Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. Vice President, Government Affairs and Services VASFAA LEGISLATIVE.

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Presentation transcript:

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. Vice President, Government Affairs and Services VASFAA LEGISLATIVE UPDATE Scott Buchanan 5/21/2012

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 2 The most important number

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 3

4 The 2 nd most important number

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 5 Major Political Issues ► Jobs and the economy –College costs and student loans ► Debt and the deficit –Investment in higher education

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 6 America’s Investment in Higher Education is Sizable and Growing Sources: College Board, 2011 Trends in Student Aid, McKinsey & Company

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 7 85% of All Loans Outstanding are Federal Student Loans Source: Department of Education Annual Performance and Accountability Reports, FY 2006 to FY 2011, Notes to the Principal Financial Statements, Credit Programs note; Federally- owned FFELP is calculated based on receivables in purchase program and participated loans sold to the Department; private education loan volume estimate based on SLM outstanding and estimate of market share

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 8 PLUS Programs Growing at Double Digit Rates

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 9 (in millions) FY 13 Net Disbursements Lifetime Default Rate Expected Defaults over Life of Loans Stafford Sub 31,84224% 7,760 Stafford Unsub 65,18917% 10,841 PLUS 21,86910% 2,119 Total 118,900 20,720 Administration Expects to Originate $119 Billion New Loans in 2013 Forecasts that $21 Billion Will Default Source: Budget of the U.S. Government, Fiscal 2013; Federal Credit Supplement, and Appendix

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 10 Budget Challenges

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 11 College Degree Greatly Enhances Likelihood of Employment for Young Adults Source: Bureau of Labor Statistics. Current Population Survey, March 2012

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 12 ► Changing the debate –Increasing spending to reducing debt –Last year recommendations from fiscal commissions generally ignored and President’s 2012 budget had no deficit reduction –Since then massive $2 trillion reduction package ► Not all spending the same –Discretionary spending—i.e. annual appropriations— easier to target –Pell Grants protected so far…but at the expense of other higher education programs Debt Ceiling and Deficit Politics

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 13 Budget Control Act of 2011

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 14 Budget Control Act Requires $43B Cut from Discretionary in 2012

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 15 Will Cuts Come From Entitlements?

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 16 ► Reductions in fiscal discretionary limits from fiscal 2013 to 2021, could by up to $100 billion a year –50% of the cuts from the Department of Defense –48% of the cuts from all other non-defense programs (not listed below) –2% of the cuts from Medicare ► The sequester cannot touch the following programs (from the Balanced Budget and Emergency Deficit Control Act of 1985 as amended): –Pell Grants –Social Security –The Postal Service –Class Act (Voluntary long-term health care benefits created in ObamaCare) –Most unemployment benefits, veterans benefits and low income payments –All "emergency designations“, "unanticipated circumstances,” disaster relief ► Not exempt: –Department of Education, administrative money and other higher ed –Special rule for student loans, origination fees increased by sequester percentage Sequester if Congress Takes no Action…

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 17 ► 2011 Full Year Continuing Resolution –Additional $5B in appropriations (equivalent to $50B over 10 years) –End Summer Pell Grants Reducing program costs by $35B over 10 years $8.8B in mandatory Pell savings added to appropriations ► Budget Control Act –Added $17B in 2012 and 2013 to Pell from savings due to elimination of grad students’ in-school interest Pell in the Past

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 18 Pell Grants Need $77 Billion to Maintain Current Grant Levels Source: Congressional Budget Office, March 2012 Baseline Projections for the Student Loan and Pell Grant Programs

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 19 ► Costs of Pell continue to rise ► Costs of higher education rise beyond even unfunded Pell Maximum ► Tough and painful choices are evidenced by House and Senate appropriations: –House – Reduce cost of Pell by more effectively targeting the neediest with more constraints –Senate – Increase investment in Pell by reducing other education subsidies like interest subsidy while in grace ► The deficits could make these choices even tougher Pell in the Future

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 20 ► Interest rate was always scheduled to return to 6.8% ► Both federal loan rates are arbitrary ► Rate, Pell, and IBR share the same problem ► No impact to students seeking jobs today ► All say they want it, but disagree on how to pay for it The Interest Rate

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 21 ► Looming election will cripple Congress ► Clock is ticking ► Past legislative gimmicks have come home to roost ► Impossible to be able to spend enough ► Overeducated and underskilled ► Lack of proper market forces means resistance to correction ► Occupy vs. “Entitlements for the Entitled” Legislative and Public Policy Realities

Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. 22 ► Pell Grants: What’s the right approach? ► Loan subsidies: Coming or going? Or neither? ► Spending cuts: What programs may be on the chopping block? What needs to be protected? ► Defaults on the Rise: What will be Washington reaction and enrollment impacts? ► American family reaction to economy: How will changes in savings, borrowing, cost decisions impact your campus? Key Issues Impacting Schools