1. FEDERAL UPDATE Fred Sellers Office of Postsecondary Education
Southwest Association of Student Financial Aid Administrators
2006 Tulsa
FEDERAL
UPDATE
Fred Sellers
Office of Postsecondary Education
U.S. Department of Education

2. Agenda Secretary’s Commission Fiscal Year 2007 Budget
Higher Education Legislation
Regulations
HERA
HERA: ACG and National SMART Grant Programs
HERA: General Provisions, Loans, and Need Analysis
Additional Loan Issues
Operational Update
Default Rates
On the Horizon

3. Secretary’s Commission Future of Higher Education
on the
Future of Higher Education

4. Secretary’s Commission on the Future of Higher Education
Final Report — “A Test of Leadership: Charting the Future of Higher Education”
“U.S. higher education needs to improve in dramatic ways,” changing from “a system primarily based on reputation to one based on performance.”

5. Secretary’s Action Plan
Accessibility
“There are far too many Americans who want to go to college but cannot—because they're either not prepared or cannot afford it.”
Affordability
“There is little to no information on why costs are so high and what we're getting in return.”
Accountability
“No current ranking system of colleges and universities directly measures the most critical point—student performance and learning.”

6. Fiscal Year 2007 Budget

7. Title IV Program Budgets Appropriations
* President's FY 2007 Budget Submission

8. Title IV Program Budgets Aid Available
* President's FY 2007 Budget Submission

9. Title IV Program Budgets Status of Appropriations
* Committee-passed Bills

10. Hurricane Help for Institutions
Hurricane Education Recovery Act (P.L )
$95 million to 18 Louisiana institutions
$95 million to 38 Mississippi institutions
$10 million to 99 U.S. institutions
$30 million “retained” by 18 Gulf institutions
Higher Education Recovery Awards (P.L )
$50 million to 41 Gulf institutions
Natural Disaster Student Aid Fairness Act (P.L )
$28 Million reallocated to 29 campus-based program institutions

11. Higher Education
Legislation

12. Legislation
Higher Education Reconciliation Act of 2005 (P.L ) (HERA)
Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006 (P.L )
Continuing Appropriations Resolution, 2007 (included in P.L , The Department of Defense Appropriations Act, 2007)
Through November 17, 2006
Third Higher Education Extension Act of 2006 (P.L )
Through June 30, 2007

13. Third Higher Education Extension Act
New restrictions on eligible lender trustee arrangements with postsecondary institutions
Definition of Hispanic-serving institution
Clarification of GA account maintenance fees
New loan discharge for survivors of 9/11 victims

14. Regulations

15. Title IV Program Regulations
Interim final regulations with comments invited
ACG/National SMART Grants July 3, 2006
Other HERA issues August 9, 2006
Final regulations
ACG/National SMART Grants November 1, 2006
Other HERA issues November 1, 2006
Title IV programs November 1, 2007

16. Final Regulations
Significant modifications based on public comment in ACG/National SMART Grant regulations
Change
Must receive Pell in the award year, rather than the payment period
Clarification
Academic year progression based on attendance in all eligible programs over the course of a student’s undergraduate education
No prior enrollment in an ACG eligible program while in high school for first-year eligibility
Early implementation of ACG/National SMART Grant regulations
HERA regulations effective December 1, 2006

17. Negotiated Rulemaking
Federal Register notice, August 18, 2006
Regulatory issues
Academic Competitiveness and National SMART Grants
Recent legislation, including HERA
Secretary’s Higher Education Commission
Up to four negotiating committees
Committed to discussing ACG and National SMART Grants
Could include other HERA changes
Title IV programs including student loans
Institutional eligibility
General Provisions

18. Negotiated Rulemaking
Tentative calendar
Public hearings: Sept – Nov
Nominations November 9, 2006
Sessions: December February March 2007
NPRM: May 2007
Comments: July 2007
Effective date: July 1, (possible early implementation)

19. HERA

20. Deficit Reduction Act of 2005—S. 1932
Conference report passed the House on December 19, 2005
Conference report passed the Senate on December 22, 2005 in slightly different form
House passed Senate version on February 1, 2006
President signed into law February 8, 2006

21. ACG and National SMART Grant Programs Academic Year and Financial Need
HERA:
ACG and National SMART Grant Programs
Academic Year and Financial Need

22. Duration of Eligibility
ACGs
One grant for first t. IV academic year
One grant for second t. IV academic year
National SMART Grants
One grant for third t. IV academic year
One grant for fourth t. IV academic year
Progression: based on attendance in all eligible programs

23. Academic Year
A title IV academic year is defined in the HEA to be a minimum of:
24 semester hours, 36 quarter hours, or 900 clock hours, and
30 weeks of instructional time (26 for clock hours) .

