CASFAA December 9, 2008 Federal Update Jeff Baker Federal Student Aid U.S. Department of Education

2 Dependency Overrides

33 Students Seeking Dependency Overrides The Problem –  Some students who are likely eligible for a dependency override cannot find a school to consider an override at the time they need to submit a FAFSA.  Web FAFSA products to not allow a dependent student to submit without parental information.

44 Students Seeking Dependency Overrides The Solution –  Students who are unable to provide parental data will be able to submit their application through FOTW by indicating they believe that they have a special circumstance.

55 Students Seeking Dependency Overrides  Application can be submitted for processing and all appropriate matches will be performed  No EFC will be calculated  These records will have a “special circumstances” flag.  School makes the determination after obtaining documentation.

6 FFEL Loan Purchase Programs

7 Program Objectives  Ensure that eligible students and parents receive federal student loans for the academic year  Support the FFEL Program as a successful private/public partnership  Ensure no net cost to the federal government  No statutory authority to provide advance funding  ED’s commitment has value in financial markets.

8 FFEL Loan Purchase Programs  Participation Purchase Program for partially disbursed FFEL loans through September 30,  Loan Purchase Program for fully disbursed FFEL loans through September 30,  Participation Purchase Program for partially disbursed FFEL loans through September 30,  Loan Purchase Program for fully disbursed FFEL loans through September 30, 2010.

9 FFEL Loan Purchase Programs  Financial Conduit Program  Investors buy Asset Backed Commercial Paper (ABCP) with FFEL loans as collateral.  Lenders “sell” loans to conduit manager.  Lender uses net funds used to make new FFEL Program loans.  Lender continues to service loans.  Lender may “re-purchase” loans.  Loans may be sold to other parties, OR  ED Purchases Loans.

10 Higher Education Opportunity Act

11 HEOA - Pell Grants  Year Round Awards – Up to two full scheduled awards within on award year.  Effective with the award year.  Life-Time Limit - Limits the duration of a student’s eligibility to 18 semesters.  Effective with the award year

12 HEOA - Pell Grants  Provides a maximum Pell Grant award to any Pell eligible student (Pell eligible EFC) whose parent or guardian was a member of the Armed Forces and died in Iraq or Afghanistan after September 11,  Effective with the award year.

TEACH Grant Program  High need fields when agreement to serve was completed will remain valid even if field no longer approved  Categories of extenuating circumstances under which a recipient of a TEACH Grant may be excused from fulfilling the service obligation can be established by regulations 13

14 HEOA – Student Loans  Changes Cohort Default Rate Calculation  From two years to three years  Transition Period  30% Penalty Rate  Increases “disbursement relief” CDR to 15%.  Effective October 1, 2011

15 HEOA – Student Loans  Removes VA Educational Benefits from “Estimated Financial Assistance” for loans and from “Resources” for campus-based aid.  Effective with the award year.

16 HEOA – Student Loans  Dependent students eligible for unsubsidized without parental FAFSA information.  Effective on enactment – August 14, 2008  Paper FAFSA or EDE Submission  Special process for Direct Loans

17 Perkins Loans  Increases annual and aggregate loan limits –  Annual $5,500 for undergrad  Annual $8,000 for grad  Aggregate $60,000 for grad  Aggregate $27,500 for upper division undergrad  $11,000 for all others Effective with the award year.

18  Dec ’08 – Announcement of Formation of Committees and Solicitation of Nominations for Negotiators  Dec ’08 – Committees Established  Feb thru April ’09 – Negotiations  Aug ’09 – NPRM Published in the Federal Register  Nov ’09 – Final Rule Published  Jul ’10 – Rules Become Effective HEOA – Regulations

19 Recent Legislation

20  Higher Education Reconciliation Act (HERA) – February 8, 2006  College Cost Reduction and Access Act (CCRAA) – September 7, 2007  Ensuring Continued Access to Student Loans Act of 2008 (ECASLA) – May 7, 2008  Extended by HR 6899  Higher Education Opportunity Act (Reauthorization) – August 14, 2008 Recent Legislation

