Budget Reconciliation

1
Budget Reconciliation theHigher Education
Act April 20, 2006
2
Feeling Confused?
3
Our Goals Today

• Eliminating as much confusion as possible by
• Covering how and why we got to where we are today
• Identifying changes and when they take place
• Identifying where additional guidance is needed

4

• Reconciliation
• Versus
• Reauthorization

5
Reconciliation versus Reauthorization

• The Higher Education Act should have been
  reauthorized in 2003.
• With no Congressional action, the automatic
  one-year extension kicked in.
• Since then, other short-term extensions have been
  passed.

6
Reconciliation versus Reauthorization

• Since the Higher Education Act should have been
  reauthorized, the Federal government has run huge
  budget deficits
• 2003 377.6 billion
• 2004 412.1 billion
• 2005 318 billion.
• Pressure to reduce Federal spending increased
  with each deficit.

7
Reconciliation versus Reauthorization

• April 28, 2005 Congress passed a 5-year budget
  reconciliation bill.
• This bill required spending cuts of 34.7 billion
  over 5 years.
• Each Congressional committee was given
  instructions on how much spending to cut.

8
Reconciliation versus Reauthorization

• The committees overseeing higher education were
  instructed to cut
• House - 12.7 billion
• Senate - 13.7 billion
• When Hurricane Katrina hit, the committees were
  asked to cut even more.

9
Reconciliation versus Reauthorization

• The end result was S. 1932, the Deficit Reduction
  Act of 2005.
• Many of the provisions of the House and Senate
  HEA reauthorization bills were included in this
  bill.
• Legislative history
• 12/21/2005 Senate passed 51-50
• 02/01/2006 House passed 216-214
• 02/08/2006 President signed bill into law

10
Reconciliation versus Reauthorization

• The validity of this law has been called into
  question.
• A single provision relating to Medicare differed
  between the House and Senate versions of the
  bills.
• At least two lawsuits have been filed to
  invalidate the law.
• Sen. Judd Gregg, 02/28/2006
• "It happens all the time around here if we're
  going to start holding ourselves to that
  standard, the government wouldn't function at
  all.
• Bottom line assume the law will stand

11
Reconciliation versus Reauthorization

• So is reauthorization still needed?
• S. 1932 reauthorized the FFEL program through
  September 30, 2012. 424(a), 428(a)(5), 428C(e)
• The rest of the Higher Education Act expires on
  June 30, 2006.
• On March 30, the House passed H.R. 609 (College
  Access and Opportunity Act of 2006).
• Thus far, the Senate has not taken any action.

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• Effective Dates and Triggers

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Effective Dates and Triggers

• In general, the changes made by the budget
  reconciliation bill have an effective date of
  July 1, 2006. S. 1932, Section 8001(c)
• However, certain changes have different effective
  dates.
• Some of the changes are effective in the future.
• At least two of the changes are retroactive.

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Effective Dates and Triggers

• Knowing an effective date is not enough in many
  cases.
• To properly implement a change, you also need to
  know the trigger event.

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Effective Dates and Triggers

• If a change is effective on July 1, 2006 does
  this mean
• Loans guaranteed on or after 7/1/2006?
• Loans certified on or after 7/1/2006?
• Loans with a first disbursement on or after
  7/1/2006?
• Loans for a period of enrollment beginning on or
  after 7/1/2006?
• Something else?

16
Effective Dates and Triggers

• In some cases the budget recon bill is very
  specific regarding the triggering event.
• In other cases your guess is as good as mine.
• ED especially OPE and OGC will make the final
  decisions on the trigger events.

17
Effective Dates and Triggers

• On March 10, ED issued Dear Colleague Letter
  GEN-06-02 establishing trigger events for loan
  program changes.
• This DCL is available at www.nchelp.org.
• Forthcoming DCLs or Federal Registers will likely
  set additional trigger events.

18

• Need Analysis Changes

19
Need Analysis Changes

• The changes to need analysis have two different
  effective dates
• July 1, 2006
• For determinations of need for periods of
  enrollment beginning on or after July 1, 2007.
• The 2007 changes do not present any significant
  issues
• The trigger date is very clear
• The implementation date is far enough out to
  allow for orderly change.

20
Need Analysis Changes

• The changes with a July 1, 2006 effective date
  create some challenges
• What is the trigger event determinations of
  need for periods of enrollment on or after July
  1, 2006 or something else?
• Paper FAFSAs are already printed with pre-recon
  bill rules.
• FAFSA on the Web does not take the new rules into
  account.

21
Need Analysis Changes

• NASFAA sent letter to ED on February 6
  suggesting
• FAFSA on the Web be modified as quickly as
  possible
• Using the CPS to notify paper filers to make
  corrections based on the new law
• Use the same method to notify FOTW users who
  filed before changes are made to make
  corrections.
• Each day that passes without integrating these
  changes more potential corrections.

22
Need Analysis Changes

• The recon bill changed the definition of
  independent student.
• Previously, the student had to be a veteran of
  the Armed Forces to be independent.
• This definition has been expanded to include
  students currently serving on active duty in the
  Armed Forces for other than training purposes.
  480(d)(3)
• This addresses the barstool versus hospital
  bed inequity.

23
Need Analysis Changes

• Eligibility for the Simplified Needs Test and
  Automatic Zero EFC has been changed by the recon
  bill.
• The receipt of benefits under a means-tested
  Federal benefit program in the past 12 months
  qualifies a student or family for simplified
  needs testing and automatic zero.
• The new law provides examples of means-tested
  Federal benefit programs, and allows ED to
  identify others.

