Transcript FFY 2012 Budget

Washington Update
Vicki Shipley, NCHELP
MASFAP Conference
November 2011
1
Other Titles??





Show Me The Money!
I’m Made as Hell and I’m Not Going to
Take It Any Longer!
It’s The Economy Stupid!
Let’s Make A Deal!
A Trillion Here ….. A Trillion There!
2
Today’s Road Trip…..








Budget, Budget, Budget
It’s all about Pell
Federal Deficit Looms Large
Super Committee
FFY 2011 and 2012 Budgets
Guarantor VFAs and NFP Servicers
Other Issues on the Horizon
What’s Next?
3
Budget and Deficit Reduction
FFY
2011
FFY
2012
Debt
Ceiling
4
Pell Grant Shortfall

Demand for Pell has Increased Beyond ED &
Congressional Estimates





5.9 million recipients in 08-09 academic year
9+ million recipients estimated for 11-12AY
6% of domestic discretionary spending
Statutory Language Precludes Ratable
Reductions When Funding is Insufficient
Didn’t They Fix This in SAFRA?


“Mandatory funds” are contingent on enough
appropriations to fund $4,860 maximum grant
Shortfall could top $20b annually for foreseeable
future
5
Rising Cost of Pell Grants
$30.00
30
Source: Dept. of Education
25
I 20
n
B
i
l 15
l
i
o
n
s 10
$12.80
$10.00
$5.80
$5.80
$3.50
5
$1.50
$2.30
0
6
FFY 77
FFY 82
FFY 87
FFY 92
FFY 97
FFY 02
FFY 07
FFY 10
7
Pell Grant Shortfall

$5.7 Billion shortfall for the 2011-12 AY





Appropriations are insufficient to fully fund Pell
Growth in demand not properly projected
“Mandatory” funds provided in SAFRA assume
adequate appropriations
Funding gap for 2011-12 but the CR maintains
maximum Pell at $5,500
2012-13 outlook




Shortfall continues to grow
Appropriations likely to stay stagnant
Growth in Pell appropriations will need to come from
other programs
Fewer sources of mandatory funds
8
Pell Grant Protection Act

Maintain $5,550 maximum grant by “…making tough
choices to save over $100 billion over the next
decade….”

Eliminate year-round Pell (-$8b per year)



Eliminate loan subsidies for graduate Stafford Loans (-$2b)




Unsubsidized loans; 6.8% interest rate
$8.5b in new loan volume
Convert TEACH Grants to Presidential Teaching Fellows
(-$15b)


Poorly targeted subsidy
Allow split FFEL loans to be combined as “Direct FFELs”
(-$2b)
Convert Perkins to Direct Perkins (-$8.6b)


Ten times more expensive than projected
No evidence that it accelerates graduation
Grants to states awarded to students at schools whose
education programs meet benchmarks
College Completion Incentive Grants (+1.25b)
9
FFY 2011 Continuing
Resolution

Government Shutdown Averted on 4/8/11







$38.5 billion in cuts
$13B cut from Labor, Education and HHS
2011-12 Pell Grant of $5,550 is maintained but
eliminates year-round Pell
Eliminates funding for LEAP, Byrd Honors
Scholarship, loan repayment for civil legal assistance
Cuts to GEAR UP, SEOG, TRIO and AmeriCorps
Does not include a provision to block the Department
from finalizing and implementing the Gainful
Employment regulations
Now the real battle begins…..
10
The Debt Ceiling

Federal Authority to Borrow Above a
Preset Level
»
»

$14.3 trillion
Reached in May, June, August 2
Consequences of a Breach
»
»
»
Inability to pay debtholders (default)
Inability to issue new debt to fund programs
Need to juggle to meet federal obligations
(e.g., military pay, social security payments,
loan & grant disbursements)
Let’s Make a Deal

Assumptions:
»
»
»
»
»
Congress will wait until the last minute
Tea Party will maintain a hard line
Republican leadership – Boehner and
Cantor – will need to deliver the votes
Democrats will not undermine the President
Republicans will not agree on net tax
increases
12
Budget Control Act of 2011



Elimination of interest subsidy for
graduate students. Effective for loans
made for periods of enrollment (loan
periods) beginning on or after 7/1/2012
Savings of $2B in 2012-13 and $29B
over next 10 years
Rationale:



Subsidies are not well-targeted
Subsidies don’t encourage enrollment
Termination of Direct Loan Borrower
Repayment Incentives
13
The Big Deal

$2.1t Increase in Debt Ceiling – in 3 stages
»
»
»
»


$917b in Cuts Over 10 years (No Tax-Related Measures)
Provides $17b to Fill Most of Pell Shortfall
»
»
»

