Federal Update. Angela Smith, Training Officer U.S. Dept. of ED, Federal Student Aid WHITE HOUSE STUDENT LOAN INITIATIVES

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1 Federal Update 1 WHITE HOUSE STUDENT LOAN INITIATIVES 2 SPECIAL DIRECT CONSOLIDATION LOANS 3 For Discussion/Training purposes ONLY. 1

2 Regular Direct Consolidation Loan Borrowers with any federal student loan FFEL, Direct Loan, Perkins, HHS Direct Consolidation Loan Underlying loans paid off New Repayment Period Interest Rate Fixed Weighted average rounded up to the next 1.8 percent 4 Special Direct Consolidation Loan January 17 through June 30, Only for Split Borrowers Loans held by ED and FFEL lender ED Held Loans Direct Loans and PUT FFEL Loans Only the commercial FFEL to be consolidated Underlying loans paid off Underlying loans maintain identity Same terms, conditions, dates 5 Special Direct Consolidation Loan Benefits Single holder/servicer/bill/payment Loans maintain terms and conditions Reduction in interest rate of 0.25% Additional 0.25% reduction for EFT Loans eligible for Public Service Loan Forgiveness 6 For Discussion/Training purposes ONLY. 2

3 PAY AS YOU EARN INCOME DRIVEN REPAYMENT PLANS 7 Income Based Repayment (IBR) Plan Statutory - FFEL and Direct Loan Current Law Maximum annual payment amount is 15% of discretionary income. Remaining balance forgiven after 25 years. New Law (SAFRA) Effective 2014 Maximum annual payment amount is 10% of discretionary income Remaining balance forgiven after 20 years. 8 Income Contingent Repayment Plan Regulatory - Direct Loan Only Current Regulation - Regulatory defined formula Complex Loan amount and income Remaining balance forgiven after 25 years Limited take-up rate 9 For Discussion/Training purposes ONLY. 3

4 Revised ICR Plan Amend ICR regulations to Accelerate 2014 IBR changes Reduce from 15% of discretionary income to 10% Reduce forgiveness time from 25 to 20 years Negotiated rulemaking required Began in January 2012 Expected effective date Fall BUDGET CONTROL ACT OF 2011 (BCA) 11 BCA - Subsidized Loans Elimination of Subsidized Loans for Graduate Students Effective for loans made for loan periods beginning on or after July 1, Subsidized Loans for loan periods beginning before July 1, 2012 remain unchanged. COD will edit for compliance. See EA posted date: April 5, For Discussion/Training purposes ONLY. 4

5 BCA - Repayment Incentives Elimination of Direct Loan Incentives Terminates repayment incentives to encourage on-time repayment of loans (e.g. Upfront Interest Rebate). Effective for loans first disbursed on or after July 1, COD will edit for compliance. See EA posted date: April 5, Allows interest rate reduction to borrowers who repay electronically. 13 See DCL GEN CONSOLIDATED APPROPRIATIONS ACT Pell Grant Maximum Pell award - $5,550 Minimum Pell award - $550 Maximum Pell eligible EFC Eliminates eligibility of a student who was eligible for between five and ten percent of maximum award payment schedules posted IFAP on January 12, 2012 (P-12-01) 15 For Discussion/Training purposes ONLY. 5

6 Auto-Zero EFC Income Threshold Income threshold for an automatic zero expected family contribution (EFC) reduced to $23,000 from $30,000. FAFSA on the Web and CPS have been updated, and both began FAFSA processing using $23,000 as the auto-zero EFC threshold. 16 Ability-to -Benefit (ATB) Eliminates Title IV eligibility for students without a high school diploma (or equivalent). Exceptions for Home schooled students Students who were enrolled in a Title IV eligible program of study prior to July 1, Ability-to -Benefit (ATB) Students who are or were enrolled in a Title IV eligible program anytime prior to July 1, 2012, may continue to qualify under one of the ATB alternatives Passing an independently administered, approved ATB test. Successfully completing at least six credit hours or 225 clock hours. 18 For Discussion/Training purposes ONLY. 6

7 Lifetime Limits on Pell Reduces the duration of a student s eligibility to receive Pell Grant from 18 semesters (or its equivalent) to 12 semesters (or its equivalent). Applies to all students effective with the award year. Calculation includes all earlier years of the student s receipt of Pell. 19 Lifetime Limits on Pell Equivalency calculated by adding together each of the annual percentages of a student s scheduled award that was actually disbursed to the student. LEU Lifetime Eligibility Used Once LEU reaches 600%, student no longer eligible. If LEU more than 500% but less than 600%, partial eligibility for next award year. 20 Lifetime Limits on Pell Example Student s Scheduled Award was $5,550, but only received $2,775 because only enrolled for one semester, will have used 50% of that award year s scheduled award. Student who was enrolled three-quarter time for the entire award year would have used 75% of his scheduled award. This student s LEU is 125% of the total 600%. 21 For Discussion/Training purposes ONLY. 7

