Washington Update Vicki Shipley, NCHELP MASFAP Conference November 2011
Other Titles?? • Show Me The Money! • I’m Made as Hell and I’m Not Going to Take ItAny Longer! • It’s The Economy Stupid! • Let’s Make A Deal! • A Trillion Here ….. A Trillion There!
Today’s Road Trip….. • Budget, Budget, Budget • It’s all about Pell • Federal Deficit Looms Large • Super Committee • FFY 2011 and 2012 Budgets • Guarantor VFAs and NFP Servicers • Other Issues on the Horizon • What’s Next?
Pell Grant Shortfall Demand for Pell has Increased Beyond ED & Congressional Estimates 5.9 million recipients in 08-09 academic year 9+ million recipients estimated for 11-12AY 6% of domestic discretionary spending Statutory Language Precludes Ratable Reductions When Funding is Insufficient Didn’t They Fix This in SAFRA? “Mandatory funds” are contingent on enough appropriations to fund $4,860 maximum grant Shortfall could top $20b annually for foreseeable future
Pell Grant Shortfall • $5.7 Billion shortfall for the 2011-12 AY • Appropriations are insufficient to fully fund Pell • Growth in demand not properly projected • “Mandatory” funds provided in SAFRA assume adequate appropriations • Funding gap for 2011-12 but the CR maintains maximum Pell at $5,500 • 2012-13 outlook • Shortfall continues to grow • Appropriations likely to stay stagnant • Growth in Pell appropriations will need to come from other programs • Fewer sources of mandatory funds
Pell Grant Protection Act Maintain $5,550 maximum grant by “…making tough choices to save over $100 billion over the next decade….” Eliminate year-round Pell (-$8b per year) Ten times more expensive than projected No evidence that it accelerates graduation Eliminate loan subsidies for graduate Stafford Loans (-$2b) Poorly targeted subsidy Allow split FFEL loans to be combined as “Direct FFELs” (-$2b) Convert Perkins to Direct Perkins (-$8.6b) Unsubsidized loans; 6.8% interest rate $8.5b in new loan volume Convert TEACH Grants to Presidential Teaching Fellows (-$15b) Grants to states awarded to students at schools whose education programs meet benchmarks College Completion Incentive Grants (+1.25b)
FFY 2011 Continuing Resolution Government Shutdown Averted on 4/8/11 $38.5 billion in cuts $13B cut from Labor, Education and HHS 2011-12 Pell Grant of $5,550 is maintained but eliminates year-round Pell Eliminates funding for LEAP, Byrd Honors Scholarship, loan repayment for civil legal assistance Cuts to GEAR UP, SEOG, TRIO and AmeriCorps Does not include a provision to block the Department from finalizing and implementing the Gainful Employment regulations Now the real battle begins…..
