Washington Legislative Update

1

• Washington Legislative Update
• Or
• Perkins Reform and Thoughts on Surviving It
• COHEAO Mid-Year Conference
• Philadelphia, Pennsylvania
• August 3, 2009
• Harrison M. Wadsworth
• Executive Director
• Coalition of Higher Education Assistance
  Organizations
• Principal, Washington Partners, LLC
• hwadsworth_at_wpllc.net
• 202-289-3910
• www.coheao.org

2
Presentation Outline

• HEOA Followup
• New Administration, New Congress
• Presidents Budget HE Overview
• Presidents Budget New Perkins
• Response to Budget Proposal
• Appropriations
• Whats Next?

3
HEOA and Perkins Loans

• Reauthorizes Program through 2015.
• Increases the authorized Federal Capital
  Contribution from 250 million to 300 million
  for FY2009-2014, the maximum length of time
• Authorized does not mean appropriated, but
  authorization is needed before appropriation
  normally can happen.

4
HEOA and Perkins

• Permits transfer of 25 of annual appropriation
  of College Work Study annual appropriation to
  Perkins Loan fund, at campuss discretion
• Treated as additional FCC
• Transfer from Perkins to CWS, SEOG still
  permitted
• Transfer from CWS to SEOG still permitted
• Increases annual Perkins Loan limits to 5,500
  for undergraduates, 8,000 for graduates
• Expands consolidation loan disclosures
• Remember when that was a problem?

5
HEOA and Perkins

• Deletes requirement that forbearance requests be
  written
• Loan Rehabilitation 9 on time payments needed,
  not 12
• No other changes
• Increases book allowance from 450 to 600 per
  year in cost of attendance
• Death or disability discharge of Perkins loans
  made consistent with how a loan is discharged in
  FFELP and Direct Loans.

6
HEOA and Perkins

• Loan Cancellation Expanded to include, for all
  Perkins loans
• Full-time staff members in a prekindergarten or
  child care program that is licensed or regulated
  by the state
• Full-time public defenders
• Full-time faculty members at a tribally
  controlled university
• Librarians with a masters degree in library
  science who are employed in a school served under
  Title I of the ESEA, or a public library serving
  a Title I school
• Full-time speech language therapists with a
  masters degree working exclusively in Title I
  schools
• Full-time firefighters.
• Member of the armed forces who served in an area
  of hostility, at the rate of 15 for the 1st and
  2nd years of service 20 for the 3rd and 4th
  years of service and 30 for the 5th year of
  service.

7
HEAO on Loan Assignment

• Mandatory assignment of a loan by ED only allowed
  if school knowingly fails to maintain acceptable
  collection record on defaulted loan, or
• School leaves the Perkins Program.
• Referral program to ED still permitted but not
  required. New collected funds MUST BE returned
  to institution that assigned them every six
  months, less 30 collection cost.
• Voluntary assignment repealed but Department
  continues to permit under general authority to
  protect the federal fiscal interest. (Same
  authority they wanted to use for mandatory
  assignment.)
• No funds being returned to the School

8
Congress Makes Itself Clear on Mandatory
Assignment

• From the Statement of Managers
• The Conferees note that the Secretary of
  Education lacks the authority under this section
  to require assignment of defaulted Perkins loans.
  Furthermore, it is the intent of the Conferees
  that any funds collected from defaulted Perkins
  loans, including loans that have been assigned to
  the Department of Education for additional
  collection activities, be returned to the
  institutions revolving fund and available for
  new loans to future students.

9
More from Congress on Mandatory Assignment

• The Conferees intend to prohibit administrative
  measures that would weaken the program by
  reducing the Perkins Loan funds available to lend
  to students. For this reason, the Conferees
  agreed to provisions clarifying that the
  Secretary is only permitted to require the
  assignment of defaulted Perkins Loans to the
  Secretary when an institution of higher education
  has knowingly failed to maintain collection
  records. The fact that a loan has been in
  default for any period of time does not mean that
  the institution has failed to perform due
  diligence in its collection and is not grounds
  for the Secretary to require the assignment of
  the loan.

