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ILASFAA Federal Update April 18, 2008 Jeff Baker Federal Student Aid U.S. Department of Education

ILASFAA Federal Update April 18, 2008 Jeff Baker Federal Student Aid U.S. Department of Education. Legislation and Budget. LEGISLATION College Cost Reduction and Access Act (CCRAA) Pub.L. 110-84 Reauthorization S 1642 passed full Senate on July 24, 2007

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ILASFAA Federal Update April 18, 2008 Jeff Baker Federal Student Aid U.S. Department of Education

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  1. ILASFAA Federal Update April 18, 2008 Jeff Baker Federal Student Aid U.S. Department of Education

  2. Legislation and Budget

  3. LEGISLATION • College Cost Reduction and Access Act (CCRAA) Pub.L. 110-84 • Reauthorization • S 1642 passed full Senate on July 24, 2007 • HR 4137 passed full House on February 7, 2008 • In conference, final bill expected in May

  4. Title IV Program Budgets Appropriations and Budget Request

  5. Title IV Program Budgets Aid Available

  6. College Cost Reduction and Access Act

  7. Student BenefitsGrant Programs

  8. Federal Pell Grant • Increases discretionary appropriated Pell Grant award amount using mandatory funds. • Full-time awards increased by – • $ 490 for 2008-09 and 2009-10. • Maximum Award $4,731 • $ 690 for 2010-11 and 2011-12. • $1,090 for 2012-13. • 2008-2009 Payment Schedule Released on January 14, 2008 (See DCL P-08-01)

  9. TEACH Grants • “Teacher Education Assistance for College and Higher Education Grants” • Effective for the 2008-2009 award year. • Must be repaid as Direct Unsubsidized Loan if student does not teach – • For at least four years within eight years of completing program, as a - • Highly Qualified Teacher • At a Title I school • In a specified subject area.

  10. TEACH Grants • Subject Areas – • Mathematics • Science • A foreign language • Bilingual education • Special education • As a reading specialist • Other ‘high-need’ fields

  11. TEACH Grants • Student must: • Be completing coursework necessary to begin a career in teaching, or • Plans to complete coursework necessary to begin a career in teaching. • Graduate degree alternatives for teacher or retiree with experience in a shortage area.

  12. TEACH Grants • Up to $4,000 per year for first undergraduate or post-baccalaureate (non degree) program - $16,000 aggregate. • Up to $4,000 per year for graduate student - $8,000 aggregate. • Prorated amounts for less than full-time enrollment. • If converted to loan – • Does not count against annual or aggregate maximums. • Interest accrued from date of grant disbursement.

  13. TEACH Grants • Award, when combined with other assistance cannot exceed cost of attendance (No EFC). • All Title IV student eligibility requirements – • Regular Student • Citizen or Eligible Non-Citizen • Not in Default • Satisfactory Progress • FAFSA required.

  14. TEACH Grants • Student Eligibility – Academic Standard • Above the 75th percentile on one battery of an admissions test, such as: • SAT, ACT, GRE, etc. OR • GPA of at least 3.25 for each payment period— • From high school for first year students. • From college for other students.

  15. Student BenefitsNeeds Analysis and EFC Calculation

  16. Need Analysis and EFC Calculation • Income Protection Allowances in EFC formulas. • Modifies the way student income protection allowances are calculated and updated. • Not parent income protection allowances • Will result in lower EFC. • Effective with the 2009-2010 award year.

  17. Need Analysis and EFC Calculation • Auto-Zero and Simplified Needs Test • Increases Auto Zero EFC income level from $20,000 to $30,000 (indexed to CPI). • Increases time from 12 to 24 months for receipt of means tested benefits. • Adds Dislocated Worker in addition to type of tax return and means tested benefits. • Effective for the 2009-2010 award year.

  18. Need Analysis and EFC Calculation • Excludes from specified list of “untaxed income” - • Welfare payments • Untaxed Social Security Benefits • Earned income credit amounts • Special fuel tax credit • Excluded foreign income • Effective for the 2009-2010 award year.

