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Change Never Ceases: US Loan Program Legislation and Regulations 2010 Conference

Change Never Ceases: US Loan Program Legislation and Regulations 2010 Conference The Australian and New Zealand Financial Aid Association University of New South Wales Sydney, Australia 6-7 September 2010 Harrison M. Wadsworth III Executive Director International Education Council

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Change Never Ceases: US Loan Program Legislation and Regulations 2010 Conference

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  1. Change Never Ceases: US Loan Program Legislation and Regulations 2010 Conference The Australian and New Zealand Financial Aid Association University of New South Wales Sydney, Australia 6-7 September 2010 Harrison M. Wadsworth III Executive Director International Education Council Principal, Washington Partners, LLC hwadsworth@wpllc.net +1-202-289-3900 www.internationaleducationcouncil.org www.wpllc.net 1

  2. IEC: Who Are We? • Association of colleges and universities outside the USA who participate in US Govt. loan programs for their students. • Service providers included as associate members • Offices and staff in Washington, DC. • Registered with US, DC governments as nonprofit organization 2

  3. IEC Member Services • Represent our members before the US Congress and “Executive Branch”: Department of Education, e.g. • Work to change laws, regulations, policies to help members and their students • Provide regular source of information, including publication of regular newsletters, special reports of current events. • Arrange for training sessions and workshops • Work with Education Department on enforcement and regulatory issues • A voice in Washington • Work with country representatives in Washington on higher ed • For membership information, see: www.internationaleducationcouncil.org • Join your colleagues as Members! 3

  4. American University of Beirut; Athabasca University; Australian National University; AUT University; Bond University; Canadian University College; Dalhousie University; John Cabot University; The London Film School; London School of Economics; Loughborough University Macquarie University; Massey University; McGill University; Murdoch University; New Zealand College of Chiropractic; Queen's University; Richmond The American Intl University in London; Rotterdam School of Management / Erasmus University; Royal College of Surgeons in Ireland; University of the Arts London; University of Auckland; University of British Columbia; University of Cambridge; University of Canterbury; University of Cape Town; University College Cork; University College, Dublin; University of Geneva; University of Greenwich; University of Limerick; University of London, Royal Veterinary College; University of Melbourne; University of Otago; University of Oxford; University of Sydney; University of Toronto; University of Waikato; University of Westminster; Uppsala University; Victoria University of Wellington; American Student Assistance; Atlantic Bridge; Bender, Ciccotto & Co., CPA'S LLP; Global Education Management Services. IEC Members 4

  5. Who Is Washington Partners? • Government and public relations consulting firm specializing in education policy • Provides staff to the IEC, including executive leadership, web site, administrative support • Provide other support, including eligibility applications, re-certifications, legal services (via on-site law firm or other local firms). 5

  6. Student Loan Overview • Total Stafford and PLUS Loan Volume: • US$109 billion in 2009-10, (about AU$121 billion) • Total number of American students and parents receiving federal govt. aid: 14 million • AY2010-11 projections: US$116 billion in loans • $38 billion in Pell Grants, other aid not available to students outside USA Source: US Dept. of Ed 6

  7. Student Loan Overview • 473 Eligible “Foreign Schools” issuing loans • 24,290 Students and Parents, up 20% in two years • Total Loans Disbursed AY 2008-09: US$766 million (AU$850 million) • Cohort Default Rate, all participating colleges and universities, 2007: • 6.7% (up from 5.2%) • Cohort Default rate, “foreign schools”: • 2.2% -- lowest of any category of school (up from 1.2%) • 7,276 students entered repayment, 163 defaulted • Looked at another way, of the 225,371 who defaulted in 2007, only 163 were from foreign schools -- .07 percent – seven hundredths of a percent Source: US Dept. of Education 7

  8. Interesting Facts • In 2007-08, 44% of all US loans at foreign institutions were made to students at three medical schools: • American University of the Caribbean, St. Maarten • Ross University (div. of DeVry), Dominica • St. George’s University, Grenada • 93% of the loans to students at “freestanding” graduate medical schools 8

  9. Jargon 101 • Foreign schools: US law for tertiary institutions or institutions of higher education outside of the United States of America • Neg reg (some call it reg neg): Negotiated Rulemaking • NPRM: Notice of proposed rulemaking – draft regulations • GAAP: Generally Accepted Accounting Principles • GAGAS: Generally Accepted Government Auditing Standards • HEA: Higher Education Act of 1965, the base law governing loan programs that is amended on a regular basis, supposed to be reviewed every five years • SAFRA Act: name of the legislation that amended HEA to kill the FFEL Program, made foreign schools eligible for Direct Loan Program • The Healthcare and Education Reconciliation Act of 2010: law changing healthcare system that includes the SAFRA Act. • Note: SAFRA originally stood for “Student Aid and Fiscal Responsibility Act” 9