10
Congress on Perkins 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.

11
Other HEOA Highlights

• Disclosures of college costs, listings of price
  increasers, decreasers
• ED compiles information, publishes on website
• Schools have to say why they raised prices
• FAFSA simplified
• Adopts student loan sunshine rules, similar to
  those already in regs
• Private loan pricing disclosure, sunshine regs
• Year-round Pell Grants
• More aid and support for military, veterans
• More support for those with disabilities

12
The 111th Congress

• Senate

• House

• 60 Democrats
• 40 Republicans
• Before
• 51 Democrats
• 49 Republicans
• Two Democrats are in ill health and have missed
  most of the session Byrd (WV) and Kennedy (MA)

• 257 Democrats
• 178 Republicans
• Before
• 236 Democrats
• 199 Republicans

13
President Obamas Department of ED 2009-2012

• Arne Duncan Secretary friend from Chicago
• Bob Shireman Deputy Undersecretary
• Mike Smith Senior Advisor
• Martha Kanter, Under Secretary
• Carmel Martin, Assistant Secretary for Planning,
  Evaluation and Policy Development
• Gaby Gomez, Asst. Secty for Legislation and
  Congressional Relations (former Cong. Staff)
• Dan Madzelan Acting Asst. for Postsecondary Ed
• Peter Cunningham, Assistant Secretary for
  Communications and Outreach
• Emma Vadehra, Depty Asst. Secty for Planning,
  Evaluation, Policy Development
• White House Ed. Advisor James Kvaal
• OMB Ed. Asst. Director Robert Gordon
• William Taggart COO/Head of FSA

14
HEOA Neg Reg Team 2 School Based Loan Issues

• Consensus Achieved, Draft Regs published
• Others will provide details
• Lots of focus on Preferred Lender Lists Private
  and FFELP
• Perkins mandatory assignment changes dropped from
  agenda
• New private loan rules apply to schools
• Federal Reserve drafts Truth In Lending Act regs
• Comment period closed 5-26-09
• COHEAO, NASFAA, NAICU, NACUBO, ACE joint comments
  submitted to FED.
• Final regs published July 30, 2009.

15
Private Loan Regs

• Exemption provided for institutional loans of 90
  days or less.
• Exemption provided for tuition payment plans with
  no interest rate applied and the term of the
  transaction is not more than one year.
• Exemption applies even if more than four
  installment payments, a change from previous
  proposal.
• Borrower self-certification still required, but
  e-signed forms OK.

16
Congresss Budget Process

• Appropriations for FY 2010 passed in Feb.
• Perkins cancellations increased by 2.837
  million, first increase in years. No FCC
• FY2010 Budget Resolution
• Final budget passed along party lines
• Overall spending is 3.55 trillion - 146.2
  billion less than Obamas proposal
• Includes 530 billion in domestic discretionary
  spending
• Function 500 (includes Education) is 89.4
  billion in discretionary spending which is 5.6
  billion more than FY09

17
Congresss Budget Process

• Budget Resolution sets stage for Major Policy
  changes
• Reconciliation process tells Committees to write
  legislation saving 1 billion from education.
• Reconciliation passes Senate by simple majority
  no filibusters
• Fast Track to change Thats where Perkins
  changes, Pell entitlement, elimination of the
  FFELP may occur
• Wild Card Health care reform included

18
Stimulus Package Student aidAmerican Recovery
and Reinvestment Act

• Pell Grant max increased 500 for 2 yrs
• Hope tax credit raised to 2,500 per year,
  extended to four years, made 40 refundable
• Work Study funding raised by 200 million for
  FY2010
• 100 million for teacher education
• Huge amounts of funding for K-12 doubled ED
  budget.

