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EASFAA 2012 FEDERAL UPDATE

EASFAA 2012 FEDERAL UPDATE. Jeff Baker May 23, 2012. White House Student Loan Initiatives Budget Act of 2011 Consolidated Appropriations Act – 2012 Other Legislative President’s 2013 Budget Cohort Default Rates Verification Gainful Employment. Today’s Topics. 2.

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EASFAA 2012 FEDERAL UPDATE

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  1. EASFAA 2012FEDERAL UPDATE Jeff Baker May 23, 2012

  2. White House Student Loan Initiatives Budget Act of 2011 Consolidated Appropriations Act – 2012 Other Legislative President’s 2013 Budget Cohort Default Rates Verification Gainful Employment Today’s Topics 2

  3. White House Student Loan Initiatives 3

  4. Special Direct Consolidation Loans 4

  5. Special Direct Consolidation Loan • January 17 through June 30, 2012. • Only for “Split Borrowers” • Loans held by ED and FFEL lender • ED Held Loans –Direct Loans and ‘PUT’ FFEL Loans • Only the commercial FFEL to be consolidated • Underlying loans paid off • Underlying loans maintain identity • Same terms, conditions, dates 5

  6. Special Direct Consolidation Loan • Benefits – • Single holder/servicer/bill/payment • Loans maintain terms and conditions • Reduction in interest rate of 0.25% • Additional 0.25% reduction for EFT • Loans eligible for Public Service Loan Forgiveness 6

  7. ”Pay As You Earn”Income Driven Repayment Plans 7

  8. Income Based Repayment (IBR) Plan • Statutory - FFEL and Direct Loan • Current Law – • Maximum annual payment amount is 15% of discretionary income. • Remaining balance forgiven after 25 years. • New Law (SAFRA) – Effective 2014 • Maximum annual payment amount is 10% of discretionary income • Remaining balance forgiven after 20 years. 8

  9. Income Contingent Repayment Plan • Regulatory - Direct Loan Only • Current Regulation - • Regulatory defined formula • Complex • Loan amount and income • Remaining balance forgiven after 25 years. • Limited “take-up” rate 9

  10. Revised Repayment Plan • Amend ICR regulations to – • Accelerate 2014 IBR changes • Reduce from 15% of discretionary income to 10% • Reduce forgiveness time from 25 years to 20 years • Negotiated rulemaking required- finalized in March • NPRM Next • Expected effective date – Fall 2012 10

  11. Budget Control Act of 2011(BCA) 11

  12. BCA - Subsidized Loans • Elimination of Subsidized Loans for Graduate Students • Effective for loans made for loan periods beginning on or after July 1, 2012. • Subsidized Loans for loan periods beginning before July 1, 2012 remain unchanged. • COD will edit for compliance. 12

  13. BCA - Repayment Incentives • Elimination of Direct Loan Incentives • Terminates repayment incentives to encourage on-time repayment of loans. • Effective for loans first disbursed on or after July 1, 2012. • COD will edit for compliance. • Allows interest rate reduction to borrowers who repay electronically. 13

  14. Consolidated Appropriations Act – 2012See DCL GEN-12-01 14

  15. Ability-to -Benefit(ATB) • EliminatesTitle IV eligibility for students without ahigh school diploma (or equivalent). • Exceptions for • Home schooled students • Students who were enrolled in a Title IV eligible program of study prior to July 1, 2012. 15

  16. Ability-to -Benefit(ATB) • Students who are or were, enrolled in a Title IV eligible program anytime prior to July 1, 2012, may continue to qualify under one of the ATB alternatives – • Passing an independently administered, approved ATB test. • Successfully completing at least six credit hours or 225 clock hours. 16

  17. Pell Grant Duration of Eligibility • Reduces the duration of a student’s eligibility to receive Pell Grant from 18 semesters (or its equivalent) to 12 semesters (or its equivalent). • Applies to all students effective with the 2012-13 award year. • Calculation includes all earlier years of the student’s receipt of Pell.  17

  18. Pell Grant Duration of Eligibility • Calculate the equivalency by adding together each of the annual percentages of a student’s scheduled award that was actually disbursed to the student. • LEU – Lifetime Eligibility Used • Once LEU reaches 600%, student no longer eligible. • If LEU more than 500% but less than 600%, partial eligibility for next award year. 18

  19. Pell Grant Duration of Eligibility • Electronic Announcements – • In mid-April, COD began sending – • Weekly reports to schools of their 2012-2013 applicants who have LEUs of more than 450% • Emails to students who have LEUs of more than 500% 19

  20. Pell Grant Duration of Eligibility • Beginning in July – • COD will return LEU in the common record response • COD will display LEU on the COD website • COD will edit and return warning edits when LEU is near or exceeds 600%. 20

  21. Pell Grant Duration of Eligibility • Beginning in July – • NSLDS will display student’s LEU • CPS will use comment codes to flag students whose LEU is close to or exceeds 600%. 21

  22. Grace Period Interest Subsidy • Temporarily eliminates the interest subsidy on Direct Subsidized Loans during the six month grace period. • Applies to new Direct Stafford Loans for which the first disbursement is made on or after July 1, 2012, and before July 1, 2014. 22