24
Need Analysis Changes

• Means-tested benefits programs specifically
  mentioned in the law are the
• Supplemental Social Security Income
• Food stamps
• Free and reduced price school lunch program
• Temporary Assistance for Needy Families
• WIC nutrition program 479(d)

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Need Analysis Changes

• For a dependent student, if the student or
  students parents received benefits at some time
  during the previous 12-month period under such a
  program
• The family qualifies for the simplified needs
  test, 479(b)(1)(A) and
• If the parents adjusted gross income is 20,000
  or less, also qualifies for automatic zero EFC.
  479(c)(1)(B)

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Need Analysis Changes

• For an independent student, if the student AND
  spouse (if any) received benefits at some time
  during the previous 12-month period under such a
  program, they qualify for the simplified needs
  test. 479(b)(1)(B)

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Need Analysis Changes

• An independent student with dependents other than
  a spouse qualifies for the simplified needs test
  and automatic zero EFC if the student and spouse
  (if any)
• Received benefits at some time during the
  previous 12-month period under such a program,
  and
• Adjusted gross income is 20,000 or less.
  479(c)(2)

28
Need Analysis Changes

• Another 2006 need analysis change deals with the
  treatment of qualified education benefits.
• Under previous law
• The treatment of 529 education savings plans
  (e.g. VEST, Oregon College Savings Plan) and
  Coverdell education savings accounts was not
  addressed, and
• 529 prepaid tuition plans (e.g. VPEP) were
  defined as being part of other financial
  assistance (EFA)

29
Need Analysis Changes

• Now, all of these plans fall under the definition
  qualified education benefits and are considered
  assets. 480(f)(1)
• The law also stipulates that a qualified
  education benefit cannot be considered an asset
  of a dependent student. 480(f)(3)

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Need Analysis Changes

• The recon bill also changed other definitions
  effective July 1, 2006.
• The definition of asset was changed to exclude
  the net value of a small business if
• The business has 100 or less full-time or FTE
  employees, and
• The business (or any part of it) is owned and
  controlled by the family. 480(f)(2)(C)

31
Need Analysis Changes

• The definition of EFA now excludes non-Title IV
  State assistance designated to offset a specific
  component of COA. 480(j)(3)
• An example might be payments from a Department of
  Rehabilitative Services.
• Some changes were made to the components of the
  employment expense allowance for clarifying
  purposes. 478(h)

32
Need Analysis Changes

• The recon bill makes several changes for 2007
  that will have the effect of lowering EFC.
• Income protection allowances will be increased at
  least 5 in 2007.
• ED has new authority to increase these allowances
  annually based on
• The percentage increase in the Consumer Price
  Index
• Rounding to the nearest 10. 478(b)(2)

33
Need Analysis Changes

• For dependent students, the student income
  protection allowance will increase from 2,200 to
  3,000. 475(g)(2)(D)
• For independent students without dependents other
  than a spouse, the allowances increase from
• 5,000 to 6,050 for a single student
• 5,000 to 6,050 for married students where both
  are enrolled
• 8,000 to 9,700 for married students where one
  is enrolled. 476(b)(1)(A)(iv)

34
Need Analysis Changes

• Assets will also be treated differently in 2007
• For dependent students, the student contribution
  is being reduced from 35 to 20 475(h)
• For independent students without dependents other
  than a spouse, the asset conversion rate will
  drop from 35 to 20 476(c)(4)
• For independent students with dependents, the
  asset conversion rate drops from 12 to 7.
  477(c)(4)

35
Cost of Attendance

• The recon bill makes two changes to the law
  regarding cost of attendance.
• Before this bill, COA for less than half-time
  students was limited to
• Tuition and fees
• Allowance for books, supplies and transportation
• Allowance for dependent care. 472(4)

36
Cost of Attendance

• Room and board is now included for less than
  half-time students, but with conditions
• These costs are limited to a maximum of 3
  semesters or the equivalent, and
• No more than 2 semesters or the equivalent can be
  consecutive.
• This provision is effective July 1, 2006.

37
Cost of Attendance

• A new allowable component of COA was added by the
  recon bill for students in programs requiring
  professional licensure or certification.
  472(13)
• The one-time cost of obtaining the first
  professional credentials can be added to COA at
  the schools option.
• The school determines the amount of this
  allowance.

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• Student, Borrower and Program Eligibility

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Student Borrower Eligibility

• Eligibility for students convicted of drug
  offenses has been liberalized by the recon bill.
• Under the previous law, the student lost
  eligibility for a specified period of time
  regardless of
• when the offense occurred, and
• whether the student was receiving Title IV aid at
  the time.

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Student Borrower Eligibility

• Now, the conduct leading to the conviction has to
  occur during a period of enrollment for which the
  student was receiving Title IV
• Grants
• Loans
• Work assistance. 484(r)(1)
• If the conduct leading to the conviction does not
  occur while the student is receiving Title IV
  aid, a conviction has no effect on the students
  future eligibility for aid.

41
Student Borrower Eligibility

• The recon bill adds a new eligibility condition
  concerning fraud in obtaining funds under Title
  IV.
• Students obtaining Title IV funds through fraud
  are ineligible for aid if they have
• Been convicted
• Pled nolo contendere
• Pled guilty. 484(a)(6)

42
Student Borrower Eligibility

• This provision was also added for parents or
  graduate or professional students under the PLUS
  program. 424B(a)(1)(B)
• Students and parents regain eligibility when they
  have completed repayment to ED or another holder
  of the loan.

43
Program Eligibility

• Before the recon bill, the academic year for
  clock hour programs was
• A minimum of 30 weeks
• During which the student was expected to complete
  900 clock hours.
• This meant that students typically could not earn
  more than 30 clock hours in a given week.