24. Credit Hours
Regardless of the hours in a program’s academic year, full-time for an undergraduate is a minimum of:
12 semester hours for a semester or
trimester; or
12 quarter hours for a quarter.
Title IV academic year is often not the same as grade level for institutional purposes and loan limits (i.e., 30 semester hours to progress from grade level 1 to grade level 2).

25. Weeks of Instructional Time
Determine the actual number of weeks of instructional time to complete hours earned
For transfer student, may assume weeks of instructional time based on credits accepted

26. Weeks of Instructional Time
For the and award years, if Formula 1 program, may assume weeks of instructional time for credit hours in program’s title IV academic year
See DCL GEN-06-18
May exercise Formula 1 option to assume weeks–
On a student by student basis;
For same student for different terms; or
For transfer credits differently than for home earned credits

27. Weeks of Instructional Time
NOTE: for transfer students and for programs using Formula 1 and assuming weeks, an institution must determine the actual number of weeks of instructional time for a student who requests such a determination or questions whether they have completed an academic year.

28. Determining Academic Year Progression
Payment Formula Used for Eligible Program
Academic Year Based on Actual Weeks of Instructional Time and Hours
May Assume Weeks Based on Hours
( and )
May Assume Weeks Based on Accepted Hours for Transfer Students
Must Determine Actual Academic Year Standing if Student Requests
Formula 1
YES
Formula 3, but eligible to use Formula 1
Formulas 2, 3, 4 5 NO
for transfer students

29. Examples of such courses include:
Example 1: Courses/credits that do not count in weeks of instructional time
When tracking actual weeks of instructional time, courses that are not part of an ACG or National SMART Grant eligible program or courses not at the postsecondary level do not count in determining weeks of instructional time.
Examples of such courses include:
Remedial Coursework;
Advanced Placement (AP) or International Baccalaureate (IB) courses/exams;
College Level Examination Program (CLEP);
Credit for life experience;
Courses taken when not enrolled as a regular student; and
Courses that are not part of an eligible program.

30. Example 2: Advanced Placement courses
Student graduated high school May 2006 for Fall 2006 with 45 AP credits accepted toward the student’s degree.
School A’s defines an academic year 24 semester hours and 30 weeks of instructional time for the student’s program and uses Formula 1.
If School A assumes weeks of instructional time, this student would be in his or her second academic year.
45/24 = 1.875
However, student has no GPA from “first academic year” and would, therefore, not be eligible to receive ACG funds for a second-academic-year award.

31. Example 2: Advanced Placement courses (cont’d)
If School A chose to track actual weeks, then the student would still be in his or her first academic year as AP credits carry no weeks of instructional time. This student would be eligible for first-year ACG award if otherwise eligible.

32. Example 3: Academic year
Student completes 36 semester hours at School X and has 3.50 GPA. School Y accepts only 24 hours upon transfer.
School Y is only required to use the hours that transfer in determining academic year (hours and weeks), but the school may look at transcript (i.e., all 36 hours) to determine weeks of instructional time completed or may determine the actual weeks attended at School X.
School Y chooses to use only the hours accepted to determine weeks. The student is, therefore, considered to have completed 24 hours and 30 weeks instructional time, i.e., one academic year.

33. Example 4: Academic year
Student enrolls at School A for award year. Student completes 24 semester hours over three terms (part-time enrollment) and receives no ACG.
Student transfers to School B for award year. School B only accepts 18 semester hours of the courses taken at School A. School B defines its academic year as 24 semester hours and 30 weeks of instructional time.
School B uses Formula 1 and chooses to assume weeks of instructional time not only for transfer credits but also for credits earned at School B instead of tracking actual weeks of enrollment.

34. Example 4: Academic year (cont.)
School B assumes 75% of academic year’s weeks (18/24) completed. Student is still in first academic year at School B.
Year 1 is 0-24 hours and 30 weeks, Year 2 is hours and weeks …
School B awards half of first-year ACG ($375) for Fall 2007.
Student completes 15 hours in Fall 2007 and now has completed 33 semester hours. Student has cumulative GPA of 3.25 on the 15 hours earned at School B.

