Spring 2010 Federal Perkins Loan Update

Agenda  Budget Update  Legislative Update  Regulatory Update  Perkins Loan Issues  Grassroots

Current Federal Perkins Loan Program  Federal Perkins Loan Program Provides long-term, low-interest loans to ~ 500,000 students from ~ 1,700 institutions. Provides long-term, low-interest loans to ~ 500,000 students from ~ 1,700 institutions. Total assets of over $8 billion represent over 40 years of FCC, TCC, repayments on previous loans, and Federal reimbursement for loan cancellation Total assets of over $8 billion represent over 40 years of FCC, TCC, repayments on previous loans, and Federal reimbursement for loan cancellation

2010 Presidential Budget Request  FY2010 Presidential Budget Request increase college access and success by expanding financial aid while making it simpler, more reliable, and more efficient. increase college access and success by expanding financial aid while making it simpler, more reliable, and more efficient.

2010 President’s Budget Request 2010 President’s Budget Request  Increase Pell Make Pell funding mandatory (not subject to appropriations funding)Make Pell funding mandatory (not subject to appropriations funding) Increase by $200 to $5,500 for award yearIncrease by $200 to $5,500 for award year Then increase by consumer price index plus one percentThen increase by consumer price index plus one percent

2010 President’s Budget Request  End entitlement subsides to FFEL loan program. On all new loans as of July 1, 2010 On all new loans as of July 1, 2010  Consolidate federal student loans under William D. Ford Direct Loan Program Increase efficiency Increase efficiency Less expensive Less expensive Savings to finance higher Pell Grants Savings to finance higher Pell Grants

2010 President’s Budget Request – Perkins  Modernize and expand Perkins Program New Perkins program = new unsub Direct Stafford Program New Perkins program = new unsub Direct Stafford Program Receive 6 billion in “mandatory” funding Receive 6 billion in “mandatory” funding Expanded to all schools Expanded to all schools From 1,800 to 4,400From 1,800 to 4,400 5% interest would accrue while in school and grace 5% interest would accrue while in school and grace Other terms and conditions would be same as unsubsidized Stafford Other terms and conditions would be same as unsubsidized Stafford Federal Share of current loans sent to ED Federal Share of current loans sent to ED Overhaul of the administration of the program Overhaul of the administration of the program Fully originated and administrated by the Dept of EDFully originated and administrated by the Dept of ED

2010 President’s Budget Request - Perkins 2010 President’s Budget Request - Perkins  Administration says: 2.7 million more students will receive loans 2.7 million more students will receive loans Loans to be targeted to needy students and the schools they attend Loans to be targeted to needy students and the schools they attend Schools with many Pell recipientsSchools with many Pell recipients Colleges encouraged to control tuition Colleges encouraged to control tuition New formula would encourage cost control and targeting of grants to prevent excessive indebtednessNew formula would encourage cost control and targeting of grants to prevent excessive indebtedness Budget rules require ED servicing Budget rules require ED servicing Arcane federal accounting/scoring rulesArcane federal accounting/scoring rules

Congressional Action  Student Aid and Fiscal Responsibility Act of 2009 (SAFRA) – H.R Implements President’s 2010 budget requests Implements President’s 2010 budget requests Introduced July 13, 2009 Introduced July 13, 2009 Full committee markup July 21, 2009 Full committee markup July 21, 2009 Passed the House on Sept. 17, 2009 Passed the House on Sept. 17, 2009 Vote 253 to 171Vote 253 to 171 Senate working on their version Senate working on their version

What Passed  H.R Health Care and Education Affordability Reconciliation Act House passed on 3/21/10 vote House passed on 3/21/10 vote Senate passed with vote Senate passed with vote  H.R consists of amendments to health care reform and a modified version of SAFRA.  DCL GEN-10-5 briefly addresses these changes

What Passed  As of 7/1/10, all Stafford, PLUS and Consolidation Loans will be made via the Direct Loan Program.  Additional mandatory funding is provided to augment funds appropriated each year. increase the federal maximum Pell Grant each year by the change in the Consumer Price Index. increase the federal maximum Pell Grant each year by the change in the Consumer Price Index. According to ED/Labor Committee the maximum Pell for 2010 is $5,500 According to ED/Labor Committee the maximum Pell for 2010 is $5,500

What Passed  The legislation uses $13.6 billion of the savings to cover most of approximately $19 billion shortfall in current Pell Grant funding.  Bill does not include ongoing increases in Pell at the rate of inflation plus 1% as in the SAFRA bill. The annual appropriation process will fund the bulk of each year’s Pell grant. The annual appropriation process will fund the bulk of each year’s Pell grant. No guarantee that there will be an annual increase in the total grant. No guarantee that there will be an annual increase in the total grant.

What Passed  $750 million is included for “College Access Challenge Grants” through Rate of $150 million per year. Rate of $150 million per year.  $50 million goes to assist school transition into Direct Loan program.  $2.55 billion goes to HBCU as well as Minority Serving Institutions

What Passed  Not-for Profit direct loan servicers receive funding if needed. If meet minimum standards, they would be allocated a minimum 100,000 loan accounts annually, with the first 100,000 eligible for a special pricing tier. If meet minimum standards, they would be allocated a minimum 100,000 loan accounts annually, with the first 100,000 eligible for a special pricing tier.

What Passed  $2 billion is set aside for community colleges via Trade Adjustment Act funding under the Dept of Labor. The larger American Graduation Initiative was dropped from bill due to budget issues. The larger American Graduation Initiative was dropped from bill due to budget issues.