44
Program Eligibility

• Schools wishing to run clock hour programs like a
  typical 40-hour workweek were effectively
  prevented from doing so by this rule.
• The recon bill reduces the minimum number of
  weeks to 26 for clock hour programs to address
  this issue. 481(a)(2)(A)(ii)
• This change is effective July 1, 2006.

45
Student-Program Eligibility

• Under the previous law, students were generally
  prohibited from receiving grants, loans or work
  assistance for correspondence courses.
• The exception was if the course led to associate,
  bachelor or graduate degree.
• This law limited the growth of distance education
  by treating correspondence and telecommunications
  courses as the same thing.

46
Student-Program Eligibility

• Students were ineligible for aid under previous
  law if the school offered more than 50 of its
  total courses via telecommunications and
  correspondence.
• The recon bill eliminated the 50 rule, making
  more students eligible for aid, thus allowing for
  greater use of distance education. 484(l)(1)(B)
• A related change allows students to receive aid
  for certificate programs of less than one year
  that are offered by telecommunications.
  484(l)(1)(A)

47
Program Eligibility

• A corresponding change was made to the definition
  of institution of higher education.
• Before the recon bill, this definition excluded a
  school that offered more than 50 of the schools
  courses by correspondence.
• The recon bill changes this definition to exclude
  telecommunications courses from the 50 limit.
  102(a)(3)(A)

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Program Eligibility

• A program can be offered in whole or in part
  through telecommunications if it meets the
  following criteria
• It is otherwise eligible
• It is offered by a U.S. school (foreign schools
  are specifically excluded)
• The schools accrediting agency determines the
  school has the capability to effectively deliver
  distance education programs
• The evaluation of distance education is in the
  accrediting agencys scope of review
• The accrediting agency is approved by ED.
  481(b)(3)

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• Academic Competitiveness Grant Program

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Academic Competitiveness Grants

• The recon bill created a new form of grant aid by
  establishing the Academic Competitiveness Grant
  Program.
• It will be some time before final answers are
  available
• April 4 Dear Colleague Letter GEN-06-04
• May 1 Target for final regulations to be issued
• July 1 Identification of eligible high school
  programs

51
Academic Competitiveness Grants

• The grants will go by different names based upon
  grade level
• Academic Competitiveness Grant for the first and
  second year of a program of undergraduate
  education
• National Science and Mathematics Access to Retain
  Talent Grant or National SMART Grant for the
  third and fourth year of a program of
  undergraduate education.

52
Academic Competitiveness Grants

• Grade level is also a determining factor in the
  grant amount
• 750 for the first academic year
• 1,300 for the second academic year
• 4,000 for the third or fourth academic year
• The amount, in combination with the Federal Pell
  Grant and other financial assistance cannot
  exceed the COA.
• These grant amounts are not as simple as they
  appear.

53
Academic Competitiveness Grants

• ED has been authorized to spend a certain amount
  of money on these grants each year
• 790,000,000 for fiscal year 2006
• 850,000,000 for fiscal year 2007
• 920,000,000 for fiscal year 2008
• 960,000,000 for fiscal year 2009
• 1,010,000,000 for fiscal year 2010
• As a result, if there are more eligible students
  than there is money, the grant amounts could
  change.

54
Academic Competitiveness Grants

• If the amount made available each year is less
  than the amount required to provide grants to all
  eligible students, the amount of each grant to
  each eligible student shall be ratably reduced.
• If additional amounts are appropriated for any
  such fiscal year, such reduced amounts shall be
  increased on the same basis as they were reduced.
• At the end of a fiscal year, all excess funds
  shall remain available for awarding grants during
  the subsequent fiscal year.

55
Academic Competitiveness Grants

• Eligibility for these grants also varies by grade
  level, but at all grade levels the student must
  be
• Attending a 2- or 4-year degree granting school
• A U.S. citizen
• A full-time student
• Pell eligible
• Beyond these common requirements, eligibility
  differs based on grade level.

56
Academic Competitiveness Grants

• In the case of a student enrolled or accepted for
  enrollment in the first academic year
• Has successfully completed, after January 1,
  2006, a rigorous secondary school program of
  study established by a State or local educational
  agency and recognized as such by the Secretary,
  and
• Has not been previously enrolled in a program of
  undergraduate education.

57
Academic Competitiveness Grants

• In the case of a student enrolled or accepted for
  enrollment in the second academic year
• Has successfully completed, after January 1,
  2005, a rigorous secondary school program of
  study established by a State or local educational
  agency and recognized as such by the Secretary
  and
• Has obtained a cumulative grade point average of
  at least 3.0 at the end of the first academic
  year of such program of undergraduate education

58
Academic Competitiveness Grants

• In the case of a student enrolled or accepted for
  enrollment in the third or fourth academic year
• Is pursing a major in the physical, life, or
  computer sciences, mathematics, technology, or
  engineering (as determined by the Secretary
  pursuant to regulations) or
• Is pursing a major in a foreign language that the
  Secretary, in consultation with the Director of
  National Intelligence, determines is critical to
  national security of the U.S., and
• Has obtained a cumulative grade point average of
  at least 3.0 in the coursework required for the
  major.

59
Academic Competitiveness Grants
60
Academic Competitiveness Grants

• The grants are limited to
• 1 academic year for the first academic year of a
  program of undergraduate education
• 1 academic year for the second academic year of a
  program of undergraduate education
• 2 academic years for a borrower who is in his/her
  third or fourth year of a program of
  undergraduate education
• The authority to make Academic Competitiveness
  Grants expires at the end of academic year
  2010-2011.