35. Example 4: Academic year (cont’d)
School B assumes weeks, which means student has completed academic years (33/24). Student has completed year 1 and is in academic year 2.
For Spring 2008, school may award half of second-year ACG ($650).
Student received total of $1,025 in ACG funds for
The student completes 15 hours in the the Spring 2008 term.
In the fall of 2008 the student is entering the third academic year and no longer eligible for ACG.

36. Example 5: Academic year
Like Example 4, student enrolls at School A for award year. Student completes 24 semester hours over three terms (part-time enrollment) and receives no ACG.
Student transfers to School B for award year. School B only accepts 18 semester hours of the courses taken at School A. School B defines its academic year as 24 semester hours and 30 weeks of instructional time and uses Formula 1.
School B determines student has completed 18 credit hours and has policy to track actual weeks of instructional time earned at school B.

37. Example 5: Academic year (cont.)
School B may look at transcript and determine that student has completed the weeks in a full academic year, because student completed two semesters at School A, but will only have 18 hours “completed” at School B.
Note that the regulations and guidance will allow School B to assume weeks of instructional time for hours transferred in and then track actual weeks of instructional time from that point on.
Nothing prevents a school from using the assumption method for transfer hours then tracking actual weeks of instructional time at the school, unless the student requests that all weeks of instructional time be tracked rather than assumed.

38. Example 5: Academic year (cont.)
For the first semester (Fall 2006) at School B, the student can be awarded $375 in ACG funds.
Student completes 15 hours in Fall 2006 and has a cumulative GPA of This GPA represents only the 15 hours taken in Fall 2006 and the school’s policy is not to include the grades of transferred hours.
At the end of Fall 2006, the student will have completed the weeks for 1 ½ academic years and have 33 hours. The school may award $650 in ACG funds for Spring 2007.
If school policy is to include GPA for courses transferred in, then the cumulative GPA at the end of Fall 2006 would also include the GPA for those courses.

39. Example 6: Academic year
At School C, student completes 12 credit hours. Student was only enrolled full-time one semester and received only one disbursement ($375) of ACG funds.
Student transfers to School D and none of the 12 credits transfer. School D uses Formula 1 for the student’s program and assumes weeks of instructional time.
With zero hours, School D reviews NSLDS and notes the student has already been awarded ACG funds (which serves as documentation of completion of rigorous secondary school program of study).
School D awards this student $375 ACG award.

40. Example 6: Academic year (cont.)
Student completes 14 credit hours in Fall. Although the student appears to be still in the first academic year at School D, there are no remaining ACG funds for Spring.
However, because the student received half an ACG at School C, School D must assume that the student completed half an academic year at School C unless it has information to the contrary.
School D must consider the student to be entering the second academic year in the Spring term.
A student’s academic year progression is based on attendance in all eligible programs over the course of the student’s undergraduate education.

41. Example 7: Academic year progression
Student graduates high school and enrolls at school that
tracks actual weeks of instructional time.
Fall 2006: 15 hours, 15 weeks
Awarded ½ of 1st academic year ACG
Ends term with 15 hours and 3.66 GPA
Spring 2007: 18 hours, 15 weeks
Ends term with 33 hours and 3.58 GPA
Summer 2007: 9 hours, 15 weeks*
Receives no ACG (less than full-time)
Ends term with 42 hours and 3.63 GPA
* Programs using formulas 1 and 2 allowed to treat summer term as half an academic year in weeks, e.g., 15 weeks

42. Example 7: Academic year progression (cont.)
Fall 2007: 18 hours, 15 weeks
Awarded ½ of 2nd academic year ACG
Ends term with 60 hours and 3.67 GPA
Spring 2008: 18 hours, 15 weeks
Awarded ½ of 3rd academic year Nat’l SMART Grant (beyond 2nd yr in wks & hrs; SMART-eligible major declared)
Ends term with 78 hours and 3.72 GPA
Summer 2008: 9 hours, 15 weeks*
Receives no Nat’l SMART Grant (less than full-time)
Ends term with 87 hours and 3.69 GPA

43. Example 7: Academic year progression (cont.)
Fall 2008: 15 hours, 15 weeks
Awarded ½ of 4th academic year Nat’l SMART Grant
Ends term with 102 hours and 3.67 GPA
Spring 2009: 18 hours, 15 weeks
Ends term with 120 hours and 3.64 GPA
Total ACG received: $1,400
Total National SMART Grant received: $6,000