Eliminates interest subsidy on graduate Stafford Loans
Eliminates repayment incentives for Direct Loans (except autodebit)
Both effective for new loans as of 7/1/2012
Goal is to identify $1.5t More in Budget Savings Over 9
Years
»

$400b immediate increase
Congress can disapprove 2 future increases
President can veto disapproval
Congress must vote on balanced budget amendment
Cuts to be developed by Congressional Joint Select Committee
on Deficit Reduction (the “Super Committee”)
U.S. Credit Rating Downgraded
14
Debt Ceiling and the Super
Committee – Deficit Reduction
Package



Stage One: Nearly $1 trillion in deficit
reduction; $900 billion debt ceiling
increase
Stage Two: Joint Committee tasked with
legislating $1.5 trillion in deficit reduction,
paired with additional debt ceiling
increase
If the Committee fails to report legislation
that achieves $1.2 trillion in deficit
reduction or Congress fails to enact
recommendations, sequestration is
triggered
15
The SUPER Committee

Statutory Timeline:
»
»
»


November 23 – majority vote of committee to
approve recommendations
December 23 – House & Senate must vote
January 15 – enactment deadline
All Programs and Revenues Can Be
Included
Could Student Aid be Impacted?
»
»
Discretionary spending likely to be cut
Interest subsidies “on the table”
16
Senator Coburn (R-OK)
“Back in the Black”



Department of Education - $409.10B
savings
“Prevents the Department of Education
from becoming one of the world’s
largest banks by getting bureaucrats
out of the student loan business.”
“Saves much needed room on the
federal balance sheets by shifting the
student loan program exclusively to the
private sector where it belongs.”
17
FFY 2012 Budget




FFY 2012: October 1, 2011 –
September 30, 2012
12 Appropriations Bills Needed – none
passed by the Sept. 30, 2011deadline
Continuing Resolution (CR) through
November 18, 2011 (first minibus likely
to include CR extension into December)
More changes to student loans to help
fund Pell?


House – Limit Pell lifetime eligibility?
Senate – Eliminate grace period subsidy?
18
Proposed Eligibility & Need
Analysis Changes
»
»
»
»
»
»
Revoke Pell eligibility for less than half-time students
(-$140 m)
Reduce lifetime eligibility to 6 years (-$679m)
Eliminate Ability to Benefit option
Reduce student income protection allowances (IPA) to
about the 2009-10 IPA level; parent IPAs unaffected
(-$2.1b)
Reduce automatic zero EFC from $31,000 to $15,000
(-$352m)
Eliminate Pell awards to students whose EFC would result
in an award less than 10 percent of the maximum (-$46 m)
19
Proposed Eligibility & Need
Analysis Changes – cont’d
»
Reinstate previously excluded forms of untaxed income
(-$1.1b)
◦
◦
◦
◦
◦
◦
The amount of additional tax credits claimed for tax purposes
Welfare benefits
Earned income credit claimed for tax purposes
Credit from tax paid on special fuels
Untaxed social security benefits
Foreign income exclusion
20
Is Pell the Ultimate Survivor?




Does Pell Really Have Permanent
Immunity?
Will the Shortfall Ever Be Filled?
What Programs or Benefits Will Be
Kicked Off the Island?
How Would You Vote at Tribal Council?
21
Restructuring the Perkins
Loan Program






Similar language to last year’s
proposal
Lower cost alternative to private loans
Unsubsidized, 6.8% fixed interest rate
Loan funds increase from $1B to $8.5B
Savings of $4.5B over 10 years per
CBO but $3.8B cost under Fair-Value
Scoring discrepancies – “Fair-Value”
versus “Federal Credit Reform Act”
22
Other Education Issues

For-Profit Schools







Regulatory Burden
Reauthorization of No Child Left Behind




Gainful Employment
90/10 Rule
Proportion of Pell Grant funds received
Influence of hedge funds?
Additional Senate hearings
Could include voc-tech program changes
College Completion
July 2012 interest rate increase
2012 Negotiated Rulemaking
23
Not-For-Profit (NFP)
Servicers


“As our federally-owned loan portfolio
continues to grow, we are ready to
move to the next step in ensuring an
efficient and effective multi-servicer,
borrower centric approach to
servicing”.
ED anticipates the award of 15 new
federal loan servicing contracts from
October 2011 through January 2013
24
Guarantor Voluntary Flexible
Agreements (VFAs)