  10. More Jargon 101 • FSA: Office of Federal Student Aid at the US Dept. of Education • includes Foreign Schools Team, administers loan programs • led by Chief Operating Officer Bill Taggart • OPE: Office of Postsecondary Education, led by Assistant Secretary and other political appointees: sets policy, separate from FSA • GAO: Government Accountability Office: the investigative agency of the Congress. • IG: Inspector General. Each agency of US govt. has one. Law enforcement powers, can review any allegation of wrongdoing involving federal funds or personnel • NCFMEA: National Committee on Foreign Medical Education and Accreditation – panel of US doctors that decides if other country’s have standards equivalent to US • ECFMG: Educational Commission for Foreign Medical Graduates • USMLE: United States Medical Licensing Examination. • YOUR JARGON HERE ___________________________ 10

  11. Ch Ch Changes • 2006, 2007: separate laws reduced some student interest rates, cut fees, created income-based repayment. • 14 Aug. 2008 Higher Education Act reauthorization: regulations that apply to all institutions negotiated, published in 2009 • New law, “SAFRA ACT,” killed FFEL Program, moves all Foreign Schools to Direct Loans as of 1 July 2010 – law passed 30 March 2010. 11

  12. Are You Direct Loan Ready? • All government-backed loans are Direct Loans – No guaranty agencies or lenders involved in new loans as of July • Some 4,000 campuses had to convert • Most have done so, perhaps almost all • Special processes set up for foreign unis • Funds transmitted via Federal Reserve • Direct Loan Servicing Tool Created: a simplified version of the processes • Special web site: http://ifap.ed.gov/ForeignSchoolInfo/ForeignSchoolInfo.html 12

  13. New Laws = New Regs • HEA requires ED to conduct “negotiated rulemaking” with stakeholders to develop revisions to regulations when law changed. • Negotiations for most of HEOA changes completed in 2009; Foreign School “neg reg” convened Nov. 2009, completed Feb. 2010, consensus reached. Web site: http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/foreign-schools.html • BUT, SAFRA Act left no time for this process • IEC Represented by Harrison Wadsworth • Australians, New Zealanders, British Council, represented by Yvonne Oberhollenzer of Australian Embassy in Washington • Canadians (CASFAA): Judy Stymest of McGill U. • Other negotiators represented guaranty agencies and for-profit medical, veterinary and nursing schools. 13

  14. Draft Regulations: • Draft Notice of Proposed Rulemaking (NPRM) published July 2010. 30-day public comment period ended 19 August, final regs to be published before 1 November, effective 1 July 2011. • Negotiators not supposed to comment negatively because of consensus • Many comments received on web site: www.regulations.gov . 14

  15. Audits • Section 487(c)(1)(A)(i) of the Higher Education Act of 1965, as amended • Section 668.23(a)(2) of the Code of Federal Regulations • Require submission to ED of annual audited financial statements prepared according to US Generally Accepted Accounting Principles and audited by an independent firm according to US Generally Accepted Government Auditing Standards: rule for all institutions. 15

  16. Audit Requirements: Two Must Be Submitted Annually 1. Audited Financial Statements 2. Regulatory compliance audits • Both must be conducted by outside (non-affiliated) auditing firms • US Department of Education Inspector General’s Audit Guide to be followed for compliance audits. 16

  17. 2008: Changes to US Law on Audit Requirements Higher Education Opportunities Act of 2008 – the Higher Education Act reauthorization – became law on 14 August 2008 • Eliminated requirement of annual submission of financial statements prepared under U.S. GAGAS (GAAP) Standards for institutions with more than $500,000 in annual federal loan volume • Requirement for submission of any audited financial statement waived for less than $500,000 volume • NOTE: Under previous law, and current regulations, all universities with more than $500,000 in annual loan volume are required to submit a US GAAP financial statement every year. • Under the new law, which took effect upon enactment, the Secretary of Education can modify this requirement for any institution. • Also, annual compliance audits only required when Loan Volume exceeds $500,000/year • ED has discretionary authority to require them – Or Not! 17

  18. First New Audit Changes • First, as of 14 August 2008: requirement for submission of financial statement waived for public and private, non-profit foreign schools with less than $500,000 in annual loan volume • This will stand in NPRM, except where institution is new to program. • English translation of home country GAAP statement OK 18