The Debt Ceiling • Federal Authority to Borrow Above a Preset Level • $14.3 trillion • Reached in May, June, August 2 • Consequences of a Breach • Inability to pay debtholders (default) • Inability to issue new debt to fund programs • Need to juggle to meet federal obligations (e.g., military pay, social security payments, loan & grant disbursements)
Let’s Make a Deal • Assumptions: • Congress will wait until the last minute • Tea Party will maintain a hard line • Republican leadership – Boehner and Cantor – will need to deliver the votes • Democrats will not undermine the President • Republicans will not agree on net tax increases
Budget Control Act of 2011 • Elimination of interest subsidy for graduate students. Effective for loans made for periods of enrollment (loan periods) beginning on or after 7/1/2012 • Savings of $2B in 2012-13 and $29B over next 10 years • Rationale: • Subsidies are not well-targeted • Subsidies don’t encourage enrollment • Termination of Direct Loan Borrower Repayment Incentives
The Big Deal • $2.1t Increase in Debt Ceiling – in 3 stages • $400b immediate increase • Congress can disapprove 2 future increases • President can veto disapproval • Congress must vote on balanced budget amendment • $917b in Cuts Over 10 years (No Tax-Related Measures) • Provides $17b to Fill Most of Pell Shortfall • Eliminates interest subsidy on graduate Stafford Loans • Eliminates repayment incentives for Direct Loans (except auto-debit) • Both effective for new loans as of 7/1/2012 • Goal is to identify $1.5t More in Budget Savings Over 9 Years • Cuts to be developed by Congressional Joint Select Committee on Deficit Reduction (the “Super Committee”) • U.S. Credit Rating Downgraded
Debt Ceiling and the Super Committee – Deficit Reduction Package • Stage One: Nearly $1 trillion in deficit reduction; $900 billion debt ceiling increase • Stage Two: Joint Committee tasked with legislating $1.5 trillion in deficit reduction, paired with additional debt ceiling increase • If the Committee fails to report legislation that achieves $1.2 trillion in deficit reduction or Congress fails to enact recommendations, sequestration is triggered
The SUPER Committee • Statutory Timeline: • November 23 – majority vote of committee to approve recommendations • December 23 – House & Senate must vote • January 15 – enactment deadline • All Programs and Revenues Can Be Included • Could Student Aid be Impacted? • Discretionary spending likely to be cut • Interest subsidies “on the table”
Senator Coburn (R-OK) “Back in the Black” • Department of Education - $409.10B savings • “Prevents the Department of Education from becoming one of the world’s largest banks by getting bureaucrats out of the student loan business.” • “Saves much needed room on the federal balance sheets by shifting the student loan program exclusively to the private sector where it belongs.”
FFY 2012 Budget FFY 2012: October 1, 2011 – September 30, 2012 12 Appropriations Bills Needed – none passed by the Sept. 30, 2011deadline Continuing Resolution (CR) through November 18, 2011 (first minibus likely to include CR extension into December) More changes to student loans to help fund Pell? House – Limit Pell lifetime eligibility? Senate – Eliminate grace period subsidy?
Proposed Eligibility & Need Analysis Changes • Revoke Pell eligibility for less than half-time students (-$140 m) • Reduce lifetime eligibility to 6 years (-$679m) • Eliminate Ability to Benefit option • Reduce student income protection allowances (IPA) to about the 2009-10 IPA level; parent IPAs unaffected (-$2.1b) • Reduce automatic zero EFC from $31,000 to $15,000 (-$352m) • Eliminate Pell awards to students whose EFC would result in an award less than 10 percent of the maximum (-$46 m)
Proposed Eligibility & Need Analysis Changes – cont’d • Reinstate previously excluded forms of untaxed income (-$1.1b) • The amount of additional tax credits claimed for tax purposes • Welfare benefits • Earned income credit claimed for tax purposes • Credit from tax paid on special fuels • Untaxed social security benefits • Foreign income exclusion
Is Pell the Ultimate Survivor? • Does Pell Really Have Permanent Immunity? • Will the Shortfall Ever Be Filled? • What Programs or Benefits Will Be Kicked Off the Island? • How Would You Vote at Tribal Council?
Restructuring the Perkins Loan Program • Similar language to last year’s proposal • Lower cost alternative to private loans • Unsubsidized, 6.8% fixed interest rate • Loan funds increase from $1B to $8.5B • Savings of $4.5B over 10 years per CBO but $3.8B cost under Fair-Value • Scoring discrepancies – “Fair-Value” versus “Federal Credit Reform Act”
Other Education Issues For-Profit Schools Gainful Employment 90/10 Rule Proportion of Pell Grant funds received Influence of hedge funds? Additional Senate hearings Regulatory Burden Reauthorization of No Child Left Behind Could include voc-tech program changes College Completion July 2012 interest rate increase 2012 Negotiated Rulemaking
Not-For-Profit (NFP) Servicers • “As our federally-owned loan portfolio continues to grow, we are ready to move to the next step in ensuring an efficient and effective multi-servicer, borrower centric approach to servicing”. • ED anticipates the award of 15 new federal loan servicing contracts from October 2011 through January 2013
Guarantor Voluntary Flexible Agreements (VFAs) • 24 GAs submitted 22 VFA proposals • ED’s goal: enhance the integrity and stability of the FFEL program, improve services to students, schools and lenders and use Federal resources more cost-effectively and efficiently • Must be budget neutral in the aggregate • Providing services to all borrowers regardless of the loan program?
