The changing landscape of student loans
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The Changing Landscape of Student Loans. Patricia Hurley, Glendale Community College Tami Sato, Southern CA College of Optometry Vicki Shipley, National Council of Higher Education Loan Programs (NCHELP) CASFAA December 2008. In the Beginning…. HERA and CCRAA .

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The Changing Landscape of Student Loans

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The changing landscape of student loans

The Changing Landscape of Student Loans

Patricia Hurley, Glendale Community College

Tami Sato, Southern CA College of Optometry

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

CASFAA December 2008


In the beginning hera and ccraa

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


The changing landscape of student loans

Reconciliation Recycles Aid – No New Money

  • 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


Negotiated rulemaking

Negotiated Rulemaking

  • Master Calendar

  • July 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?


Financial crisis congressional response ecasla

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.


Congressional response ecasla

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


Reauthorization of the higher education act

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


Ffel lender loan disclosures

FFEL Lender Loan Disclosures

  • Initial

  • Repayment

  • Deferment

  • Forbearance

  • Installment bill or statement

  • Difficulty making payments

  • Delinquency


Plus loan deferment for

PLUS Loan Deferment for:

  • In-school period

  • Up to six months for post-half time enrollment


Plus school deferment

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


Plus deferment

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


Plus deferment1

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


Private loans

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 required

  • Risk tolerance has diminished

  • Federal Reserve Board to issue regulations post reauthorization


Voter registration ssa constitution day and now

Voter Registration, SSA, Constitution Day and now…

  • Fire Safety

  • Missing persons

  • Campus emergency response

  • Vaccinations

  • Textbook costs

  • Peer-to-peer file sharing

  • Transfer of Credit


Additions and new twists

Additions and New Twists…

  • Preferred lender arrangements

  • Drug-related violations

  • Private loan counseling

  • Graduation information

  • Code of conduct


Preferred lender list pll

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


The changing landscape of student loans

PLL

  • Follows current regulations, but school must also disclose:

  • If and how each lender on PLL is affiliated

  • Why the school entered into each preferred lender arrangement

  • Maximum federal grant and loan aid available under Title IV

    • Information must be published on school’s Web site and in all financial aid materials


Pll private loans

PLL—private loans

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


For schools it s all about transparency accountability

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

Code of Conduct

Consumer Information

New Cohort Default Rate Calculation

Private Loan Information (Title X)

19


School code of conduct

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


School code of conduct1

School Code of Conduct

  • Allows 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


School code of conduct2

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

California Code of Conduct Resources

  • CA Office of the Attorney General

    • www.ag.ca.gov/ethics/

    • Interactive on-line ethics course

    • Pamphlets, books, etc.

  • Fair Political Practices Commission

    • www.fppc.ca.gov

    • Conflict of Interest guidelines for public agencies/institutions


  • Unintended consequences

    Unintended Consequences

    • FAO workload overload

    • Impressions

    • Information overload

    • Closer relations with other offices on campus

    • Others???


    Accountability new cdr

    Accountability – New CDR

    Est. Average increases cohort from 2 yrs to 3 yrs

    25


    Revised thresholds

    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


    Heoa stafford entrance counseling

    HEOA Stafford Entrance Counseling

    • Currently no assistance from lenders or GA

    • Consumer information

      • Loan impact on other aid

      • MPN

      • Interest accrual/capitalization

      • Eligibility requirements

      • Effect of withdrawing

      • Sample repayments

      • Average indebtedness of other students in same program

      • Default and consequences

      • NSLDS

      • Contact information


    Heoa stafford exit counseling

    HEOA Stafford Exit Counseling

    • GA and lender(?) assistance permitted

    • Information required

      • Repayment plans –

        • income sensitive/based/contingent

        • Sample total interest paid monthly payments for each

      • Debt management strategies

      • Terms and conditions of forgiveness/cancellation

      • Default consequences

      • Consolidation

      • Tax benefits

      • NSLDS system


    Direct lending

    Direct Lending

    • Deferment for Public Service

      • Nurses, 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)


  • Other issues

    Other Issues

    • New additional $2000 unsub

    • Dependent 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 deferment

    • Interest capitalization


  • More other issues

    More other issues

    • Rehabilitation of defaulted loans

      • Limited 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 need

    • civil legal assistance attorneys


  • Current issues

    Current Issues

    Availability of Stafford Loans

    Availability of Private Education Loans

    Direct Lending/FFELP balance

    Cost of education, declining resources & student indebtedness

    Program redesign recommendations – one grant/loan/work

    Increased oversight & regulations?

    Obama agenda


    Thank you

    Thank You!

    • Questions?

    • Comments?


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