Washington Update 2012 Winter Legal Meeting Shelly Repp, NCHELP January 19, 2012 Hilton New Orleans Riverside, New Orleans, LA

Washington Update  2012 Political Landscape  Budget Control Act  Student Financial Assistance  The Administration’s Initiatives

2012 Political Landscape

Currently - Gridlock  FY 2011 appropriations  Debt limit increase  FY 2012 appropriations  Payroll tax extension

2012 Elections - President  Presidential election  Republican primary season in full swing  President Obama begins to posture for general election

2012 Elections - House  Current distribution  242 Republicans  192 Democrats  1 vacancy  All House seats up in 2012  Reapportionment due to 2010 Census  8 states gain members  Texas +4  Florida +2  10 states lose members  New York -2  Ohio -2

2012 Elections - Senate  Current makeup  51 Democrats  47 Republicans  1 Independent  1 Independent Democrat  33 Senate seats up in 2012  23 currently held by Democrats  10 currently held by Republicans

Budget Control Act

Budget Control Act Aggregate Debt Level

Budget Control Act 2012 Appropriations Discretionary Spending (Billions of $; excludes war funding) Budget Authority FY 2011 Enacted 1,050 FY 2012 President's Request 1,139 FY 2012 House Budget Resolution 1,019 FY 2012 Budget Control Act 1,043 FY 2012 Omnibus Appropriations1,043

Budget Control Act  Increase in debt limit approved at 11th hour  Discretionary spending cut by $917 billion over 10 years  Additional action needed  Super Committee charged with recommending at least $1.2T in savings - FAILED  Balanced Budget Amendment - FAILED  $1.2T Sequestration – TRIGGERED, effective January 1, 2013  Assuming one of these paths is taken, debt limit will increase enough to cover expenses through the 2012 election

Budget Control Act Sequestration  Sequestration  Uniform reduction in discretionary appropriations and direct spending  Reductions half from defense and half from non defense functions, totaling $1.2 trillion (minus interest savings)  Certain programs protected, including Pell  For student loans, origination fee increase  Congress can still enact targeted cuts or revenue increases to avoid the sequester

Student Financial Assistance

Challenges For Schools  Accountability  More compliance responsibilities  Financing shift from state to federal  States are providing less funding  Greater reliance on federal dollars and tuition revenue

Federal Student Financial Assistance  Financial aid now seen as area for savings  Pell Grants – maximum grant ($5,550) preserved but eligibility cut  Students qualifying for less than 10% of maximum award will no longer receive grants  Students without high school diploma or GED can no longer qualify by passing an “ability to benefit” test  Reduces current 18 semester lifetime award limit to 12 semesters  Income threshold to automatically qualify for maximum grant reduced from $30,000 to $23,000  Stafford subsidies  Elimination of interest subsidies for grad & professional students as part of the Budget Control Act  Omnibus appropriations measure eliminated interest subsidy during grace period for other Stafford loans for and  What about in-school interest?

Federal Student Financial Assistance  Lender Return  Lenders have option prior to April 1, 2012 to permanently convert index for special allowance from 3-month commercial paper (financial) to 1-month LIBOR  Applies to loans disbursed 1/1/2000 and after and commences with SAP for 2 nd calendar quarter of 2012  Applies to all loans held by a lender and all loans all loans for which a beneficial owner has right to make this election  Exceptions  Lender not legally permitted to make election without approval of 3 rd parties  Rating agency says it will down grade

Source for Unemployment Rate: Bureau of Labor Statistics. FY for Unemployment rate is one year ahead of Cohort Default Rate. Student Loan Defaults

Services? Changes to the Delivery System FFELP & Direct Lending Federal Lending Only Students & Families SchoolsLender Services Guaranty Agency Services Federal Government Students & Families Federal Government Schools

The Administration’s Initiatives

Department of Education Initiatives  Gainful employment/Program Integrity  Currently issue for for-profit institutions and certificate programs at other institutions  Continued high unemployment for graduates may fuel the case to expand the approach to other types of institutions (i.e. law schools, business schools)

MoveOn.org Petition Occupy Wall Street Protests Administration Reaction New Student Loan Programs  Presidential Initiatives  Special Consolidation  “Pay as you Earn” Plan

Presidential Initiatives  Special Direct Consolidation Loans  Eligibility limited to split loan borrowers (in-school and defaulted FFELP loans are not eligible)  Available now through June 30, 2012  Incentive – 0.25% interest rate reduction on FFELP loans  Not a traditional consolidation loan  Key issue – Are FFELP borrower benefits included in base loan rate?

Presidential Initiatives  Pay As You Earn  Will be available to new borrowers in 2008 who receive a loan in 2012  Income contingent repayment plan for direct loans only  Caps payments at 10% of discretionary income  Shortens repayment period from 25 to 20 years – remaining balance is discharged  Revised regulations required (currently subject to negotiated rulemaking)

Maintaining the Infrastructure: Providing Services after FFELP  Voluntary Flexible Agreements  Goal is to ensure continuation of services  Unfortunately, Department of Education policies are limiting VFA potential

Maintaining the Infrastructure: Providing Services after FFELP  NFP Servicing Program  20+ organizations participating  Currently limited to 100,000 accounts per organization  Local servicing versus national servicing

Negotiated Rulemaking  Began last week  25 issues included on revised agenda  Main goal – develop regulations to implement “pay as you earn” plan/changes to income contingent repayment regulations  Information posted on FSA website ( and NCHELP website (

Questions