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Spring 2010 Federal Perkins Loan Update

Spring 2010 Federal Perkins Loan Update. Agenda. Budget Update Legislative Update Regulatory Update Perkins Loan Issues Grassroots. Current Federal Perkins Loan Program. Federal Perkins Loan Program Provides long-term, low-interest loans to ~ 500,000 students from ~ 1,700 institutions.

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Spring 2010 Federal Perkins Loan Update

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  1. Spring 2010 Federal Perkins Loan Update

  2. Agenda • Budget Update • Legislative Update • Regulatory Update • Perkins Loan Issues • Grassroots

  3. Current Federal Perkins Loan Program • Federal Perkins Loan Program • Provides long-term, low-interest loans to ~ 500,000 students from ~ 1,700 institutions. • Total assets of over $8 billion represent over 40 years of FCC, TCC, repayments on previous loans, and Federal reimbursement for loan cancellation

  4. 2010 Presidential Budget Request • FY2010 Presidential Budget Request • increase college access and success by expanding financial aid while making it simpler, more reliable, and more efficient.

  5. 2010 President’s Budget Request • Increase Pell • Make Pell funding mandatory (not subject to appropriations funding) • Increase by $200 to $5,500 for 2010-11 award year • Then increase by consumer price index plus one percent

  6. 2010 President’s Budget Request • End entitlement subsides to FFEL loan program. • On all new loans as of July 1, 2010 • Consolidate federal student loans under William D. Ford Direct Loan Program • Increase efficiency • Less expensive • Savings to finance higher Pell Grants

  7. 2010 President’s Budget Request – Perkins • Modernize and expand Perkins Program • New Perkins program = new unsub Direct Stafford Program • Receive 6 billion in “mandatory” funding • Expanded to all schools • From 1,800 to 4,400 • 5% interest would accrue while in school and grace • Other terms and conditions would be same as unsubsidized Stafford • Federal Share of current loans sent to ED • Overhaul of the administration of the program • Fully originated and administrated by the Dept of ED

  8. 2010 President’s Budget Request - Perkins • Administration says: • 2.7 million more students will receive loans • Loans to be targeted to needy students and the schools they attend • Schools with many Pell recipients • Colleges encouraged to control tuition • New formula would encourage cost control and targeting of grants to prevent excessive indebtedness • Budget rules require ED servicing • Arcane federal accounting/scoring rules

  9. Congressional Action • Student Aid and Fiscal Responsibility Act of 2009 (SAFRA) – H.R. 3221 • Implements President’s 2010 budget requests • Introduced July 13, 2009 • Full committee markup July 21, 2009 • Passed the House on Sept. 17, 2009 • Vote 253 to 171 • Senate working on their version

  10. What Passed • H.R. 4872 Health Care and Education Affordability Reconciliation Act • House passed on 3/21/10 vote 220-211 • Senate passed with vote 56-43 • H.R. 4872 consists of amendments to health care reform and a modified version of SAFRA. • DCL GEN-10-5 briefly addresses these changes

  11. What Passed • As of 7/1/10, all Stafford, PLUS and Consolidation Loans will be made via the Direct Loan Program. • Additional mandatory funding is provided to augment funds appropriated each year. • increase the federal maximum Pell Grant each year by the change in the Consumer Price Index. • According to ED/Labor Committee the maximum Pell for 2010 is $5,500

  12. What Passed • The legislation uses $13.6 billion of the savings to cover most of approximately $19 billion shortfall in current Pell Grant funding. • Bill does not include ongoing increases in Pell at the rate of inflation plus 1% as in the SAFRA bill. • The annual appropriation process will fund the bulk of each year’s Pell grant. • No guarantee that there will be an annual increase in the total grant.

  13. What Passed • $750 million is included for “College Access Challenge Grants” through 2014. • Rate of $150 million per year. • $50 million goes to assist school transition into Direct Loan program. • $2.55 billion goes to HBCU as well as Minority Serving Institutions

  14. What Passed • Not-for Profit direct loan servicers receive funding if needed. • If meet minimum standards, they would be allocated a minimum 100,000 loan accounts annually, with the first 100,000 eligible for a special pricing tier.