  19. Need Analysis and EFC Calculation • Adds to independent student definition – • Is in foster care or a ward of the court, at any time when the individual is 13 years of age or older. • Is an emancipated minor or is in legal guardianship in the student’s state of legal residence. • Has been verified as an unaccompanied youth who is a homeless child or youth. • Effective for the 2009-2010 award year.

  20. Need Analysis and EFC Calculation • Excludes ‘special combat pay’ from income. • Qualified education benefit (529 plan) owned by dependent student is an asset of the parent. • Distributions from 529 plans excluded from other financial assistance. • Effective for the 2009-2010 award year.

  21. Borrower Benefits

  22. FFEL and Direct Loans Interest Rates Reduces interest rates on undergraduate subsidized loans only from current 6.8% to – • 6.0% for loans disbursed on or after July 1, 2008 • 5.6% for loans disbursed on or after July 1, 2009 • 4.5% for loans disbursed on or after July 1, 2010 • 3.4% for loans disbursed on or after July 1, 2011 • Beginning July 1, 2012, rates revert to 6.8%. • Unsubsidized Stafford Loans and all Staffords for grad students remain at 6.8% fixed.

  23. FFEL and Direct Loans Income Based Repayment • Stafford and Student PLUS loans. • Borrower’s maximum annual repayment amount no more than 15% of the difference AGI and 150% of the poverty line based on family size. • If negative amortization, government pays interest on subsidized loans for up to three years. • Unpaid amounts are forgiven after 25 years. • Effective July 1, 2009.

  24. Direct Loans (FFEL) Forgiveness for Public Service Employees • Direct Loan borrower who – • Makes 120 monthly payments, starting after October 1, 2007, and • Is employed in public service during period when the 120 payments were made. • FFEL borrowers may consolidate into Direct Loans to get benefit but 120 payments must have been in Direct Loans.

  25. Direct Loans (FFEL) Forgiveness for Public Service Employees • Payments count if made under – • Income Contingent Repayment. • Income Based Repayment. • Other repayment plans, if payments are at least equal to 10-year standard repayment amount.

  26. Perkins, FFEL, and Direct Loans Military Deferments • HERA Military Deferment – • All Title IV loans, not just loans that were made on or after July 1, 2001. • Removes three year time limit. • Adds a 180 day period after demobilization. • New deferment for up to 13 months following end of service for certain borrowers who were in school or grace when called to active duty. • Effective October 1, 2007.

  27. Offsets from FFEL Program

  28. FFEL Lenders and Guaranty Agencies • Reduction of FFEL lender insurance from current 97% to 95% for loans first disbursed on or after October 1, 2012. • Reduction of FFEL guaranty agency defaulted loan collections retention rate from 23% to 16%, effective October 1, 2007. • Reduction of FFEL lender special allowance payments (SAP) by 55 basis points (40 for non-profit lenders).

  29. Special FFEL PLUS Loan Auction Pilot • Requires an “auction” for the origination of FFEL parent PLUS loans. • Starting on July 1, 2009. • New parent PLUS borrowers only. • State by state auction looking for lowest special allowance rates. • Two “winning” lenders will be the only FFEL lenders new parent PLUS borrowers can use. • Based upon state where dependent student is enrolled.

  30. NegotiatedRulemaking

  31. 2007-2008 Negotiated Rulemaking Loan Issues Committee • Three Negotiated Rulemaking Sessions • Jan 14-16, Feb 4-6, March 4-6, and April 14-16 • NPRM to follow • Comment Period • Final Rule by November 1, 2008 • Implementation July 1, 2009

  32. 2007-2008 Negotiated Rulemaking Loan Issues Committee Issues • Income-based Repayment Plans (IBR) (FFEL and Direct Loans) • Public Service Loan Forgiveness (FFEL and Direct Loans) • Economic Hardship and Military Service Deferments (FFEL, Direct Loans, and Perkins) • Definition of Not-for-Profit Holder

  33. 2007-2008 Negotiated Rulemaking Teach Grant Committee • Conducted three Negotiated Rulemaking Sessions • Jan 8 – 10, Jan 22-24, and Feb 6 – 8 • Consensus Met • NPRM on March 21 • Comment Period ends on April 21 • Final by June 1, 2008 • Implementation July 1, 2008

  34. 2007-2008 Negotiated Rulemaking Teach Grant Committee Issues • Eligible Institution and Eligible Program • Four Year Service Requirement • Entrance and Exit Counseling • Define – • Highly Qualified Teacher • Title I School • Other ‘high-need’ fields • Completing coursework necessary to begin a career in teaching.