21 ACG and National SMART Grants  Eligible Non-Citizens Eligible  At least half-time enrolment  Students in certificate programs eligible, if program is at least one year in length and offered at a two or four-year degree granting institution.  Awards based on student’s grade level instead of “academic year”  Effective July 1, 2009 – by HEOA

22 Grade Level Base Amount Additional Unsubsidized 1 st -yr Dependent$3,500$2,000 2 nd -yr Dependent$4,500$2,000 Upper Division Dep.$5,500$2,000 1 st -yr Independent$3,500$6,000 2 nd -yr Independent$4,500$6,000 Upper Division Indep.$5,500$7,000 Graduate/Professional$8,500$12,000 FFEL/DL Annual Loan Limits

23 FFEL and DL Interest Rates  Reduced interest rates on undergraduate subsidized loans only from current 6.8% to  6.0% for loans disbursed on or after 7/1/2008  5.6% for loans disbursed on or after 7/1/2009  4.5% for loans disbursed on or after 7/1/2010  3.4% for loans disbursed on or after 7/1/2011  Beginning 7/1/2012, rates revert to 6.8%  Unsubsidized Stafford Loans and all Stafford's for graduate students remain at 6.8% fixed

24 Need Analysis  Increases student income protection allowances  Excludes from specified list of untaxed income --  Welfare payments  Earned income credit amounts  Special fuel tax credit  Excluded foreign income  Untaxed Social Security Benefits  Effective for

25 Dependency Criteria  Independent student definition –  Is an orphan, in foster care, or a ward of the court, or was at any time when the student was 13 years of age or older.  Is, or was, an emancipated minor or is in legal guardianship in the student’s state of legal residence.  Has been verified as an unaccompanied youth who is a homeless child or youth.  Effective for

26 Auto Zero EFC and SNT  Increases Auto Zero EFC income level from $20,000 to $30,000 (indexed to CPI)  Increases time from 12 to 24 months for receipt of means tested benefits  Adds Dislocated Worker in addition to type of tax return and means tested benefits  Effective for

27 Professional Judgment Dependency Overrides  Adds dislocated worker and homelessness as examples of when an FAA can use professional judgment  Provides that an FAA can use a dependency override made by another FAA within the same award year  Both effective for the award year

Rulemaking  TEACH Grant  NPRM Published March 24, 2008  Final Rule Published June 23, 2008  Rules Effective July 1, 2008  Title IV Loan Programs  NPRM Published July 1, 2008  Final Rule Published October 23, 2008  Rules Effective July 1, 2009

TEACH Final  Effective for the award year.  Must be repaid as Direct Unsubsidized Loan if student does not –  Teach for at least four years within eight years of ceasing enrolment in the TEACH Grant eligible program, as a -  Highly Qualified Teacher  At a Title I school  In a specified subject area.  “In for a dollar, in for four years.”

TEACH Final  Up to $4,000 per year for first undergraduate or post-baccalaureate (non degree) program - $16,000 aggregate  Up to $4,000 per year for graduate student - $8,000 aggregate  Prorated amounts for less than full-time enrolment  Award, when combined with other assistance, cannot exceed cost of attendance (No EFC)

TEACH Final  TEACH Grant recipient must teach in a high- need field in the majority of classes taught.  “Other” high-need fields must be listed in the Department of Education’s Nationwide Listing of Teacher Shortage Areas at the time the recipient begins qualified teaching.