61
Academic Competitiveness Grants

• Eligibility and awarding 1st and 2nd year
• ED will identify and notify potentially eligible
  students
• Student will complete a FAFSA addendum
• ED will notify school of students likely
  eligibility
• School will verify students eligibility
• School will submit payment information records
  through COD
• ED provides funds to school

62
Academic Competitiveness Grants
63
Academic Competitiveness Grants

• Eligibility and awarding 3rd and 4th year
• School has sole responsibility for identifying
  eligible students
• Eligible majors will be identified by NCES
  Classification of Instruction Program (CIP) codes
  http//nces.ed.gov/pubs2002/cip2000/
• School will submit payment information records
  through COD
• ED provides funds to school

64

• Loan Program Changes

65
Interest Rates - Stafford

• The reconciliation bill allows for changes in
  interest rates
• Higher Education Act already called for Stafford
  loan rate to change 427A(l)(1)
• Applies to Stafford loans (sub and unsub) with a
  first disbursement on or after July 1, 2006
• Rate is fixed at 6.8
• Result borrowers with both variable and fixed
  rate loans

66
Interest Rates - PLUS

• Before the recon bill, the PLUS rate was
  scheduled to change to a 7.9 fixed rate
• Recon bill changed this for FFELP borrowers
  427A(l)(2)
• Trigger event is loans with a first disbursement
  on or after July 1, 2006
• Rate is fixed at 8.5

67
Interest Rates - PLUS

• The recon bill did NOT make a corresponding
  change to the Direct Loan PLUS rate.
• This was a drafting error and was unintentional.
• The DL PLUS rate will be 7.9 unless Congress
  takes additional action.

68
Interest Rates - Consolidation

• Consolidation rate did not change
• Fixed rate based on the weighted average of the
  loans being consolidated
• Cap is 8.25
• FFELP PLUS borrowers will be paying more (8.5)
  than the Consolidation cap (8.25)
• Unless Congress acts, FFELP PLUS borrowers could
  consolidate to obtain a lower rate

69
Interest Rate Disclosures

• With interest rate changes, how will borrowers be
  notified?
• The Stafford and PLUS MPNs have identical
  interest rate language.

70
Interest Rate Disclosures

• The current Borrower Rights and Responsibilities
  statements reference variable rates
• Stafford

71
Interest Rate Disclosures

• The PLUS Borrower Rights and Responsibilities
  statement is much the same

72
Interest Rate Disclosures

• There is not enough time between now and July 1
  to revise these MPNs.
• Existing MPN expiration dates are expected to be
  extended two years.
• To disclose interest rate and other changes to
  borrowers obtaining new loans
• Promissory note addendum
• Revised plain language disclosure.

73
Interest Rate Disclosures

• NCHELP has submitted a proposed MPN addendum and
  plain language disclosure to ED.
• The proposal was for a single addendum to cover
  Stafford, PLUS and Consolidation changes.
• ED has indicated it will probably require
  separate addenda for Stafford, PLUS and
  Consolidation.
• Addenda will probably be available the week of
  April 17.

74
Interest Rate Disclosures

• The addenda would be
• Integrated into existing e-sign processes
• Given in hard copy to borrowers using a paper
  MPN.
• The PLD would be provided to all borrowers
  obtaining new loans under an existing MPN.

75

• Loan Fees

76
Origination Fees

• One of the best provisions of the recon bill is
  the gradual elimination (for FFELP) and reduction
  (for DL) of origination fees.
• Since the DL program does not have a guarantee
  fee, the DL origination fee is 1 higher under
  both previous and current law.

77
Origination Fees

• The origination fee reductions apply to Stafford
  loans only not PLUS.
• The fee reductions are based on the first
  disbursement date, so schools will have some
  degree of control over the fee a student pays.

78
Origination Fees

• The following chart shows the schedule for
  reducing the origination fees
• 438(c)(2)(B) and 455(c)(2)

79
Origination Fees

• Before the recon bill, the Secretary had the
  authority to reduce interest rates for DL
  borrowers to encourage on-time repayment if the
  reductions were
• Cost neutral, and
• In the best financial interest of the Federal
  Government.

80
Origination Fees

• The law now allows the Secretary to also reduce
  the DL origination fee. 455(b)(8)(A)
• The cost neutrality and best financial interest
  standards also apply to any potential reduction
  in the DL origination fee.

81
Federal Default Fee

• Until July 1, 2006 guarantors have the authority
  to charge a guarantee fee not to exceed 1.
• The reconciliation bill eliminates this fee but
  substitutes a very different 1 fee.
• For loans guaranteed on or after July 1, 2006
  guarantors must pay a 1 Federal default fee into
  their Federal Reserve Funds. 428(b)(1)(H)(ii),
  428H(h)
• This applies to Stafford and PLUS loans only.

82
Federal Default Fee

• This applies to all guarantors, including those
  operating under a VFA. 428A(a)(1)(C)
• The Federal Default fee may be
• Deducted from the borrowers proceeds, or
• Paid from other non-Federal sources.
• Other non-Federal sources would probably mean the
  guarantors Operating Fund.

83
Federal Default Fee

• The guarantee fee and Federal Default fee have
  some obvious similarities
• Both are 1
• Both can be deducted from loan proceeds.
• However, if a guarantor chooses not to charge the
  borrower, the fees are very different
• For the guarantee fee, it represents revenue not
  received
• For the Federal Default fee, it represents an
  expense to the agencys Operating Fund.

84
Federal Default Fee

• Guarantors use their Operating Funds to pay for
  most of their activities including
• Training
• Publications
• Default prevention activities
• Sponsorships.
• To the extent that the guarantor pays the Federal
  default fee on the borrowers behalf, this is
  less money the guarantor can spend on these
  activities.