  15. What Passed • $2 billion is set aside for community colleges via Trade Adjustment Act funding under the Dept of Labor. • The larger American Graduation Initiative was dropped from bill due to budget issues.

  16. What Passed • Income-based Repayment was modified for new borrowers beginning 2014. • Borrower payments are limited to 10% of discretionary income. (reduced from 15%) • Unpaid balance would be forgiven after 20 years. (reduced from 25%)

  17. What Passed • $25 million is provided in fiscal year 2010 and 2011 for Direct Loan servicers “to retain jobs at locations where such servicers were servicing FFEL loans on 1/1/10.

  18. What Passed • For one year beginning 7/1/10, borrowers who are not in repayment on all there loans can consolidate into the Direct Loan Program if they have loans in at lease two of the following categories; • FFELP Loans, • FFELP loans that have been sold to the Department • Direct Loans

  19. What Passed • The Current Perkins Loan Program is not touched! • The administration's proposal (and passed by the House in Sept) to create a new “Direct Perkins Loan Program” was deleted in its entirety.

  20. What’s Next • COHEAO will turn it’s attention to extend and expand the current Perkins Program. • Most important matter (because of timing) is appropriations. • President’s FY2011 budget request was written in the expectation of the “Direct Perkins” • No FCC or Cancellation funding is currently requested.

  21. What’s Next • Need to address the 2012 sunset for Perkins. • It requires the federal share of the Perkins Loan revolving fund to be sent to the Department or ED • This date has been extended several times, last in 2007. • COHEAO’s high priority to eliminate or extend this clause.

  22. Perkins Loan Issues • Economic Hardship Deferment • College Cost Reduction and Access Act (CCRAA, P.L. 110-84). • Definition changes effective 7/1/09 • Eliminates the 20/220 qualification for Econ HD.

  23. Perkins Loan Issues • FISAP Perkins Loan Changes • New Lines: • New cancellations authorized by HEOA plus corresponding instructions • Short-term loans to the Fund and reimbursement to the institution of short-term loans to the Fund plus instructions • Transfer of FWS to Perkins Loan Fund

  24. Perkins Loan Issues • Total and permanent disability discharge for borrowers designated as unemployable due to a service-related condition by Veterans Affairs • New TPD form posted • DCL GEN-09-02 • Two DCLs on Veteran’s TPD discharge • Process • Policy

  25. Perkins Loan Issues • DCL 09-07 • Procedures for discharging Title IV loans by determination by the Dept of Veterans Affairs • VA determines discharge on one of two standards: • A determination that the veteran has a service-connected disability (or disabilities), that are 100% disabling; or • A determination that the veteran is totally disabled based on an individual unemployability determination.

  26. Perkins Loan Issues • Following procedures must be followed: • Borrower must apply to loan holder for TPD • Completes section 1 and 3 of TPD • Physician is not required to sign Section 4 of TPD • Instead borrower submits documentation from the VA showing the determination of unemployability or 100% disabled • Schools review TPD for completion and attached VA documentation. • Make preliminary determination of eligibility

  27. Perkins Loan Issues • If eligible for TPD based on VA documentation, submit TPD form and VA documentation to the Department. • DO NOT assign loan • The Department will review submitted paperwork and determine final eligibility. • Department will instruct school to discharge the loan • No three year conditional waiting period • School cancels the loan • And refunds any payments made on or after effective date

  28. Perkins Loan Issues • If TPD was denied by school or Department • School must notify borrower and borrower must resume payments • Loan is deemed in forbearance from date of collection activity was suspended • During discharge process, schools must provide borrower with phone number to call if they have questions.

  29. Perkins Loan Issues • Dear Colleague Letter CB-09-06 and CB-09-05 • Published 9/28/09 • Approval of the revised Perkins MPN and Addendum to Perkins MPN • MPN contains changes to cancellation, rehabilitation, forbearance and deferment • Must begin using by 12/31/09

  30. Questions? Lori Hartung Todd, Bremer & Lawson, Inc. lori.hartung@TBandL.com 1-800-849-6669

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