  23. Other Legislative Loan Changes 23

  24. Interest Rates • CCRAA reduced the interest rate on subsidized loans made to undergrads in stages from 6.8 % to the current 3.4 %. • The reduced rates end on July 1, 2012. • Interest rate on subsidized loans first disbursed on or after July 1, 2012 to undergraduate students will be 6.8 percent. • Same rate as on subsidized loans made to graduate students and to all unsubsidized loans. 24

  25. President’s FY 13 Budget 25

  26. FY 13 Budget • $5,635 maximum Pell Grant award for 2013-2014 • Maintain the subsidized loan interest rate for undergraduate students at 3.4 percent for undergraduates until July 1, 2013 • Limit the duration of the Stafford Loan in-school interest subsidy to 150 percent of the normal time required to complete the borrowers’ educational program. 26

  27. FY 13 Budget • Expand and improve the Perkins Loan program to provide $8.5 billion in loans annually. • Provide $150 million in new funds for the Work-Study Program. • Reform and expand Federal allocations in the campus-based programs 27

  28. Verification 28

  29. Highlights of New Regulations • Eliminates $400 tolerance; replaces with $25 tolerance for any item. • Must report all changes, not just those that impact Pell • Eliminates the 30 percent institutional verification cap 29

  30. Highlights of New Regulations • Allows for changes in marital status only if it would change dependency status. • School discretion • Must update other information • Family size • Spouse’s income • Student may make change but reject transaction. • FAA Override 30

  31. Highlights of New Regulations • Allows the Secretary to include any item from the FAFSA for possible verification. • Replaces the five verification items for all selected applicants with a targeted selection of items based upon each student’s characteristics. • No customization for 2012-2013. 31

  32. 2012-13 Verification Items • Annual FederalRegister notice— • Items to verify • Acceptable documentation • Federal Register Notice: July 13, 2011 • DCL GEN-11-13, July 2011 • February 3 – Sample Verification Worksheets 32

  33. 2012-13 Documentation • Comprehensive list in July 13, 2011 Federal Register notice • FAFSA IRS Data Retrieval Process • IRS Transcript • Request • On-Line • Phone – (800) 908-9946 • Form 4506T-EZ • IRS Tax Return: Limited conditions 33

  34. Updated IRS Request Flags 34

  35. IRS Data and Verification • An institution may consider as acceptable documentation IRS retrieved information if the Secretary has identified those items as having come from the IRS and not been changed – IRS Request Flag = 02. 35

  36. IRS Documentation Requirements Special Announcement • DCL GEN-12-07 – April 16, 2012 • Paper copies of IRS Tax Returns may be accepted • Only until July 15, 2012 • Regular rules apply – signatures, etc. 36

  37. Gainful Employment 37

  38. Gainful Employment Information • Gainful Employment Page on IFAP at: http://ifap.ed.gov/GainfulEmploymentInfo/or from IFAP Homepage • Regulations and Federal Register Notices • Dear Colleague Letters and Electronic Announcements • Frequently Asked Questions • Training, including webinars • Resources 38

  39. The Law - HEA • An educational program is Title IV eligible only if the program: • Is offered by a public or non-profit institution and leads to a degree; or • Is offered at any institution and “leads to gainful employment in a recognized occupation”. • Referred to as a Gainful Employment Program or a GE Program.

  40. The Law - HEA • Proprietary institutions – • All programs, except for - • Programs leading to a baccalaureate degree in liberal arts offered since January 2009 that has been regionally accredited since October 2007 . • Preparatory course work necessary for enrollment in an eligible program.

  41. The Law - HEA • Public institutions and not-for-profit institutions – • All programs, except for - • Programs that lead to a degree; • Programs of at least two years in length that are fully transferable to a bachelor’s degree program; and • Preparatory course work necessary for enrollment in an eligible program.

  42. GE Programs Include • Preparatory courses of study that do lead to a degree or certificate awarded by the institution. • Teacher certification programs leading to a certificate awarded by the institution • ESL programs leading to a certificate or, if a proprietary institution, a degree—Pell only

  43. GE Programs Do Not Include • Preparatory courses of study that do NOT lead to a degree or certificate awarded by the institution. • Teacher certification programs that do NOT lead to a certificate awarded by the institution. • Transfer programs that do NOT lead to a certificate awarded by the institution. • Programs that are not Title IV eligible.

  44. Gainful Employment Regulations • Final Rules published on October 29, 2010, effective July 1, 2011 • Disclosures • Reporting • New Programs • Final Rules on metrics to define gainful employment published on June 13, 2011, with effective date of July 1, 2012 44

  45. GE Metrics • Metrics final rule published on June 13, 2011 • Defines “gainful employment” to be when a substantial number of the GE Program’s students – • Are repaying their Title IV loans – • Repayment Rate • Have a reasonable debt burden – • Debt to Earnings Ratios. 45

  46. GE Metrics • ED calculates Repayment Rate as – • A percentage of the Title IV loan amounts that a GE Program’s former students are repaying. • ED calculates Debt to Earnings Ratios as – • The median educational loan annual repayment amount as a proportion of the borrowers’ average annual income. 46

  47. Title IV Eligibility • A program must pass at least one of the following three rates to be a Gainful Employment Program eligible for Title IV participation: • Repayment rate of at least 35%. • Debt-to-Earnings ratio of 12% or less of total annual earnings, or • Debt-to-Earnings ratio of 30% or less of total discretionary income. 47

  48. CALENDAR

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