85
Federal Default Fee

• Some guarantors have already announced they will
  deduct the fee from the borrowers proceeds.
• It is inevitable that most if not all
  guarantors will have to charge the borrower this
  fee in the future, unless.
• Lenders may choose to pay this fee on the
  borrowers behalf.
• ECMC has elected to pay this fee on the
  borrowers behalf during the 2006-2007 academic
  year.

86
Federal Default Fee

• There is one operational note schools need to
  keep in mind based on the effective date of the
  fee.
• Because the fee is based on the date of
  guarantee, schools may not know whether a fee was
  imposed until after the loan is guaranteed.
• Another operational issue is that disbursement
  amounts could vary by guarantor for the same
  gross loan amount.

87

• Graduate and Professional PLUS Loans

88
Graduate PLUS Loans

• Section 428B was amended to make graduate and
  professional students eligible for PLUS loans.
• Dear Colleague Letter GEN-06-02 establishes the
  trigger date for these loans.
• For FFELP, the trigger is loans certified on or
  after July 1, 2006.
• For DL, the trigger is loans originated on or
  after July 1, 2006.

89
Graduate PLUS Loans

• The recon bill simply added the phrase graduate
  or professional student before each instance of
  the word parent.
• This means that all eligibility and qualifying
  conditions that previously applied only to
  parents will also apply to graduate and
  professional students, notably
• No adverse credit history
• Determining maximum loan amount COA less EFA
• Interest rate
• Repayment requirements.

90
Graduate PLUS Loans

• Dear Colleague Letter GEN-06-02 adds two
  requirements for student PLUS loans.
• Students are required to complete the FAFSA
• Students must first apply for their maximum
  annual Stafford eligibility, both subsidized and
  unsubsidized.

91
Graduate PLUS Loans

• How will students apply?
• Every graduate or professional student obtaining
  a PLUS loan will have to sign a new note.
• FFEL community has made recommendations to ED
• Use the current form with an addendum until a new
  form is available
• Have the student complete both the parent and
  student sections

92
Graduate PLUS Loans

• Law and regulations require PLUS repayment to
  begin within 60 days of final disbursement.
• Graduate and professional students are not exempt
  from this requirement.
• Will student PLUS borrowers be able to defer or
  forebear payments while in school?

93
Graduate PLUS Loans

• Yes - students in repayment are eligible for an
  in-school deferment.
• For new borrowers on or after July 1, 1993 the
  regulations say

94
Graduate PLUS Loans

• The student PLUS borrower should not have to file
  a deferment form

95
Graduate PLUS Loans

• Some other issues have raised questions
• Repayment alignment with Stafford - This will
  probably be an issue.
• Cohort default rates Graduate PLUS loans have
  no effect under current law.
• Entrance/Exit Counseling There is no
  requirement for PLUS loans.

96
Graduate PLUS Loans

• Electronic processing will require Commonline and
  CRC changes.
• NCHELP Electronic Standards Committee will
  publish an addendum with new codes (expected week
  of 4/17)
• Loan type for CL4 and CL5 GB
• Loan type for CRC - ltltFFELPGRADPLUSgtgt
• Form Type for CL4, CL5 G

97
Graduate PLUS Loans

• What is ECMC doing about this?
• Most PLUS loans go through our on-line
  pre-approval process
• Rewrite the introductory page
• Planning to add the addendum to the e-sign
  process
• For paper applications, include the addendum in
  materials sent to the borrower
• Rewrite other non-application materials
• Look at PLUS reports to determine what changes
  are needed

98

• Loan Limits

99
Loan Limit Increases

• The reconciliation bill increases loan limits in
  a limited way.
• DCL GEN-06-02 sets the triggers as follows
• For FFEL, loans certified on or after July 1,
  2007
• For DL, loans originated on or after July 1, 2007.

100
Loan Limit Increases

• The annual loan limit for students who have not
  completed the first year of a program of
  undergraduate study is raised to 3,500 up from
  2,625. 428(b)(1)(A)(i)(I)
• For students at the 02 grade level, the annual
  loan limit is raised from 3,500 to 4,500.
  428(b)(1)(A)(ii)(I)
• This does not raise the aggregate undergraduate
  loan limit.

101
Loan Limit Increases

• The recon bill raises the loan limits for some
  preparatory coursework and teacher certification
  programs.
• One limit did not change - 4,000 for preparatory
  coursework necessary for enrollment in an
  undergraduate degree or certificate program.

102
Loan Limit Increases

• The previous limit of 5,000 is raised to 7,000
  for
• Preparatory coursework necessary for enrollment
  in a graduate or professional program,
  428H(d)(2)(D)(i) and
• Teacher certification programs.
  428H(d)(2)(D)(ii)
• The trigger event is loans certified or
  originated on or after July 1, 2007.

103
Loan Limit Increases

• The annual unsubsidized loan limit for graduate
  and professional students will rise from 10,000
  to 12,000. 428H(d)(2)(C)
• The trigger event is loans certified or
  originated on or after July 1, 2007.

104
Loan Limit Increases

• The combined aggregate limit for graduate and
  professional students of 138,500 is not found in
  law only in regulation. 682.604(e)(2)
• By changing the law, it appears the Secretary may
  have to increase the aggregate limit found in
  regulation. 428H(d)(3)
• DCL GEN-06-02 did not address this issue.

105

• Disbursement Rule Changes

106
Disbursement Rule Changes

• The recon bill restores two popular disbursement
  rules that sunset on October 1, 2002
• Qualifying schools do not have to make multiple
  disbursements for single-term (one semester, one
  trimester, one quarter or 4 months) loans
  428G(a)(3)
• Qualifying schools do not have to wait 30 days to
  deliver to first-year first-time borrowers
  428G(b)(1)

107
Disbursement Rule Changes

• To qualify, schools have to have a cohort default
  rate of less than 10 for each of the most recent
  3 years
• This change took effect on the date of enactment
  - February 8, 2006.
• The trigger is any disbursement made on or after
  February 8.