  19. Negotiated NPRM on Financial Statements • Loan volume $500,000 - $3 million, required to submit annual audited statements done to home country GAAP, in English • $3 million - $5 million: required to submit home country GAAP statement, PLUS every three years, statement done to US GAAP. • $5 million or more, required every year to submit both US GAAP and home country GAAP statement (in English). • Secretary can add additional requirements case by case, such as requiring US GAAP audits for smaller volume colleges 19

  20. US GAAP: Why? • “Financial statements prepared under U.S. GAAP provide Department staff with detailed information about the financial condition and operation of an institution. The additional information comes from the analysis of the audited financial statements, the accompanying audit opinion letters and related disclosures, and items in the footnote disclosures.” • “The Department was unwilling to accept only audited financial statements prepared in the home country standards on an ongoing basis for these institutions due to the unknown comparability of these submissions to audited financial statements prepared under U.S. GAAP.” • ED wants to compare other GAAP with US GAAP “to determine if the requirement to provide U.S. GAAP financial statements could be changed in the future.” • IFRS not accepted because not widely used by institutions or governments at this time. Maybe later. 20

  21. NPRM on Compliance Audits • Institutions with less than $500,000 in loan volume during fiscal year submit audit every three years, can submit Alternative Compliance Audit (fewer requirements.) • Must have submitted on time previous 2 years, be in good standing • Over $500,000, submit annually Standard Compliance Audit using ED “Audit Guide”. 21

  22. Definition of a Foreign School • Now = institution not in a US state or territory • New: not in a state or with US locations • Does not permit students to take courses from US • Exception: one year of doctoral dissertation research – may have to be at end of program? • For non-degree programs, prepare for gainful employment in a recognized occupation • ALL certification periods three years 22

  23. Public Institution Financial Responsibility Defined • Secretary would considers a public foreign institution to be financially responsible if the institution: • (1) notifies the Secretary that it is designated as a public institution by the country or other government entity that has the legal authority to make that designation; and • (2) provides documentation from an official of that country or other government entity confirming that the institution is a public institution and is backed by the full faith and credit of the country or other government entity. • Note: original proposal was to require govt. pledge to pay all debts to US Govt. 23

  24. Non-Profit • An institution that is owned and operated only by one or more nonprofit corporations or associations; and • (ii)(A) If a recognized tax authority of the institution’s home country is recognized by the Secretary for purposes of making determinations of an institution’s nonprofit status for title IV purposes, is determined by that tax authority to be a nonprofit educational institution; or • (B) If no recognized tax authority of the institution’s home country is recognized by the Secretary for purposes of making determinations of an institution’s nonprofit status for title IV purposes, the foreign institution demonstrates to the satisfaction of the Secretary that it is a nonprofit educational institution. 24

  25. Simplified Authorization • A country can provide to ED a single legal authorization for all institutions in that country that provide eligible educational programs beyond the secondary school level. • There can also be a single legal authorization for all eligible institutions within a governmental jurisdiction of the country, such as a province. • The Secretary would continue to accept individual legal authorizations for separate eligible foreign institutions in the country, as well. 25

  26. For Medical Schools Only • Must have all classes in country of campus • Must report locations of clinical training, all but 8 weeks of which must be in base country or other US-approved country (by NCFMEA) • US Medical Licensing Exam Passage rate: 75%, up from 60% • For year preceding the year students are enrolling • For Step 1 and each part of Step 2 each year, not for all steps combined (Step 3 excluded) (new) • US nationals, permanent residents only counted (new) • Individual counted once/year/step (new) • Exception for few test takers from inst.:must have 8 before rate counts (new) 26

  27. Nursing Schools • Bad news: HEOA of 2008 changed law to require all nursing schools to have joint degree program with US school, pay for all of their defaulted loans • Defaulted loans assigned to school for collection • IEC seeking to exempt public, non-profits. So far: effective date moved to 2012 • Meant for new for-profits, BUT applies to all • For profits previously not eligible 27

  28. Incentive Compensation • Separate Neg Reg team negotiated on “program integrity” issues 2009-10 • Major issues: incentive compensation, definition of gainful employment in a recognized occupation, credit hour definition • Incentive compensation rules toughened: no more “safe harbors.” Pay to admissions staff, recruiters cannot be directly or indirectly dependent on success in recruiting US students 28