What Passed  Income-based Repayment was modified for new borrowers beginning Borrower payments are limited to 10% of discretionary income. (reduced from 15%) Borrower payments are limited to 10% of discretionary income. (reduced from 15%) Unpaid balance would be forgiven after 20 years. (reduced from 25%) Unpaid balance would be forgiven after 20 years. (reduced from 25%)

What Passed  $25 million is provided in fiscal year 2010 and 2011 for Direct Loan servicers “to retain jobs at locations where such servicers were servicing FFEL loans on 1/1/10.

What Passed  For one year beginning 7/1/10, borrowers who are not in repayment on all there loans can consolidate into the Direct Loan Program if they have loans in at lease two of the following categories; FFELP Loans, FFELP Loans, FFELP loans that have been sold to the Department FFELP loans that have been sold to the Department Direct Loans Direct Loans

What Passed  The Current Perkins Loan Program is not touched! The administration's proposal (and passed by the House in Sept) to create a new “Direct Perkins Loan Program” was deleted in its entirety. The administration's proposal (and passed by the House in Sept) to create a new “Direct Perkins Loan Program” was deleted in its entirety.

What’s Next  COHEAO will turn it’s attention to extend and expand the current Perkins Program. Most important matter (because of timing) is appropriations. Most important matter (because of timing) is appropriations. President’s FY2011 budget request was written in the expectation of the “Direct Perkins”President’s FY2011 budget request was written in the expectation of the “Direct Perkins” No FCC or Cancellation funding is currently requested.No FCC or Cancellation funding is currently requested.

What’s Next Need to address the 2012 sunset for Perkins. Need to address the 2012 sunset for Perkins. It requires the federal share of the Perkins Loan revolving fund to be sent to the Department or EDIt requires the federal share of the Perkins Loan revolving fund to be sent to the Department or ED This date has been extended several times, last in 2007.This date has been extended several times, last in COHEAO’s high priority to eliminate or extend this clause.COHEAO’s high priority to eliminate or extend this clause.

Perkins Loan Issues  Economic Hardship Deferment College Cost Reduction and Access Act (CCRAA, P.L ). College Cost Reduction and Access Act (CCRAA, P.L ). Definition changes effective 7/1/09 Definition changes effective 7/1/09 Eliminates the 20/220 qualification for Econ HD. Eliminates the 20/220 qualification for Econ HD.

Perkins Loan Issues  FISAP Perkins Loan Changes  New Lines: New cancellations authorized by HEOA plus corresponding instructions New cancellations authorized by HEOA plus corresponding instructions Short-term loans to the Fund and reimbursement to the institution of short-term loans to the Fund plus instructions Short-term loans to the Fund and reimbursement to the institution of short-term loans to the Fund plus instructions Transfer of FWS to Perkins Loan Fund Transfer of FWS to Perkins Loan Fund

Perkins Loan Issues  Total and permanent disability discharge for borrowers designated as unemployable due to a service-related condition by Veterans Affairs  New TPD form posted DCL GEN DCL GEN  Two DCLs on Veteran’s TPD discharge Process Process Policy Policy

Perkins Loan Issues  DCL Procedures for discharging Title IV loans by determination by the Dept of Veterans Affairs Procedures for discharging Title IV loans by determination by the Dept of Veterans Affairs VA determines discharge on one of two standards: VA determines discharge on one of two standards: A determination that the veteran has a service- connected disability (or disabilities), that are 100% disabling; orA determination that the veteran has a service- connected disability (or disabilities), that are 100% disabling; or A determination that the veteran is totally disabled based on an individual unemployability determination.A determination that the veteran is totally disabled based on an individual unemployability determination.

Perkins Loan Issues  Following procedures must be followed: Borrower must apply to loan holder for TPD Borrower must apply to loan holder for TPD Completes section 1 and 3 of TPDCompletes section 1 and 3 of TPD Physician is not required to sign Section 4 of TPD Physician is not required to sign Section 4 of TPD Instead borrower submits documentation from the VA showing the determination of unemployability or 100% disabledInstead borrower submits documentation from the VA showing the determination of unemployability or 100% disabled Schools review TPD for completion and attached VA documentation. Schools review TPD for completion and attached VA documentation. Make preliminary determination of eligibilityMake preliminary determination of eligibility

Perkins Loan Issues If eligible for TPD based on VA documentation, submit TPD form and VA documentation to the Department. If eligible for TPD based on VA documentation, submit TPD form and VA documentation to the Department. DO NOT assign loanDO NOT assign loan The Department will review submitted paperwork and determine final eligibility. The Department will review submitted paperwork and determine final eligibility. Department will instruct school to discharge the loanDepartment will instruct school to discharge the loan No three year conditional waiting periodNo three year conditional waiting period School cancels the loan School cancels the loan And refunds any payments made on or after effective dateAnd refunds any payments made on or after effective date

Perkins Loan Issues If TPD was denied by school or Department If TPD was denied by school or Department School must notify borrower and borrower must resume paymentsSchool must notify borrower and borrower must resume payments Loan is deemed in forbearance from date of collection activity was suspendedLoan is deemed in forbearance from date of collection activity was suspended During discharge process, schools must provide borrower with phone number to call if they have questions. During discharge process, schools must provide borrower with phone number to call if they have questions.

Perkins Loan Issues  Dear Colleague Letter CB and CB Published 9/28/09 Published 9/28/09 Approval of the revised Perkins MPN and Addendum to Perkins MPN Approval of the revised Perkins MPN and Addendum to Perkins MPN MPN contains changes to cancellation, rehabilitation, forbearance and deferment MPN contains changes to cancellation, rehabilitation, forbearance and deferment Must begin using by 12/31/09 Must begin using by 12/31/09

30 Questions? Lori Hartung Todd, Bremer & Lawson, Inc