108
Disbursement Rule Changes

• The bill also modified disbursement rules for
  students studying abroad. 428(b)(1)(N)(2)
• Law previously required disbursements directly to
  the student upon the students request if
• Student was enrolled in a U.S. school in a study
  abroad program, or
• Student was enrolled in a foreign school

109
Disbursement Rule Changes

• These rules are now slightly different for study
  abroad students
• Student can still receive a direct disbursement
  upon request, however
• Disbursement cannot be made until the enrollment
  is verified by the lender or guarantor.
• The trigger is loans with a first disbursement on
  or after July 1, 2006.

110
Disbursement Rule Changes

• For students enrolled in an eligible foreign
  institution
• The request for disbursement directly to the
  student must be made by the foreign institution,
  and
• Disbursement cannot be made until the enrollment
  is verified by the lender or guarantor.
• The trigger is loans disbursed on or after July
  1, 2006.
• Foreign schools are no longer exempt from
  multiple disbursement requirements, but are
  eligible for low cohort rate exemptions.

111
Disbursement Rule Changes

• ED already had rules in place requiring
  verification of enrollment for students enrolled
  in a foreign school. DCL G-03-348
• Lenders and guarantors will have to determine
  method for verifying enrollment for students in
  study abroad programs.

112
Disbursement Rule Changes

• School responsibilities for late disbursements
  are changed by the recon bill.
• Once a school has determined a borrowers
  eligibility for a late disbursement or
  post-withdrawal disbursement, the school must
• Contact the borrower
• Explain to the borrower the obligation to repay
  the loan funds following such a disbursement

113
Disbursement Rule Changes

• The school must then
• Obtain the borrowers confirmation that the loan
  funds are still required
• Document the borrowers file with the result of
  such contact and the final determination made
  concerning such disbursement. 484B(a)(4)(A)

114
Disbursement Rule Changes

• The recon bill made some other minor disbursement
  rule changes.
• Law previously allowed lenders to fund
  disbursements through escrow accounts up to 21
  days before disbursement. Maximum is now 10 days.
  428(i)(1)
• Limits the interest lenders can receive on loans
  disbursed through an escrow agent to no more than
  3 days before the first disbursement.
  428(a)(3)(A)(v)
• Eligible foreign schools are no longer exempt
  from the multiple disbursement requirements.
  428G(e)

115

• Direct Loan Repayment Plans

116
Direct Loan Repayment Plans

• The recon bill requires DL repayment plans to
  conform to those offered in FFEL.
• 455(d)(1)(A-C)
• This applies to the following repayment plans
• Standard
• Graduated
• Extended.
• FFEL will continue to offer income-sensitive,
  while DL offers income contingent repayment
  plans.

117
Direct Loan Repayment Plans

• Before the recon bill, DLs graduated plan
  allowed terms from 12 to 30 years based upon the
  balance.
• Now, the DL graduated plan will be limited to 10
  years regardless of the balance.
• The trigger is DL borrowers entering repayment on
  or after July 1, 2006.

118
Direct Loan Repayment Plans

• Direct Loans extended plan also allowed terms
  from 12 to 30 years based upon the balance.
• DLs extended plan will now mirror FFELPs
• Applies to new borrowers on/after October 7, 1998
• Must have more than 30,000 in loans after
  10/7/98
• Repayment cannot exceed 25 years
• The trigger is DL borrowers entering repayment on
  or after July 1, 2006.

119
Direct Loan Repayment Plans

• These changes also affect the repayment plans
  offered to DL Consolidation borrowers.
• The options will be as follows
• Standard or graduated 10-year maximum term
• Extended 25-year maximum for new borrowers
  on/after 10/7/1998 with 30,000 debt
• For borrowers with 30,000 debt
• 30,001 through 39,999 20-year maximum term
• 40,000 through 59,999 25-year maximum term
• 60,000 and above 30-year maximum term

120

• Consolidation Loans

121
Consolidation Loans

• In some respects, the recon bill is as important
  for what it did not change about Consolidation
• The single holder rule was retained
• The interest rate is unchanged.
• The changes that were made
• Add parity between Direct Loan and FFELP
  Consolidation loans
• Generally put more restrictions on Consolidation
  loans regardless of the program.

122
Consolidation Loans

• Two sections of the Higher Education Act
  regarding DL Consolidation loans were changed.
• Before the recon bill, the HEA required parallel
  terms, conditions, benefits, and amounts for
  FFELP and DL Stafford and PLUS loans but not
  Consolidation.
• DL Consolidation loans were added to this
  requirement. 455(a)(1)

123
Consolidation Loans

• Additional language was added to this section
  requiring
• DL Consolidation borrowers to meet the same
  eligibility requirements as FFELP Consolidation
  borrowers
• The Secretary has to comply with the same
  requirements as a FFELP Consolidation lender.

124
Consolidation Loans

• One effect of this change is the elimination of
  in-school consolidation in both DL and FFELP.
• A change in the law eliminates the ability of a
  borrower to request to enter repayment before the
  end of the grace period. 428(b)(7)
• Trigger borrower requests received by lenders
  on or after July 1, 2006

125
Consolidation Loans

• The law requires Consolidation borrowers to be in
  a repayment status, so this new definition
  effectively eliminates in-school consolidation.
  428C(a)(3)
• This also eliminates in-school consolidation in
  DL due to the requirement for parallel terms.
• The trigger for this change is Consolidation
  applications received on or after July 1, 2006.