8 Lifetime Limits on Pell Electronic Announcement posted on April 6, 2012 Beginning April 15, COD will begin sending: Weekly reports to schools of their applicants who have LEUs of more than 450% s to students who have LEUs of more than 500% 22 Lifetime Limits on Pell Electronic Announcement posted on February 17 Beginning in July, COD will: Stop sending the weekly reports. LEUs will be returned in the common record response, and displayed on the COD website. Edit and return warning edits when LEU is near or exceeds 600%. 23 Lifetime Limits on Pell Electronic Announcement posted on February 17 Beginning in July NSLDS will display student s LEU CPS will use comment codes to flag students whose LEU is close to or exceeds 600%. 24 For Discussion/Training purposes ONLY. 8

9 Grace Period Interest Subsidy Temporarily eliminates the interest subsidy on Direct Subsidized Loans during the six month grace period. Applies to new Direct Stafford Loans first disbursed on or after July 1, 2012, and before July 1, PRESIDENT S FY13 BUDGET PROPOSAL 26 FY 13 Budget Proposal $5,635 maximum Pell Grant award for Maintain the subsidized loan interest rate for undergraduate students at 3.4 percent for undergraduates until July 1, 2013 Limit the duration of the Stafford Loan inschool interest subsidy to 150% of the normal time required to complete the borrowers educational program. 27 For Discussion/Training purposes ONLY. 9

10 FY 13 Budget Proposal Reduce FFEL guaranty agencies retention of funds collected through loan rehabilitation. Overhaul and replace TEACH Grants with a new Presidential Teaching Fellows (PTF) program. 28 FY 13 Budget Proposal Expand and improve the Perkins Loan program to provide $8.5 billion in loans annually. Provide $150 million in new funds for the Federal Work-Study Program. Reform and expand Federal allocations in the campus-based programs 29 POTPOURRI 30 For Discussion/Training purposes ONLY. 10

11 FFEL/DL Cohort Default Rates The HEOA increased the CDR monitoring period from 2 years to 3, beginning with the 2009 cohort. First draft 3-year CDRs released on March 5, Draft 2-year CDRs released 2/27/2012 Will continue to calculate 2-year CDRs until three sets of 3-year rates are published 31 DL Interest Rates CCRAA reduced the interest rate on subsidized loans made to undergrads in stages from 6.8 % to the current 3.4 %. The reduced rates end on July 1, Interest rate on subsidized loans first disbursed on or after July 1, 2012 to undergraduate students will be 6.8% 32 Two Factor Authentication Two Factor Authentication (TFA) is a new security process through which all authorized users will be required to enter two forms of authentication to access Federal Student Aid systems The first factor is something you know - your UserID and Password The second factor is something you have a token that generates a One-Time Password (OTP) 33 For Discussion/Training purposes ONLY. 11

12 Two Factor Authentication The TFA token is a small electronic device that looks like a key fob with a power button and a display screen on its front OTP is generated by pressing the white power button on the front of the token OTP will display for 30 seconds 34 Two Factor Authentication Systems required to use TFA include: AIMS - e-campus-based (ecb), ecdr Appeals, FAA Access to CPS Online, National Student Loan Data System (NSLDS), and Student Aid Internet Gateway (SAIG) Enrollment COD Prior to use, tokens will need to be registered If an authorized user does not yet have a token, login with only UserID and Password 35 Two Factor Authentication ED/FSA will distribute tokens via monthby-month distribution Indiana is in Distribution Group 7, scheduled for Q Tokens will be sent to DPDAs and/or COD Security Administrators for distribution to appropriate staff Contact TFA_Communications@ed.gov with any questions 36 For Discussion/Training purposes ONLY. 12

13 Negotiated Rulemaking Federal Register Notice dated October 28, 2011 Two teams Student loan issues Teacher preparation issues hearulemaking/2011/index.html 37 Negotiated Rulemaking January - April 2012 Team I, Teacher Preparation Issues Institutional reporting & State accountability; quality of teacher preparation programs High Quality Program and Services Definitions associated with school eligibility to participate in TEACH Grant Service and Repayment obligations for TEACH 38 Negotiated Rulemaking January- March 2012 Team II, Student Loan Issues Income-Based Repayment and Income Contingent Repayment Naturally readable Direct Loan regulations Total and permanent disability Various aspects of defaulted borrowers Loan Rehabilitations Perkins loan issues deferments, enrollment reporting, loan assignments 39 For Discussion/Training purposes ONLY. 13

14 Model Financial Aid Offer Form HEOA required that ED work with the community to develop model award letters ED also worked with the Consumer Financial Protection Bureau See Sample Aid Offer Letters and other information on this initiative at 40 Contact Information For questions about this session, contact me at: Angela Smith, Training Officer My supervisor welcomes comments about my performance! Contact her at: JoAnn Borel, Supervisor Your Chicago Regional Training Team Jamie Malone, Training Officer Byron Scott, Training Officer Angela Smith, Training Officer For Discussion/Training purposes ONLY. 14