44. Example 8: Academic year progression
Student graduates high school and enrolls at school that
assumes weeks of instructional time based on credits.
Fall 2006: 15 hours, 15 actual weeks
Awarded ½ of 1st academic year ACG
Ends term with 15 hours and 3.66 GPA (assumes ac.yrs.)
Spring 2007: 18 hours, 15 actual weeks
Ends term with 33 hours and 3.58 GPA (assumes ac.yrs.)
Summer 2007: 9 hours, 15 weeks*
Receives no ACG (less than full-time)
Ends term with 42 hours and 3.63 GPA (assumes 1.75 ac.yrs.)
* Programs using formulas 1 and 2 allowed to treat
summer term as half an academic year in weeks, e.g., 15 weeks

45. Example 8: Academic year progression (cont.)
Fall 2007: 18 hours, 15 weeks
Awarded ½ of 2nd academic year ACG
Ends term with 60 hours and 3.67 GPA (assumes 2.5 ac.yrs.)
Spring 2008: 18 hours, 15 weeks
Awarded ½ of 3rd academic year Nat’l SMART Grant because eligible major declared
Ends term with 78 hours and 3.72 GPA (assumes 3.25 ac.yrs.)
Summer 2008: 9 hours, 15 weeks*
Receives no Nat’l SMART (less than full-time)
Ends term with 87 hours and 3.69 GPA (assumes ac.yrs.)

46. Example 8: Academic year progression (cont.)
Fall 2008: 15 hours, 15 weeks
Awarded ½ of 4th academic year Nat’l SMART Grant
Ends term with 102 hours and 3.67 GPA (assumes 4.25 ac.yrs.)
Spring 2009: 18 hours, 15 weeks
Ends term with 120 hours and 3.64 GPA (graduates)
Total ACG received: $1,400
Total National SMART Grant received: $6,000

47. Example 9: Change in academic year
Student completes 49 semester hours at School A over three award years then transfers to School B. School B reviews NSLDS and sees that the student received a full Scheduled Award for ACG for the award year for academic year 2.
School B only accepts 22 semester hours as applicable toward a degree at its institution.
Student is not eligible for academic year 1 ACG because history shows year 2 already received.
A student’s academic year progression is based on attendance in all eligible programs over the course of the student’s undergraduate education.

48. Example 10: Financial need
Student Profile
COA: $19,500
EFC:
Need: $19,500
Original Determinations
Merit Scholarship $15,000
Federal Pell Grant $ 4,050
ACG: $
Packaging Options
Merit Scholarship: $14,700
Federal Pell Grant: $ 4,050
ACG: $
--OR--
Merit Scholarship: $15,000
ACG: $

49. Example 11: Financial need
Student Profile
COA: $25,500
EFC:
Need: $25,500
Original Determinations
Veterans Benefits $21,970
Federal Pell Grant $ 4,050
ACG: $
Packaging Options
Veterans Benefits $21,970
Federal Pell Grant: $ 4,050
ACG: $
Student cannot receive any ACG funds because need has already been met. No overaward for Pell and VA only.

50. Need Analysis, and Loans (selected provisions)
HERA:
General Provisions,
Need Analysis, and Loans
(selected provisions)

51. Institutional and Program Eligibility
Weeks in academic year for clock hour programs reduced to 26.
50% rules do not apply to telecommunications.
Programs of distance education must be specifically accredited.
Short-term telecommunications programs are eligible
Provision for programs using assessment to measure progress.

52. COST OF ATTENDANCE
Cost of attendance (COA) for less than half-time students may include room and board costs, at school’s option.
Cost of attendance (COA) may include, at school’s option, the one-time cost of obtaining the first professional license or certification

53. Simplified Needs Test and Auto Zero EFC
CALCULATION OF EFC
Simplified Needs Test and Auto Zero EFC
Increases to $20,000 the threshold under which a family would automatically have an EFC of zero.
Eliminates consideration of dependent student’s tax return for both SNT and Auto-Zero EFC.
Tax return alternative if family received benefits from a Federal means-tested program

54. CALCULATION OF EFC - 2006-2007 Other EFC Changes
Treats all 529 Pre-Paid and Tuition Savings Plans as assets of the owner, unless the owner is the dependent student
Excludes small-businesses from assets
Adds active duty military to the criteria that makes a student independent
Increases income protection allowances (07-08)
Decreases asset assessment rates (07-08)

55. DRUG CONVICTION
Provides that an applicant loses eligibility for Title IV aid only if the drug related offence for which he or she was convicted occurred while the student was receiving Title IV aid.