FISMA “Each federal agency shall develop, document, and implement an agency-wide information security program to provide information security for the information and information systems that support the operations and assets of the agency, including those provided or managed by another agency, contractor, or other source…” --Federal Information Security Management Act of 2002
Other Issues on the Horizon • 3-Year Cohort Default Rate • 2012 & 2013: both 2-year and 3-year rates calculated -- sanctions based only on 2-year rate • 2014: sanctions based on 3-year CDR begin • Perkins Loans • Will the program expire? • Will revolving funds be recalled? • Will ED’s proposal to create “Direct Perkins Loans” be re-tooled?
Cohort Default Rates • FY 2009 rate increased from 7.0% to 8.8% • Rates highlight the need for continued federal investment in default prevention and debt management services that are provided by the nation’s guaranty agencies and not-for-profit student loan organizations
National Student Loan Cohort Default Rates Percentage Presenter Name(s)
Schools Subject to Sanctions Issued date 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Number of Schools 5 Sanctions The school numbers are pre-appeal and include only schools impacted by the three years of 25% or greater sanction. A school can be on extended sanction and is therefore reflected in multiple year counts.
Cohort Default Rate Issues • Increases Across All Sectors • Public: 6.0% to 7.2% • Private: 4.0% to 4.6% • Proprietary: 11.6% to 15.0% • 3-Year CDR is Coming • 10-25% increases expected over two-year rates • DL rates likely to catch up to FFELP rates
Why Are Default Rates Climbing? • It’s the Economy Stupid! • Unemployment rate for college grads is 13% • Starting salaries ain’t what they used to be • Competition for entry level jobs from unemployed professionals • Student loan debt outpacing credit card debt • College costs continue to rise while grant aid fails to keep pace
“Help Americans Manage Student Loan Debt” Plan • “Special” Direct Loan Consolidation – available for six months beginning January 2012 • “Pay As You Earn” program – an acceleration of the enhanced IBR changes from SAFRA (subject to negotiated rulemaking) • President Obama plans to use his executive authority to launch these initiatives
Private Loans – Growth and Access Source: College Board
Private Loan Issues • Percentage of students borrowing from private lenders increased three-fold in four years • Students at for-profit institutions comprise the largest share of private loan borrowers • Among undergraduates who took out private loans, 12% did not apply for federal financial aid and another 11% applied for aid but did not obtain a Stafford loan Source: NCES Report October 2011
Financial Regulatory Reform Bill • “Create a Sound Economic Foundation to Grow Jobs, Protect Consumers, Rein in Wall Street, End Too Big to Fail, Prevent Another Financial Crisis” • Will affect virtually every financial institution in the country • Created a new Bureau of Consumer Financial Protection with regulatory authority over nearly every type of consumer credit including private student loans
Challenges and Opportunities • The economy and jobs • Rising students’ indebtedness and Pell shortfalls • Local (private sector) services needed by students, borrowers and schools – who will pay for them • Impact of the Gainful Employment requirements • Other issues • 2012 Negotiated Rulemaking
Make Some Noise! • Remember, Student Aid Funding is Competing Against Other Programs • Some of which may be important on campus – e.g., medical & scientific research • Some of which are domestic and defense priorities • Cannibalizing of Student Aid Programs has Begun • Make friends before you need them! • Is it Time to Identify Unpleasant Priorities • How far to go to preserve $5,550 Pell? • Contain the damage