126
Consolidation Loans

• The recon bill also eliminates spousal
  consolidation.
• This applies to both FFEL and DL.
• The trigger is Consolidation applications
  received on or after July 1, 2006.

127
Consolidation Loans

• The recon bill eliminates the ability of a
  borrower to reconsolidate between the FFEL and DL
  programs after receiving a Consolidation loan.
  428C(a)(3)(B)(i)
• There is an exception to this if
• A FFELP Consolidation borrower seeks a DL
  Consolidation to obtain an income-contingent
  repayment plan, and
• The FFELP Consolidation loan has been submitted
  to the guarantor for default aversion assistance.
  428C(a)(3)(B)(v)

128
Consolidation Loans

• ED can offer a FFELP borrower a DL Consolidation
  loan if
• A lender denies an eligible borrowers
  Consolidation application, or an application with
  income-sensitive repayment terms
• To resolve a default. 428C(b)(5)

129

• Deferment Forbearance Changes

130
Deferment and Forbearance

• A new deferment for military service was added to
  the Higher Education Act
• Section 428(b)(1)(M) adds a new deferment for
  military service for FFELP borrowers
• Direct Loan borrowers get the same benefit
  455(f)(2)(C)
• Perkins borrowers were also included in this
  change 464(c)(2)(A)
• Effective date loans for which the first
  disbursement is made on or after July 1, 2001.

131
Deferment and Forbearance

• Consolidation loans also qualify for this
  deferment, but there is a catch.
• All of the borrowers Title IV loans being
  consolidated must have a first disbursement on or
  after July 1, 2001.

132
Deferment and Forbearance

• The effective date creates some issues
• Deferments have typically been borrower-based,
  NOT loan-based
• Creates situation where a borrower may have some
  loans in deferment but others in repayment
• Because the effective date is retroactive,
  borrower could have made payments on loans that
  could have been in deferment
• The law addresses this by saying Nothing in the
  amendments made by this section shall be
  construed to authorize any refunding of any
  repayment of a loan.

133
Deferment and Forbearance

• Deferment is limited to not in excess of 3
  years
• To qualify the borrower must be
• serving on active duty during a war or other
  military operation or national emergency or
• performing qualifying National Guard duty during
  a war or other military operation or national
  emergency
• This wording requires that the law contain some
  definitions.

134
Deferment and Forbearance

• Active Duty
• The term active duty' has the meaning given
  such term in section 101(d)(1) of title 10,
  United States Code, except that such term does
  not include active duty for training or
  attendance at a service school.
• Section 101(d)(1) of title 10, USC The term
  active duty means full-time duty in the active
  military service of the United States. Such term
  includes full-time training duty, annual training
  duty, and attendance, while in the active
  military service, at a school designated as a
  service school by law or by the Secretary of the
  military department concerned. Such term does not
  include full-time National Guard duty.

135
Deferment and Forbearance

• Military Operation
• a contingency operation as such term is defined
  in section 101(a)(13) of title 10, United States
  Code.
• Section 101(a)(13) of title 10, USC The term
  contingency operation means a military
  operation that
• (A) is designated by the Secretary of Defense as
  an operation in which members of the armed forces
  are or may become involved in military actions,
  operations, or hostilities against an enemy of
  the United States or against an opposing military
  force or
• (B) results in the call or order to, or retention
  on, active duty of members of the uniformed
  services under section 688, 12301 (a), 12302,
  12304, 12305, or 12406 of this title, chapter 15
  of this title, or any other provision of law
  during a war or during a national emergency
  declared by the President or Congress.

136
Deferment and Forbearance

• National Emergency the national emergency by
  reason of certain terrorist attacks declared by
  the President on September 14, 2001, or
  subsequent national emergencies declared by the
  President by reason of terrorist attacks.

137
Deferment and Forbearance

• Serving on active duty during a war or other
  military operation or national emergency means
  service by an individual who is
• a Reserve of an Armed Force ordered to active
  duty under section 12301(a), 12301(g), 12302,
  12304, or 12306 of title 10, United States Code,
  or any retired member of an Armed Force ordered
  to active duty under section 688 of such title,
  for service in connection with a war or other
  military operation or national emergency,
  regardless of the location at which such active
  duty service is performed and
• any other member of an Armed Force on active
  duty in connection with such emergency or
  subsequent actions or conditions who has been
  assigned to a duty station at a location other
  than the location at which such member is
  normally assigned.

138
Deferment and Forbearance

• Qualifying National Guard Duty
• service as a member of the National Guard on
  full-time National Guard duty (as defined in
  section 101(d)(5) of title 10, United States
  Code) under a call to active service authorized
  by the President or the Secretary of Defense for
  a period of more than 30 consecutive days under
  section 502(f) of title 32, United States Code,
  in connection with a war, other military
  operation, or a national emergency declared by
  the President and supported by Federal funds.
• Section 101(d)(5) of title 10, USC The term
  full-time National Guard duty means training or
  other duty, other than inactive duty, performed
  by a member of the Army National Guard of the
  United States or the Air National Guard of the
  United States in the members status as a member
  of the National Guard of a State or territory,
  the Commonwealth of Puerto Rico, or the District
  of Columbia under section 316, 502, 503, 504, or
  505 of title 32 for which the member is entitled
  to pay from the United States or for which the
  member has waived pay from the United States.