56. RETURN OF TITLE IV AID (R2T4)
Excludes LEAP/SLEAP, GEARUP, others from calculations
Specifies that scheduled clock hours are used to determine earned aid.
Clarifies that multiple leaves of absence are permitted.
Limits a grant overpayment due from a student to the amount by which the original overpayment amount exceeds half of the total grant funds received by the student.

57. PLUS Loan Eligibility to Graduate Students
FFEL and Direct Loans
PLUS Loan Eligibility to Graduate Students
Extends eligibility for PLUS Loans to graduate and
professional students.
Eligibility criteria is the same as for a parent, including credit checks and no in-school status. However, student would be eligible for an in-school deferment.
Student must file FAFSA.
Effective for any loan certified or originated on or after July 1, 2006.

58. FFEL and Direct Loans Annual Loan Limits
Increases annual base loan limits for –
First year students from $2,625 to $3,500
Second year students from $3,500 to $4,500
Increases annual additional unsubsidized for --
Graduate students to $12,000
Prep for grad program $7,000
Teacher certification to $7,000
Effective for loans first disbursed on or after July 1,
Aggregate loan limits are not increased.

59. FFEL and Direct Loans Interest Rates
Fixed rate of 6.8% for new Stafford loans first disbursed or or after July 1, 2006.
Fixed rate of 8.5% for new FFEL PLUS loans first disbursed or or after July 1, 2006.
Fixed rate of 7.9% for new Direct Loan PLUS loans first disbursed or or after July 1, 2006.

60. Low-Default Disbursement Waivers
FFEL and Direct Loans
Low-Default Disbursement Waivers
An institution with cohort default rates of less than 10 percent for the three most recent years is exempted from the requirements that FFEL and Direct Loans --
Be issued in at least two disbursements for one-term
loans; and
Be delayed for 30-days for first time students.

61. FFEL and Direct Loans Origination fees Guaranty fee
Other Loan Provisions
Origination fees
Guaranty fee
Consolidation loans
School as lender
Teacher loan forgiveness
Active military deferment

62. Additional Loan Issues

63. Preferred Lenders Preferred lenders lists are OK, BUT:
An institution must process any loan request made by a student or parent regardless of lender.
There may not be unreasonable delays.
There may be no automatic referrals.
Publications, scripts, and staff training must comply.
Violations could bring sanctions.
This guidance does not apply to FFEL/DL choice.

64. Alternative Loans
Alternative loans must be included as “estimated financial assistance” if --
School is aware of the loan and
Condition of loan is enrollment
It does not matter where loan proceeds are sent or
whether school “certified” enrollment.
It is like an outside scholarship.

65. Operational Update

66. Application Processing Statistics FAFSA Filing 2005-2006 vs 2006-2007
11,931,071
FAFSAs filed as of Week 50
88.5% electronic
12,068,379
FAFSAs filed as of Week 50
94.3% electronic

67. Perkins Portfolio Performance
Risk factors
Excess liquid capital: trend in not spending funds in the portfolio.
96 institutions have a total of more than $60 million of excess Perkins loan funds.
5-10 year nonperforming loans represent nearly $1 billion in student aid
Recommend that schools evaluate and assign

68. FY 2004
FFEL and Direct Loan
Default Rates

69. National Student Loan Default Rates

70. Default Rates by Sector Default Rates by Sector
School Type
FY 2002
FY 2003
FY 2004
Public – 2 Year
8.5%
7.6%
8.3%
Public – 4 Year
4.0%
3.3%
3.6%
Private – 2 Year
6.1%
6.3%
7.4.%
Private – 4 Year
3.1%
2.6%
2.9%
Proprietary
8.7%
7.3%
8.8%
Foreign
2.0%
1.8%
1.5%
National Rate
5.2%
4.5%
5.1%

71. SWASFAA Default Rates State FY 2001 FY 2002 FY 2003 Arkansas 7.0% 5.9%
6.7%
Louisiana
5.5%
4.4%
5.6%
New Mexico
6.0%
5.2%
Oklahoma
6.1%
5.8%
Texas
6.4%
6.8%

72. On the Horizon

73. On the Horizon Secretary’s commission report
Engaging with low-income, disadvantaged traditional students who never apply for financial aid
Paperless FAFSA
Estimate financial aid for juniors in high school
Link outreach with Upward Bound programs
Revising the application process
Total student experience
Customizable for each student
Federal Government assuming the responsibility for verification

74. HERA Training Are more than 50 sites across country
Began late September
Will offer a Spring series also

75. Thank You!
Fred Sellers