half time

Parent PLUS borrower eligible based on own enrollment status or dependent student’s enrollment status

Grad PLUS borrower eligible based on own enrollment status

Parent PLUS borrower must request post-enrollment deferment

Granted automatically for Grad PLUS

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PLUS Deferment

Post-enrollment deferment independent of in-school deferment

Borrower eligible for multiple, non-consecutive post-enrollment deferments

Repayment alignment with Stafford via forbearance

Eligibility at loan-level vs. borrower-level

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Private Loans

Estimated $5.8 to $7.1 B of private loan capacity has left the market

Private loan costs have and will continue to rise

Higher FICO scores requiredRisk tolerance has diminishedFederal Reserve Board to issue

regulations post reauthorization

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Voter Registration, SSA, Constitution Day and now…

Fire SafetyMissing personsCampus emergency responseVaccinationsTextbook costsPeer-to-peer file sharingTransfer of Credit

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Additions and New Twists…

Preferred lender arrangementsDrug-related violationsPrivate loan counselingGraduation informationCode of conduct

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Preferred lender list (PLL)

Follows current regulations—Schools cannot:

− Assign a lender to a first-time borrower− Refuse or delay loan certification

based on the borrower’s choice of lender or guarantor

This is required regardless of whether a school provides a PLL

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PLL

Follows current regulations, but school must also disclose:

If and how each lender on PLL is affiliatedWhy the school entered into each

preferred lender arrangementMaximum federal grant and loan aid

available under Title IV− Information must be published on school’s

Web site and in all financial aid materials

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PLL—private loans

If a school provides a PLL for private loans, the list must include at least two unaffiliated private loan lenders

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For Schools, It’s All About ---Transparency & Accountability

Code of ConductConsumer InformationNew Cohort Default Rate CalculationPrivate Loan Information (Title X)

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School Code of Conduct

Requires schools, as part of Program Participation Agreement, to “establish, follow, and enforce” a code of conduct regarding student loans that prohibits conflicts of interest− Must publish the code on the school’s

Web site− Must inform staff of the code of conduct at

least annually Effective August 14, 2008

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School Code of ConductAllows schools to accept from lenders and

guarantors:− Entrance and exit counseling services, as long

as the school's staff is in control of the counseling, and the counseling does not promote the products or services of any specific lender

− Professional development training− Activities, programs, and materials related to

loan, default aversion and prevention, financial literacy, counseling, or debt management

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School Code of Conduct

Permits school personnel to accept reasonable expense reimbursement for service on lender and guarantor:− Advisory board,

− Commission, or

− A group established by a lender, guarantor, or group of lenders or guarantors

California Code of Conduct Resources

CA Office of the Attorney Generalwww.ag.ca.gov/ethics/Interactive on-line ethics coursePamphlets, books, etc.

Fair Political Practices Commissionwww.fppc.ca.gov Conflict of Interest guidelines for public

agencies/institutions

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Unintended Consequences

FAO workload overload Impressions Information overloadCloser relations with other offices on

campusOthers???

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Accountability – New CDR

Est. Average increases cohort from 2 yrs to 3 yrs

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Current 2- yr New 3-yr

Private 4-yr 2.8% 4.5%

Private 2-yr 7.4% 12.2%

Public 4-yr 3.5% 5.3%

Public 2-yr 8.1% 12.9%

Proprietary 4-yr 7.3% 13.7%

Proprietary 2 yr 9.9% 19/5%

Proprietary < 2-yr 8.9% 18.5%

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Revised thresholds Ineligible if CDR 30% for 3 years

− First year at 30% School must create Default Management task force Identify factors causing default & remedy plan Plan must be submitted to Secretary

− Second year at 30% Assess, analyze and review plan from first year Submit corrective changes to Secretary Secretary will review and respond

Appeal basis− Mitigating circumstances

− Loan participation rate < 15%26

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HEOA Stafford Entrance Counseling

Currently no assistance from lenders or GA Consumer information

Loan impact on other aidMPN Interest accrual/capitalizationEligibility requirementsEffect of withdrawingSample repaymentsAverage indebtedness of other students in same

programDefault and consequencesNSLDS Contact information

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HEOA Stafford Exit Counseling

GA and lender(?) assistance permitted Information required

Repayment plans – income sensitive/based/contingent Sample total interest paid monthly payments for

eachDebt management strategiesTerms and conditions of

forgiveness/cancellation Default consequencesConsolidationTax benefitsNSLDS system

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Direct Lending

Deferment for Public ServiceNurses, Government employees, public

health, early childhood education, teaching high needs area/subject

Active military duty Up to 60 mos no interest accrual

Income-Based Repayment (IBR)

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Other Issues

New additional $2000 unsubDependent students –

Only unsub if parents refuse to complete FAFSA school must comply with 90/10 rule

PLUS – In-school deferment for student or parent

Grad PLUS – In-school defermentInterest capitalization

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More other issues

Rehabilitation of defaulted loansLimited to once per loan

Grad pre-requisities/5th year teacher certification

Clarification that loan limit is $7000

Loan forgiveness – Stafford, Direct, Grad PLUS

service in national needcivil legal assistance attorneys

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Current Issues

Availability of Stafford LoansAvailability of Private Education LoansDirect Lending/FFELP balanceCost of education, declining resources

& student indebtednessProgram redesign recommendations –

one grant/loan/work Increased oversight & regulations?Obama agenda

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Thank You!

Questions?Comments?