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Spring 2010 Federal Perkins Loan Update

Spring 2010 Federal Perkins Loan Update. Agenda. COHEAO Budget Update Legislative Update Regulatory Update Perkins Loan Issues Grassroots. COHEAO Announcements. NEW MEMBERS WANTED! Tell your Friends and Colleagues to join. Membership is needed now more than ever.

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Spring 2010 Federal Perkins Loan Update

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  1. Spring 2010 Federal Perkins Loan Update

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

  3. COHEAO Announcements • NEW MEMBERS WANTED! • Tell your Friends and Colleagues to join. Membership is needed now more than ever. • Perkins is not dead; much remains to do. • COHEAO also working on other issues: accounts receivable management, financial literacy, institutional loans (private loans.) • Discounts for Teleconferences, Annual, Mid-Year Conferences • Mid-Year Conference: July 25-27, 2010 • Annual Conference, DC: Jan. 22-26, 2011

  4. Obama ED Budget for 2011 • A Repeat of the 2010 budget for the most part. Adopted House-Passed SAFRA bill Financial Aid Changes: • Increase Pell Grant max to $5,710, make it an automatic entitlement, increase by 1% over CPI every year • Eliminate FFEL Program – all schools to Direct Lending as of July 1, 2010 • Work Study level at $980.5 million • SEOG level at $757.5 million • Simplify the FAFSA, tie in with IRS data

  5. Obama ED Budget for 2011 • Limit federal debt repayment under Income Based Repayment to 10% of disposable income, defined as 150% of the poverty level, Down from 15% • Forgive the loan balance after 20 years of IBR payments, Down from 25 years • Eliminate the LEAP Program • Eliminate Academic Competitiveness Grants • Eliminate SMART Grants • Continue TEACH “Grants” BUT 80% of “Grants” expected to become Unsubsidized Stafford Loans • $93 million in “grants” only costs $12.7 million • Eliminate The Perkins Loan Program • Create a New “Direct Perkins Loan Program”

  6. What About Perkins Loans??? • “We had to destroy (the program) in order to save it.” – the Direct Perkins Loan proposal First proposed in Administration’s FY 2010 budget • Passed by House in September 2009 as H.R. 3221 • Senate HELP Committee wrote a bill and almost, almost, almost introduced it…. But not.

  7. Congress on Perkins in HEOA of 2008: Keep it HEAO SEC. 466: “SENSE OF CONGRESS REGARDING FEDERAL PERKINS LOANS. It is the sense of Congress that the Federal Perkins Loan Program, which provides low-interest loans to help needy students finance the costs of postsecondary education, is an important part of Federal student aid, and should remain a campus-based aid program at colleges and universities.”

  8. Direct Perkins Loan Idea • 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

  9. Direct Perkins Loan Idea • 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

  10. 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

  11. “Direct Perkins”: Three Major Flaws • In-School Interest Benefit dropped: 5% interest accrues from time loans made • For undergrad: adds $5,000 to debt after 4 years • It’s a numbers game: Money would be taken from student interest payments and spent on other federal “priorities” • ED Justification: better than “private” loans • All new loan servicing transferred to national Direct Loan servicing contractors • Possibly also FFELP non-profits in some states • Schools completely out of the servicing picture • Responsible for possible “match”, default rates • Perkins’ unique cancellation benefits killed • ICBR supposed to substitute, along with DL’s cancellation after 10 years of payments while in public service job.

  12. 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

  13. 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

  14. 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.

  15. 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

  16. 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.

  17. 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.

  18. 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%)

  19. 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.

  20. 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

  21. 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.

  22. What Happened to the Rest? • CBO “scores” proposed changes to a law against a “baseline” of current services. • A new baseline is developed by CBO every January. The January 2010 baseline resulted in less savings from ending the FFEL program than January 2009 • Economy changed, schools converted to DL, Pell Grants ballooned, Pell shortfall appeared • Money needed to offset costs of Health Care Reform legislation, $2 billion for deficit reduction. • The result: a pared down spending bill, no Perkins changes

  23. 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.

  24. 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.