19
Obama Budget for 2010

• Financial Aid Changes
• Increase Pell Grant max to 5,550, make an
  automatic entitlement, increase 1 over CPI every
  year
• Eliminate FFEL Program all schools to DLP for
  AY2010
• Continue expanded tax credits
• Eliminate Perkins Loan Program
• Create New Perkins Loan Program

20
Budget FY 2010 Perkins

• New Perkins program new Unsubsidized Direct
  Stafford Program
• Funding 6 billion a year mandatory
  permanent appropriation
• Schools expanded from 1,800 to 4,400
• Federal share of current loans sent to ED
• 5 interest charged in school and grace
• All new loan servicing done by ED
• Old loans serviced by schools
• New by FFELP Put/DL Contractors
• Cancellation benefits same as Stafford

21
Budget FY 2010 Perkins

• Administration says
• 2.7 million more students get loans
• Loans targeted to needy students and the schools
  they attend Schools with many Pell recipients
• Colleges encouraged to control tuition
• Current formula sends more funds to schools with
  higher tuitions. New formula would encourage cost
  control and targeting of grants to prevent
  excessive indebtedness
• Budget rules require ED servicing
• Arcane federal accounting/scoring rules

22
New Perkins COHEAO Views

• COHEAO comments submitted as Testimony to House
  Education and Labor Committee (see web site)
• Increased funding welcome!
• Expansion to more schools welcome!
• With funding, less controversy over allocation
  formula
• Keep servicing at schools, if they wish
• Funding stream necessary to pay servicing costs
• Keep in-school interest benefit for students
• Keep Perkins unique cancellation benefits
• Institutions retain their contributions (historic
  matches plus interest and fees, plus overmatches
  or loans) if revolving funds sent to Washington

23
New Perkins COHEAO Views

• Existing borrowers retain cancellation benefits,
  schools are reimbursed their share
• Institutional match supported, similar to
  longstanding match requirements (lots of new cash
  not possible)
• Current institutions held harmless receive
  new allocations of at least the annual average
  over past five years.
• Can compete for additional allocations
• Allocation of new funds based on of low income
  students so all institutions receive minimum
  threshold of funding
• Retain 5 fixed interest rate
• Retain campus-based student allocation process

24
House Loan Bill, HR 3221

• Education and Labor Committee approved July 22
  30-17 vote
• Partisan all Dems, only 2 Rs voted yes.
• House action likely Sept. 9 or 10
• Some changes possible then
• Senate HELP Committee staff just starting
  drafting process
• Most of the attention on FFELP vs. DLP, only now
  on Perkins
• Senate Committee Action by October 15, full
  Senate to follow
• Health care legislation affects Senate more than
  House Reconciliation or not?

25
House Bill, HR 3221

• The Student Aid and Fiscal Responsibility Act
• Republicans attacking fiscal responsibility
• Creates Federal Direct Perkins Loan Program in
  Part D of the HEA, the direct loan section.
• Current Perkins Program, Part E, repealed as of
  July 1, 2010.
• Existing loans retain same terms
• Some students would have both types of Perkins
• Same Terms as Direct Unsubsidized Stafford Loans
  except interest rate is 5, allocation is
  limited, loan limits same as current Perkins.
• Interest charged during in-school, grace periods
  
• Grace period reduced to 6 months
• Loan cancellations same as Direct after 10
  years of repayment in public service occupation
• Institutions required to pay matching funds in
  unspecified amount into escrow account For the
  purpose of providing loan benefits to borrowers.
• Servicing and collections by ED contractors

26
HR 3221

• Complex new allocation formulas designed to
  pressure schools to hold down tuition and fees,
  enroll low-income students
• Half of funds allocated according to self-help
  need of current Perkins schools (they are held
  harmless)
• Quarter of funds allocated among schools whose
  average tuition and fees, minus average
  institutional aid and discounts, is less than the
  average for the schools sector. Sectors same as
  those created by HEAO for cost reporting
• Quarter of funds allocated based on how many
  students who ever got a Pell Grant are graudated.

27
HR 3221

• Schools can continue servicing existing loans or
  assign to ED. Administrative fee paid of .50 of
  outstanding interest and principal
• Federal share of repayments sent to ED,
  institutional share can be used for any purpose.
• For existing Perkins, voluntary assignment
  clearly restored, with institution allowed to
  keep it share.
• Compromises on defaulted loan repayments are
  repealed.
• Mandatory assignment OK if institution fails to
  maintain acceptable collection record knowingly
  or not.