139
Deferment and Forbearance

• This will require a change in the PUB deferment
  form or creation of a new form.
• DCL GEN-06-02 lists the documentation
  requirements
• Copy of the borrowers military orders, or
• Statement from the borrowers commanding or
  personnel officer indicating the borrower is
  serving in a capacity that meets the terms of
  this deferment

140
Deferment and Forbearance

• The recon bill makes it easier for borrowers to
  obtain forbearance.
• It eliminated the requirement that forbearance be
  in writing, a provision originally included in
  the Fed Up legislation. 428(c)(3)
• This applies to all types of forbearance.
• The trigger is agreements entered into or
  renegotiated with a borrower on or after July 1,
  2006.

141
Deferment and Forbearance

• To document the forbearance, the lender must
• confirm the agreement of the borrower by notice
  to the borrower from the lender, and
• recording the terms in the borrowers file.
  428(c)(10)
• DCL GEN-06-02 indicates these additional steps
  apply to non-written forbearance.

142

• School as Lender

143
School as Lender

• Here is what is important to know about school as
  lender if you are not a school lender now, you
  can probably forget about being one.
• Two new restrictions on school as lender are in
  the recon bill
• The school had to meet the requirements to be an
  eligible lender as they existed on February 7,
  and
• The school has to have made loans before April 1,
  2006. 435(d)(2)(A)(ix)
• Schools that have been lenders may continue to
  make loans, but with some new conditions.

144
School as Lender

• Under the new law, school lenders
• Cannot make any loans to undergraduate students
• Can make only Stafford (sub and unsub) loans to
  graduate or professional students
• Cannot make a loan to a student at another
  institution
• Must offer a lower origination fee and/or
  interest rate than allowed by law. 435(d)(2)(A)

145
School as Lender

• Other new restrictions on school lenders include
• Cannot have a cohort default rate greater than
  10 (was 15)
• Must use a competitive basis for awarding a
  contract for financing, servicing or
  administering loans
• Must submit an annual compliance audit to ED
• Earnings must be used for need-based grant aid
  and must supplement, not supplant funds that
  would otherwise go toward grant aid.
  435(d)(2)(A), (C)

146

• Miscellaneous
• Part B Changes

147
Miscellaneous Part B Changes

• There are a couple other changes to Part B of the
  HEA worth mentioning
• ED now has the authority to standardize forms and
  procedures regarding the anticipated graduation
  date. 432(l)(1)(H)
• ED funding in Section 458 of the HEA is no longer
  mandatory. It is now subject to the annual
  appropriations process. 458

148

• Reductions in Lender Income

149
Reductions in Lender Income

• The majority of savings as budget scored by the
  Congressional Budget Office in the recon bill
  are reductions in lender income.
• Should schools care?
• Lenders will have less money to spend on
• Borrower benefits
• Publications and other support services
• Sponsorships of professional associations.

150
Reductions in Lender Income

• Some of the ways lender income will be reduced
  are
• For loans with a first disbursement on or after
  July 1, 2006, default claims will be paid at 97
  instead of 98 428(b)(1)(G)(ii)
• Lenders designated as exceptional performers will
  be paid 99 instead of 100 on default claims
  428I(b)(1)
• Elimination of 9.5 floor income loans
  438(b)(2)(B)(vi)
• For loans first disbursed on or after April 1,
  2006, rebates of excess interest to ED
  438(b)(2)(I)(v)

151

• Teacher Loan Forgiveness

152
Teacher Loan Forgiveness

• The recon bill extended a teacher loan
  forgiveness program that had effectively expired.
• The Teacher-Taxpayer Protection Act of 2004
  provided for increased loan forgiveness of up to
  17,500 for certain Stafford borrowers.
• This law took effect on October 30, 2004.

153
Teacher Loan Forgiveness

• Under this law, to be eligible the borrower had
  to teach for 5 years in a low-income (Title I)
  school as a
• Secondary school math or science teacher, or
• Special education teacher, and
• Be highly qualified as defined by No Child Left
  Behind.

154
Teacher Loan Forgiveness

• The Teacher-Taxpayer Act was passed as a budget
  bill, meaning it expired at the end of the 2005
  Federal fiscal year September 30, 2005.
• The recon bill retroactively eliminated the
  ending date for this program ensuring no break in
  benefits under this program.

155
Teacher Loan Forgiveness

• One provision relating to teacher loan
  forgiveness has a July 1, 2006 (applications
  received on/after) effective date.
• The recon bill allows teachers in private schools
  to qualify for this program if they pass grade
  level and subject matter competency tests.
  428J(g)(3) and 460(g)(3)

156
Teacher Loan Forgiveness

• This leaves us with a teacher loan forgiveness
  program with confusing qualifications.
• To qualify for any teacher loan forgiveness, the
  borrower has to be a new borrower on or after
  October 1, 1998.
• To qualify for up to 5,000 in forgiveness, the
  qualifications vary depending upon when the 5
  years of qualifying teacher service began.

157
Teacher Loan Forgiveness

• If the teaching service began before 10/30/2004,
  the teacher has to be
• A full-time elementary teacher with demonstrated
  knowledge and teaching skills in reading,
  writing, math and other areas of elementary
  school curriculum.
• A full-time secondary school teacher in a subject
  relevant to the teachers academic major.
• If after 10/30/2004, the teacher has to be a
  full-time elementary or secondary school teacher
  and be highly qualified as defined by NCLB.

158
Teacher Loan Forgiveness

• To qualify for up to 17,500 in forgiveness, the
  teacher must be
• A full-time secondary school math or science
  teacher, or
• A special education teacher whose primary
  responsibility is to teach children with
  disabilities, and
• Highly qualified as defined by NCLB.

159

• Institutional Refunds

160
Institutional Refunds

• The recon bill made several changes to Section
  484B (Institutional Refunds) of the Higher
  Education Act.
• The first change clarifies a change made during
  the 1998 reauthorization concerning leaves of
  absence being treated as withdrawals.