  35. 2006-2007 Negotiated Rulemaking • Loans - NPRM Published July 12 Final Published November 1 • ACG/SMART - NPRM Published - August 7 Final Published October 29 • General Prov. - NPRM Published August 8 Final Published November 1 • Effective Dates: July 1, 2008 • Possible early voluntary implementation

  36. 2006-2007 Negotiated Rulemaking General Provisions • Cash management improvements: • Recovery of funds not claimed • Permissions for electronic disbursements • Elimination of Late, Late Disbursements

  37. Consistent definitions of enrollment status and academic level (grad/undergrad) Addressing inconsistencies in the award of aid in nonstandard and nonterm programs Aligns disbursements for all Title IV grant and loan programs (with a few exceptions) 2006-2007 Negotiated Rulemaking General Provisions

  38. 2006-2007 Negotiated Rulemaking ACG and National SMART • Rigorous secondary school programs • Mandatory institutional participation • GPA requirements • Academic Year progression • Eligible Majors

  39. 2006-2007 Negotiated Rulemaking Title IV Loan Programs • Perkins Loans • Mandatory assignment • Prohibited Inducements • Preferred Lenders

  40. Mandatory Assignment of Defaulted Perkins Loans • Schools hold more than $400 million in Perkins Loans that have been in default for 5 or more years • Little collection activity seen on these loans. • ED streamlined the voluntary assignment procedures, to encourage schools to assign their aged, defaulted loans

  41. Mandatory Assignment of Defaulted Perkins Loans • Secretary may require assignment of a Perkins Loan if— • Outstanding principal balance is $100 or more, • In default for 7 or more years, and • No payment has been received in past 12 months • ED will notify schools when to assign loans.

  42. School FFEL Loan Certification • A school may not: • Refuse or delay certification based on borrower’s choice of lender or GA • Assign lender to first-time borrower • Includes “school as lender”

  43. Preferred Lenders • School may choose to have preferred lender(s) list (includes web processes) • List must have at least 3 unaffiliated lenders • Must disclose method/criteria for lender inclusion on the list • Must provide comparative information on borrower benefits offered by listed lenders

  44. Preferred Lenders • Must include prominent statement advising borrowers that use of school preferred lender not required • Cause any unnecessary delays in certification for borrowers not using one of the school’s preferred lenders

  45. Prohibited Inducements • Affects FFEL lender and guaranty agency eligibility and participation in the program. • Creates concept of “rebuttable presumption” for prohibited and allowed activities. • Includes a non-exhaustive list of prohibited activities. • Includes a list of allowed activities.

  46. Prohibited Inducements • Prohibited activities include: • Payments to prospective borrowers, including prizes and additional financial aid • Payments or other benefits to a school, school-affiliated organization, or individual for loan applications, volume of loans made, or placement on a preferred lender list

  47. Prohibited Inducements • Prohibited activities include: • Payments or other benefits to student lender reps on campus or other solicitors to secure loan applications from prospective borrowers • Payment of referral or processing fees to another lender or other party • Payment of conference or training registration, transportation, and lodging costs for school or school-affiliated organization employees

  48. Prohibited Inducements • Prohibited activities include: • Providing staffing to a school except on a short-term, emergency basis • Payment of entertainment expenses related to lender-sponsored activities for school or school-affiliated employees • Undertaking philanthropic activities in exchange for FFEL applications, volume, or placement on a school’s preferred lender list

  49. Prohibited Inducements • Allowed activities include: • Assistance to schools comparable to that provided DL schools by the Secretary • Support or Participation in student aid/financial literacy outreach with schools and guaranty agencies • Toll-free numbers for FFEL info and school loan data transmission

  50. Prohibited Inducements • Allowed activities include: • Reasonable costs of meals, refreshments, and receptions for meeting, training, or conferences if open to all attendees • Reduced origination fees and interest rates • Payment of Federal Default Fees • Borrower benefits under repayment incentive programs • Items of nominal value

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