The Year That Was and What Might Be… An Industry Update and Discussion Tami Sato, Southern California College of Optometry Vicki Shipley, NCHELP WASFAA April

Today’s Road Trip… Highlights Pell Grant Issues Federal Deficit Looms Large Issues on the Horizon FFY 2011 Budget FFY 2012 Budget What’s Next? 2

2010 Was Interesting SAFRA Signed Into Law on March 30, 2010 The long debate was over FAA’s Successfully Met the Challenge of Rapid Transition to DL All eligible students receive loan funds ED returns bulk of $50 million transition fund In-school Consolidation Window Open Until June 30, 2011 College Access Challenge Grant Doubles 3

House of Representatives 242 Republicans 193 Democrats U.S. Senate 53 Democrats 47 Republicans A Shift to the Right Many new members support smaller government and reduced spending 112th Congress – Gridlock Included? 4

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) 5

Pell Grant Shortfall Demand for Pell has Increased Beyond ED & Congressional Estimates  5.9 million recipients in academic year  9+ million recipients estimated for academic year 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 6

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Pell Grant Shortfall Currently $5.7 Billion shortfall for the 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 but the CR maintains maximum Pell at $5, 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 9

School Discussion – Federal Grants No ACG and SMART No 2 Pells in 1 Award Year Correction to Pell for cross-over periods 10

FY 2011 Continuing Resolution Government Shutdown Averted on 4/8  $38.5 billion in cuts  $13B cut from Labor, Education and HHS  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….. 11

FY 2012 Budget FY 2012: October 1, 2011 – September 30, Appropriations Bills Needed Will Congress Agree on a Budget Resolution?  If they do, Budget Reconciliation is possible Alternative is Another Continuing Resolution 12

The Federal Debt Ceiling What is the Debt Ceiling?  “…A cap set by Congress on the amount of debt the federal government can legally borrow.” (CNN)  First debt ceiling set in 1917: $11.5 billion  Current debt ceiling: $ trillion  Total federal debt, as of 2/28/11: $ trillion When Will the Debt Ceiling Be Reached?  Likely to be reached by May 16, 2011  When Treasury can no longer issue or honor redemption of debt  Could trigger a default, impacting future borrowing costs  Treasury Secretary can “manage” total debt for a short period of time Congress Will Likely Insist on Budget Cuts in Exchange for Raising Debt Ceiling 13

Federal Budget and “Continuing” Continuing Resolutions Current Debt Ceiling is $14.3 Trillion – actual debt is nearly there, creating a showdown in Congress. Government will need to borrow $2 trillion to fund Direct Loans over the next decade. Congress has raised the federal debt ceiling limit 9 times in the past 10 years. Without another increase, the government will either default on its bonds or have to slash spending by about 40%. 14

You are being watched… Special Audit Services – Improper Payments Elimination and Recovery Act of 2010 “Under IPERA, any contractor performing the aforementioned requirement will be paid for its services based on a percentage of collections… The Department is seeking information from certified public accounting firms to assist in the development of a plan to conduct payment recapture audits…” 15

“A is for Accountability” RFP for Audit Services – Purpose: The Department performs recovery audits on various grants, loans, and contracts in order to identify overpayments as a result of improper or erroneous actions. The President signed into law the Improper Payments Information Act (IPERA) in Under IPERA, any contractor performing the aforementioned requirement will be paid for its services based on a percentage of collections. The Department is seeking information from certified public accounting firms to assist in the development of a plan to conduct payment recapture audits in accordance with IPERA. 16

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  NASFAA survey is timely & informative Reauthorization of No Child Left Behind  Could include voc-tech program changes College Completion Major Obstacles to Higher Ed Legislation in this Congress 17

Direct Loan Issues Going Forward Time to Look in Rear View Mirror How was DL transition experience? What could have been done better? What can be done to prepare for DL reconciliation? Comments, Concerns, Suggestions Must Be Communicated to ED & Congress Split Borrowers ED resolving DL/ECASLA splits Additional servicers coming soon PLUS Loan Approvals About twice as many denials under FFELP vs. FDLP Implications of parents over-borrowing? Training Needs and Formats Other service gaps? Additional TIVAS? Not-for-Profit Servicing Contracts 18

School Discussion – School Services Training needs Online and in-person training Loan Counseling Debt Management DL School Services Process efficiency Accessibility of Data (MPN, PIN) Accuracy and timeliness of online data 19

Issues on the Horizon 3-Year Cohort Default Rate Projections are that some rates will double or more 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? 20

3-Year Cohort Default Rate Beginning FY 2009 the institutional cohort default rate calculation will be based on the three most recent fiscal years available Expands the timeframe during which defaulted borrowers are counted from two to three years and creates a transition period Applies for any fiscal year in which 30 or more current or former students enter repayment on an applicable FFEL or DL Default rate threshold raised from 25% to 30% along with new sanctions (for the 2011 CDR published 9/2014) ED will publish an annual cumulative default rate by institution type 21

School Discussion – Loan Funding Federal credit-based Loans Parent PLUS Approval is UP and we love it! What’s next? Private Loans Students choose private loans over GPLUS New disclosures – How do they work for your students? Perkins Concerns ? 3-Year Cohort Default Rate? 22

Program Integrity Final Regulations Issued October 29, 2010 Contains 13 ¾ issues Effective July 1, 2011 Except (d) – gainful employment information collection requirements (date TBD) and Subpart E of part 668 – Verification and updating of student aid application information (effective July 1, 2012) No rules are eligible for early implementation 23

School Discussion - Verification No verification for the retrieved IRS data True or False: Less data elements to verify will reduce the burden for students and FAA True or False: Schools’ legacy system will be easily adjusted to accommodate annually changing verification data elements 24

School Discussion: Misrepresentation Expanded definition includes “erroneous or misleading statements” made directly or indirectly to “any member of the public”, “by person with whom the eligible school has an agreement” True or False: Schools do not have to be concerned... 25

School Discussion – R2T4 Is it time for schools to reconsider taking attendance? Are you ready to calculate R2T4 for short modules? 26

School Discussion – Program Integrity SAP Disbursement provision for books and supplies for Pell recipients Revised definition of a credit hour Evaluation of the validity of HS diploma Gainful employment reporting requirements 27

Gainful Employment (GE) GOP-controlled House pushing hard for ED to rescind rules on GE – received bipartisan support in earlier CR to block ED from carrying out new GE rules Democrat-controlled Senate, led by Senator Harkin, Chair of the Senate HELP Committee, strongly favors tough rules for programs of less than one year (targeting for- profit institutions) Many believe GE would be applied across all sectors once put in place Final FFY 2011 CR put GE back on the table 28

Private Loans – Growth and Access Source: College Board 29

The Future Looks Challenging Rising students’ indebtedness Pell Shortfalls PLUS loan defaults Doing more with less Impact of the new disbursement provision Impact of the Gainful Employment requirements Other issues?? 30

What to Do, What to Do… Educate New Members, Re-educate returning Members Don’t Take Support for Granted Share Stories of Student Aid Recipients Student aid changes lives Involve Your Campus Leadership Prepare for a Long Battle 31

Thank You! 32