24 GAs submitted 22 VFA proposals
ED’s goal: enhance the integrity and
stability of the FFEL program, improve
services to students, schools and
lenders and use Federal resources
more cost-effectively and efficiently
Must be budget neutral in the
aggregate
Providing services to all borrowers
regardless of the loan program?
25
FISMA
“Each federal agency shall develop, document,
and implement an agency-wide information
security program to provide information security
for the information and information systems that
support the operations and assets of the
agency, including those provided or managed
by another agency, contractor, or other
source…”
--Federal Information Security Management Act of 2002
26
Other Issues on the Horizon

3-Year Cohort Default Rate



2012 & 2013: both 2-year and 3-year rates
calculated -- sanctions based only on 2-year
rate
2014: sanctions based on 3-year CDR begin
Perkins Loans



Will the program expire?
Will revolving funds be recalled?
Will ED’s proposal to create “Direct Perkins
Loans” be re-tooled?
27
Cohort Default Rates


FY 2009 rate increased from 7.0% to
8.8%
Rates highlight the need for continued
federal investment in default
prevention and debt management
services that are provided by the
nation’s guaranty agencies and not-forprofit student loan organizations
28
National Student Loan Cohort Default Rates
25
22.4
21.4
20
17.8
17.2
15
Presenter Name(s)
15
11.6
10.7
10.4
10
9.6
8.8
8.8
6.9
5.6
5.9
6.7
5.4
5.2
4.5
5
5.1
7.0
4.6 5.2
0
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Schools Subject to Sanctions
Issued
date
1993
1994
1995
1996
1997
1998 1999 2000
2001
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
700
642
Number of Schools
600
500
433
402
400
330
300
236
200
138
5
Sanctions
100
42
11
0
6
4
0
1
0
0
0
1
2
5
5
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
The school numbers are pre-appeal and include only schools impacted by the three years of 25% or
greater sanction. A school can be on extended sanction and is therefore reflected in multiple year
counts.
30
Cohort Default Rate Issues

Increases Across All Sectors
»
»
»

6.0% to 7.2%
4.0% to 4.6%
11.6% to 15.0%
3-Year CDR is Coming
»

Public:
Private:
Proprietary:
10-25% increases expected over two-year
rates
DL rates likely to catch up to FFELP
rates
31
Why Are Default Rates
Climbing?

It’s the Economy Stupid!
»
»
»
»
»
Unemployment rate for college grads is 13%
Starting salaries ain’t what they used to be
Competition for entry level jobs from
unemployed professionals
Student loan debt outpacing credit card debt
College costs continue to rise while grant aid
fails to keep pace
32
“Help Americans Manage
Student Loan Debt” Plan



“Special” Direct Loan Consolidation –
available for six months beginning
January 2012
“Pay As You Earn” program – an
acceleration of the enhanced IBR
changes from SAFRA (subject to
negotiated rulemaking)
President Obama plans to use his
executive authority to launch these
initiatives
33
Private Loans – Growth and
Access
25
20
I
n
B 15
i
l
l
i 10
o
n
s
5
0
FFY
00
FFY
01
FFY
02
Source: College Board
FFY
03
FFY
04
FFY
05
FFY
06
FFY
07
FFY
08
FFY
09
FFY
10
34
Private Loan Issues



Percentage of students borrowing from
private lenders increased three-fold in
four years
Students at for-profit institutions
comprise the largest share of private
loan borrowers
Among undergraduates who took out
private loans, 12% did not apply for
federal financial aid and another 11%
applied for aid but did not obtain a
Stafford loan Source: NCES Report October 2011
35
Financial Regulatory Reform
Bill
•
•
•
“Create a Sound Economic Foundation
to Grow Jobs, Protect Consumers,
Rein in Wall Street, End Too Big to
Fail, Prevent Another Financial Crisis”
Will affect virtually every financial
institution in the country
Created a new Bureau of Consumer
Financial Protection with regulatory
authority over nearly every type of
consumer credit including private
student loans
36
“Know Before You Owe”




Model Financial Aid Offer Forms – ED
works with Consumer Financial
Protection Bureau (CFPB)
CFPB unveils model disclosures for
student loans
CFPB asks the public to rank the items
in terms of usefulness
ED will eventually publish a form that
schools can use to provide information
to students
37
Challenges and
Opportunities





The economy and jobs
Rising students’ indebtedness and Pell
shortfalls
Local (private sector) services needed
by students, borrowers and schools –
who will pay for them
Impact of the Gainful Employment
requirements
Other issues

2012 Negotiated Rulemaking
38
Make Some Noise!

Remember, Student Aid Funding is Competing
Against Other Programs
»
»



Some of which may be important on campus – e.g.,
medical & scientific research
Some of which are domestic and defense priorities
Cannibalizing of Student Aid Programs has Begun
Make friends before you need them!
Is it Time to Identify Unpleasant Priorities
»
»
How far to go to preserve $5,550 Pell?
Contain the damage
39
Thank You!
40