TEACH Final  Institutional Eligibility  See DCL GEN-08-07, posted to IFAP on June 3, 2008  Institutional Choice whether to participate  An institution that offers one or more TEACH Grant-eligible programs may participate in the TEACH Grant Program

33 TEACH Grant Statistics

Loans Final  Definition of Not-for-Profit Holder  FFEL Only  Income-based Repayment Plans  FFEL and Direct Loans  Public Service Loan Forgiveness  Direct Loan only  Economic Hardship and Military Service Deferments  FFEL, Direct Loans, and Perkins

Regulations School Lender Relationships (Effective )

36 FFEL Loan Certification  A school may not:  Refuse or delay certification based on borrower’s choice of lender or GA  Assign lender to first-time borrower  Refuse to certify or certify a reduced amount; except on a case-by-case basis  Includes “school as lender”

37  School may choose to have preferred lender list (includes web processes)  List must have at least 3 unaffiliated lenders  Must disclose method/criteria for lender inclusion on the list  Must provide comparative information  Must include prominent statement advising borrowers that use of school preferred lender not required FFEL Preferred Lender Lists

38 Prohibited Inducements  Affects FFEL lenders and guaranty agencies  Creates concept of “rebutable presumption” for prohibited and allowed activities  Includes a non-exhaustive list of prohibited activities  Includes a list of allowed activities

39 A Rational Approach to Federal Student Aid

40 Mandates “ The entire financial aid system— including federal, state, institutional, and private programs—is confusing, complex, inefficient, duplicative, and frequently does not direct aid to students who truly need it.” -The Secretary of Education’s Commission on the Future of Higher Education

41 Mandates Congress, in passing the HEOA, required the Department of Education to issue a report on efforts to simplify the FAFSA that includes looking at the elimination of income data elements, as well as other items.

Issues – Federal Student Aid  The application is complex and intimidating.  Much of the data are unverifiable.  Current EFC formula is arbitrary, difficult to understand, lacks clarity and relevance, and subject to “gaming.”  Result of application (EFC) is “how much the student will NOT receive.”  Multiplicity of programs is confusing.

43 Principles for Reform  Access to Aid  Application will request information that is easily obtainable and verifiable.  Application will only ask questions necessary to determine eligibility and award levels.  Federal Student Aid  Targets the neediest students;  Is independent of other aid;  Is predictable;  Is portable, and  Distributes aid through fewer programs.

44 A Simplified FAFSA  Only ask for information needed to determine federal aid eligibility, aid types, and amounts.  Two pages - no instruction pages(s).  Fewer than 30 questions – - Identification- Dependency - Contact Information- Income / Exemptions - Eligibility- Certifications - Colleges and states to which information will be sent

45 Simple FAFSA

46 Rational Approach  Establish–  Federal Student Aid Target (FSAT)  Federal Student Aid Commitment (FSAC)  Consolidate aid programs into one grant (Pell), one loan (DL/FFEL) and one work study (FWS) program.

47 Federal Student Aid Target (FSAT)  Maximum amount of federal subsidized aid (Pell Grant, subsidized loans, and FWS).  Amount increases annually by CPI.  For example –-  100% of average Tuition & Fees, Books & Supplies, and Meals & Housing at community colleges.

48 Federal Student Aid Commitment (FSAC)  Student’s portion of FSAT based on AGI and IRS Number of Exemptions, related to HHS Poverty Levels.  Example: --  Grants up to 250% of poverty level gets maximum award amount;  Sub loans and FWS up to 400% of poverty level;

49 Unsubsidized Aid  Includes unsubsidized Stafford and PLUS loans;  Applies only after all other aid is awarded;  Covers difference between cost of attendance and all other sources of aid;  Includes annual loan limits for unsubsidized Stafford.

50 Policy/Budget Considerations  Select “Dials”  FSAT: percentage of cost of attendance at which type of school  FSAC: percentages of HHS poverty level to be used for grant, subsidized loan, and work study  Determine “Levers”  Maximum spending with current allocations  Optimized spending to ensure access and success

51 Examples of Dials and Levers Unsubsidized

52 Simple Look-Up Table (For Illustrative Purposes Only)

53 What Does This Mean For Students?  A FAFSA that encourages access;  Real-time feedback on probable Federal Student Aid;  Better awareness of state and institutional value-added aid, and  Predictability for persistence.