28
HR 3221 Other Issues

• Terminates FFEL Program 7/1/10
• Servicing done by ED contractors, but non-profits
  get to service 100,000 loans made at schools in
  their home states.
• College completion and Innovation Fund 600
  million annually in grants for 5 years.
• Grad and prof. students can still get subsidized
  Staffords (change from 1st version of the bill)
• Sub Stafford rates variable after 2012 T-bill
  plus 2.5, capped at 6.8.
• FFEL borrows can reconsolidate into DL
• Pell Grants NOT an entitlement Appropriated
  amount plus extra increased from 490 to 690 a
  year, then increased at CPI plus 1 after that.
• Community college Initiative 2.5 billion for
  modernization and construction, plus funds for
  workforce development
• 5 billion for modernization, repair of public
  schools
• 1.2 billion for HBCUs.
• Early Learning Challenge Grant Program states
  offer grants for birth to 5 programs.
• 10 billion for deficit reduction numbers
  changing?

29
Criteria for Servicing Contracts

• Who is included  "The Secretary shall, if
  practicable, award multiple contracts, through a
  competitive bidding process, to entities,
  including eligible not-for-profit servicers, to
  service loans originated under this part."
• Criteria for contract award  "...price,
  servicing capacity, and capability, and may take
  into account the capacity and capability to
  provide default aversion activities and outreach
  services."
• Special considerations  "In awarding contracts
  to such State agencies, and such eligible
  not-for-profit servicers, the Secretary shall, to
  the extent practicable and consistent with the
  purposes of this part, give special consideration
  to State agencies and such servicers with a
  history of high quality performance and
  demonstrated integrity in conducting operations
  with institutions of higher education and the
  Secretary."
• Non-profit servicers appear to get guaranteed
  allocation "Notwithstanding any other provision
  of this section, in each State where one or more
  eligible not-for-profit servicer has its
  principal place of business, the Secretary shall
  contract with each such servicer to service loans
  originated under this part on behalf of borrowers
  attending institutions located within such State,
  provided that the servicer demonstrates that it
  meets the standards for servicing Federal assets
  and agrees to service the loans at a competitive
  market rate, as determined by the Secretary."

30
Criteria for Servicing Contracts

• Secretary's determination of competitive market
  rate   "In determining such a competitive market
  rate, the Secretary may take into account the
  volume of loans serviced by the servicer.
  Contracts awarded under this paragraph shall be
  subject to the same requirements for quality,
  performance, and accountability as contracts
  awarded under paragraph (2) for similar
  activities."
• Allocation of volume to non-profit servicers 
  "Lesser of loans of 100,000 borrowers (which
  would include loans of borrowers who had used
  servicer previously) OR the loans of all
  borrowers attending institutions within the
  state."
• Additional allocation at discretion of
  Secretary  "The Secretary may allocate
  additional servicing rights to an eligible
  not-for-profit servicer based on the performance
  of such servicer, as determined by the Secretary,
  including performance in the areas of customer
  service and default aversion."
• Secretary will make all attempts to avoid split
  servicing of loans. 
• Note THESE CONTRACTS WOULD BE FOR ALL DIRECT
  LOANS, INCLUDING DIRECT PERKINS LOANS 

31
COHEAO Actions

• COHEAO is working closely with Higher Ed
  Community, Administration and Congress, will
  continue to do so
• Higher Ed Community Perkins Working Group
  includes COHEAO
• Some divergence from COHEAO priorities
• C2 Group hired on three-month contract to help
  with lobbying focus on the Senate.
• Most important grassroots support

32
Perkins in the Future

• Weigh in keep the benefits of the current
  Perkins Program while supporting expansion so
  many more students can benefit from it.
  Information on COHEAO activities, including
  position papers and sample letters, available at
  www.coheao.org

33

• QUESTIONS???
• COHEAO Mid-Year Conference
• Philadelphia, Pennsylvania
• August 3, 2009
• Harrison M. Wadsworth
• Executive Director
• Coalition of Higher Education Assistance
  Organizations
• Principal, Washington Partners, LLC
• hwadsworth_at_wpllc.net
• 202-289-3910
• www.coheao.org
• www.wpllc.net