Legislative and Regulatory Impact on Technology Standards Panel Discussion – April 24, 2007

Introductions Kathleen Smith Wanda Hall

Overview What are the Politics? Background on Pending Legislation Negotiated Rulemaking Panel Discussion Questions and Answers

What are the Politics? New Congress New Leadership Senate: Harry Reid (D-NV), Richard Durbin (D-IL) House: Nancy Pelosi (D-CA), Steny Hoyer (D-MD) New Committee Chairmen Senate: Edward Kennedy (D-MA) House: George Miller (D-CA) Pending Presidential Election

2007 Higher Education Proposals College Student Relief Act – H.R. 5 Student Debt Relief Act – S. 359 Student Loan Sunshine Act – H.R. 890; S. 486 Borrower Bill of Rights – S. 511 STAR Act – H.R. 1010; S. 572 The Pell Grant Equity Act – H.R. 990

2007 Higher Education Proposals College Student Relief Act - H.R. 5 introduced by Education and Labor Committee Chairman George Miller (D-CA) Approved by a vote of Jan. 17 th Permanent cuts for a temporary “benefit” Offset Details Reduce lender insurance from 97 percent to 95 percent; Eliminate the Exceptional Performer program; Incrementally reduce the “guarantee agency collection retention” rate to 16 percent (actual rate to be determined through regulation); Double the lender-paid origination fee on all loans from 0.5 percent to 1 percent; Reduce lender yield by 10 basis points for those large lenders holding the top 90 percent of student loan volume; and Increase from 1.05 to 1.30 percent the interest payment rebate fee paid on consolidation loans for holders with 90 percent or more of total principal and accrued unpaid interest in consolidation loans.

2007 Higher Education Proposals The Student Debt Relief Act (S. 359) Kennedy Would “give colleges new incentives to offer loans to students through the Direct Loan program.” (STAR Act) Cuts interest rates on new Subsidized Stafford in half. Expands ICR, forgives loans after 10 years for public-sector employees. Expands and modifies higher education tax provisions. Allows for in-school consolidation and re-consolidation. Makes 458 account mandatory.

2007 Higher Education Proposals STAR Act Bills: Petri (HR 1010) and Kennedy (S 572) Require the Secretary of Education to carry out a “Student Aid Reward Program” to “encourage” institutions of higher education (IHEs) to participate in the Title IV student loan program that is “most cost- effective” for taxpayers. Requires the Secretary provide IHEs participating in the most cost- effective loan program a Student Aid Reward Payment. Requires IHEs receiving reward payments to provide loans under such loan program for a period of five years, beginning on the date the first payment is made. Requires funds awarded to IHES to be used, where appropriate, to supplement students’ Pell Grant awards. Also permits funds to be used to award need-based grants to lower- and middle-income graduate students. Requires the Secretary to encourage all IHEs to participate in the Student Aid Reward Program.

2007 Higher Education Proposals Borrower Bill of Rights (S. 511) – Clinton Requires certain information to be provided: Five Months After Ceasing to Be Enrolled at Least Half Time During Delinquency During Default During the Transfer of a Loan to a New Servicer During Consolidation (& During Consolidation with a Private Loan) Allows for loan reconsolidation

2007 Higher Education Proposals Student Loan Sunshine Act (H.R. 890/S. 486) – Miller/Kennedy Require lenders in one or more educational loan arrangements to submit to the Secretary an annual report in addition to other disclosure requirements under federal law. Forbid lenders from providing a private educational loan to a student or parent until the institution has informed the student or parent of their remaining options for borrowing under Title IV. Forbid institutions to brand private education loans with the school’s name, emblem, mascot or logo. Ban lenders from offering gifts worth more than $10 to college employees, including travel, lodging, entertainment, and in-kind services that lenders provide to college financial aid offices.

2007 Higher Education Proposals HR 990; The Pell Grant Equity Act ( Miller/McKeon; passed House) Eliminate the tuition sensitivity requirement of the Pell Grant program for the academic year. Reduce, as a cost offset, guaranty agency default collection payments from 23 percent to 22 percent beginning October 1, 2007 and ending September 30, 2008.

Department of Ed President’s Budget proposes major changes and cuts to FFELP ($18.8 billion over 5 years) Reduce SAP on all loans by 50 bp Reduce default insurance from 97% to 95%; EP falls from 99% to 97% Reduce account maintenance fees paid to guaranty agencies by conversion to a unit-cost system Reduce guaranty agency default collection payments from 23% to 16% Increase consolidation loan lender-paid fee from 0.5% to 1% Other loan proposals Increase 3 rd and 4 th year loan limits from $5,500 to $7,500 and increases aggregate limit from $23,000 to $30,500 Equalize FFEL and DL PLUS rate at 8.3%

Department of Ed ( cont.) Negotiated Rulemaking Four Teams Loans General Provisions ACG/SMART Grants Accreditation Sessions for Loans team began in December and continued in February and March Fourth and final session to be held April Department to draft a Notice of Proposed Rulemaking (NPRM) 60-day public comment period Final publication on or before Nov. 1, 2007 Effective July 1, 2008

Neg Reg Contentious Issues Abound Preferred Lender lists Borrower choice to be protected Is a number of lenders on the list the answer? Is Department enforcing current law? Definition of illegal inducements for loan applications Should there be a list of allowable activities Rebuttable Presumptions Other institution/lender relationships at risk? Borrower benefits must be protected Is the Department enforcing current law? Electronic record retention Department wants all disbursement records Forgiveness for crime of identity theft Department insisting “crime” must be proven

Other Issues Media implications of improper relationships among schools and lenders AG in New York and Minnesota seeking information Senator Kennedy and Representative Miller seeking information Impact on issues under negotiation and under review for Congressional Action

Panel Discussion and Q and A Many legislative proposal contained within the Negotiated Rulemaking Process A discussion of those issues, problems, potential outcomes and concerns