  25. COHEAO Actions • COHEAO fought vigorously in 2009 and 2010 to retain benefits of the traditional Perkins Program while supporting its expansion and continuation. • Sometimes at odds with others in the Higher Ed Community, often worked together – now together • Grassroots actions led by Board of Directors: • dozens of Conference calls arranged with Senate offices and home-state colleges and commercial members • Dozens of in-person meetings • In the end, the changed CBO score led to all Perkins changes being dropped.

  26. Grassroots Efforts • We must work to fund and extend the Perkins Loan program • COHEAO is working on new ideas to preserve the program • Support Appropriations • Support Perkins • See www.coheao.org for details • Stay In Touch with your Congressional Representatives

  27. Regulatory - 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.

  28. Regulatory - Perkins Loan Issues • Electronic Announcements • Perkins Cohort Default Rates • Orange Book 6/30/09 rates • Posted 5/6/10 • U.S. aggregate 10.04% http://ifap.ed.gov/perkinscdrguide/0809PerkinsCDR.html

  29. Regulatory - Perkins Loan Issues • Total and Permanent Disability • New Definition as of 7/1/10 • The condition of an individual who is (1) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that – (i) can be expected to result in death; (ii) has lasted for a continuous period of not less than 60 months; or (iii) can be expected to last for a continuous period of not less than 60 months; or (2) Has been determined by the Secretary of Veterans Affairs to be unemployable due to a service connected disability.

  30. Regulatory - 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

  31. HHS Loan Changes • Health Care Reform Bill • Signed into law 3/23/10 • New Law – Patient Protection and Affordability Care Act of 2010 (PPACA) • Made changes to NSL and PCL loans

  32. NSL Loan Changes • Loan Funding Limits increased • $2,500 changed to $3,000 • $4,000 (for last two academic years) changed to $5,200 • Aggregate Limits increased • $13,000 changed to $17,000 for academic year 10/11 • After AY11 amounts adjusted to provide cost of attendance increase for the yearly and aggregate limits • P.L. 111-148, Sec 5202(a), Loan Agreements

  33. NSL Loan Changes • Date of Enrollment • Change in date a student of financial need must be enrolled in a nursing program in order to be eligible to receive NSL funds. • 6/30/86 changed to 6/30/00 • P.L. 111-148, Sec 5202(b)(1), Loan Provisions

  34. NSL Loan Changes • Partial Loan Cancellation Date • The date for a partial loan cancellation formerly applied to a loan a student received before xx/xx/xx. • 9/29/79 changed to 9/29/95 • A student who received a NSL prior to 9/29/95 can still have up to 85% cancelled for • full-time employment as a professional nurse in public or non-profit. • Nursing experience prior to 3/23/10 will not be eligible for cancellation. • P.L. 111-148, Sec 5202(b)(2)

  35. PCL Loan Changes • Primary Health Care Service Requirements • New PCL loans made on or after 3/23/10. • New PCL required to enter a residency and practice in primary health care for 10 years (including the years spent in residency) or until the loan is repaid in full, which ever occurs first. • P.L. 111-148, Sec 5201(a)(1)(B), Requirements for Students

  36. PCL Loan Changes • Service Default Rate • Borrowers who receive a PCL on or after 3/23/10, • and fail to comply with the service requirement will have their loans begin to accrue at a rate of 2% per year greater than the rate at which the student would have paid if compliant. • P.L. 111-148, Sec 5201(a)(3), Noncompliance by Student

  37. PCL Loan Changes • Parental Financial info requirement for Independent Students • Independent students no longer required to submit parental financial information to determine financial need. • Determination of need of such information is at discretion of the school.

  38. PCL Loan Changes • Definition: a student who is at least 24 years of age and has not been listed as a dependent on his or her parent’s tax forms within the last three years. • Changes to MPN required, old MPN still in effect. • Borrower with old MPN with new disbursements on or after 3/23/10 required to sign new terms and conditions. • P.L. 111-148, Sec 5201(b), Student Loan Guidelines

  39. Questions? Lori Hartung Todd, Bremer & Lawson, Inc. lori.hartung@TBandL.com 1-803-371-2394 Audrey Atkins NCO audrey.atkins@ncogroup.com 1-850-264-7543

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