  29. A Final Word on ‘Neg Reg’ • “Consensus” was reached in negotiations because negotiators had won significant concessions and feared ED would backtrack otherwise • GAAP Audit issue VERY contentious, last one settled on last day. • ED originally insisted on US GAAP statements from all institutions with more than $1 million • Other concessions on medical school, other issues • Comments welcomed by ED, changes can be made in Final Regs 29

  30. A Couple more Things:1. Private Loans: New Rules • Effective February 2010 – “Truth in Lending Act” changes. Will soon be enforced by new Bureau of Consumer Financial Protection • If college recommends private (supplemental) lenders, that triggers “preferred lender list” requirements • Tied to being eligible for Title IV Loans • Minimum of two unaffiliated lenders • Display information about federal loans • Prominent statement about why each lender was chosen • Including method, criteria • School must report annually to ED: • Examples of disclosures to students in above bullet • Detailed explanation as to why each PL, including terms etc.. • Report must be made available to public • It’s not a preferred lender list IF: • College just provides list of lenders who have made loans to students within a set period of time • Not many lenders – maybe just one? 30

  31. Private Loans: Certifications • Law requires that lender collects self-certification form from borrower • Most lenders require college to certify the loan. This is not now in the law, but may be added someday • Self-cert form supplied by school to borrower • ED developed form. • Must be signed and received by lender prior to loan consummation • Contains info about federal loans, students COA and EFC • Lender must wait up to 30 days after application, three days after consummation to disburse 31

  32. 2. Price Reporting • From HEOA of 2008, regs effective 1 July 2011 • ED must publish 6 lists, by school category and state: • 5% of schools with highest tuition and fees for the most recent year • 5% of schools with highest tuition and fee increase over the most recent 3 years • 5% of schools with the highest net price for the most recent year • 5% with largest increase over net price over 3 years • 10% of schools with lowest tuition and fees • 10% of schools with the lowest net 32

  33. Tuition “Controls” • Schools on the “highest” lists must report to ED annually: • Description of areas of budget with biggest cost increase • Explanations of increases • Description of steps to be taken to reduce those areas • If school is on list for two or more years then description of progress made on above • If cost out of school control then identify state agency responsible and how cost increase determined 33

  34. Price Reporting • Lists broken up by school type: • four-year public institutions; • four-year private, nonprofit institutions; • four-year private, for-profit institutions; • two-year public institutions; • two-year private, nonprofit institutions; • two-year private, for-profit institutions; • less than two-year public institutions; • less than two-year private, nonprofit institutions; and • less than two-year private, for-profit institutions. 34

  35. Price Reporting • ED must publish info about each Title IV school to help families compare price and net values • Includes: • Enrollment statistics • Degree completion • Student-faculty ratios • Cost of attendance • Average aid awarded • Cohort default rates • Campus safety info • ED must create calculator to assist families in comparing net price of all Title IV schools: • Net = COA-(average need and merit based aid) • Published @ http://nces.ed.gov/collegenavigator/ by 8/14/2008 and 8/14/2009 respectively 35

  36. And What’s Next? • IEC will continue to advocate for changes to law, regulations • Continues to help serve as liaison with Department of Ed for our members • Change is constant, for good or ill • It’s always something! 36

  37. A Word on the US Legislative Process • US system of government has three branches: Legislative, Executive, Judicial • President’s Budget is a proposal, no force of law. • Occasionally, when Congress, President are of same party, like now, vaguely resembles a parliamentary system • Elections scheduled every two years for Congress, every four years for President -- no discretion • All changes and funding proposed by the President are subject to the will of the Congress. 37

  38. The US Process: Congress • House and Senate – similar powers • Legislation: • Committees Hold Hearings • Committees write and approves bills • Full House and Senate amend and vote on their versions of a bill • A few House and Senate members meet to work out differences • Final bill – “Conference Report” – voted on again by House and Senate • President signs the bill – it then is law • Two-thirds of House and Senate can override a veto 38

  39. In other words.... • The President makes a lot of noise and pushes and cajoles and proposes laws, but he doesn’t actually get to do anything to the bill other than sign it or veto it. • Exercises PR power before the law is passed • Biggest power is in writing the regulations and enforcing the laws 39

  40. QUESTIONS??? 2010 Conference The Australian and New Zealand Financial Aid Association University of New South Wales Sydney, Australia 6-7 September 2010 Harrison M. Wadsworth Executive Director International Education Council Principal, Washington Partners, LLC hwadsworth@wpllc.net +1-202-289-3900 www.internationaleducationcouncil.org www.wpllc.net 40

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