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President Obama’s reelection likely means that the Department of Education will continue to play an active role in developing higher education policies that will impact colleges and universities. Before the election, Secretary of Education Arne Duncan said that he would like to continue as Secretary of Education in the second term. It has been reported that Under Secretary Martha Kanter, who represents the Department publicly and who oversees higher education, is likely to stay on as well.
In his first term, President Obama made higher education more of a priority than other Presidents and succeeded in overhauling the student loan program by eliminating the Federal Family Education Loan Program and pushing for the maximum Pell Grant of $5,550. He continued to fight to maintain the maximum at $5,550. The President used his executive authority to implement a more generous income-based repayment plan for borrowers of student loans. During the first term, the President sought to expand the federal government’s role in overseeing colleges and universities. Examples include the regulations on gainful employment (most of which were vacated in a recent Federal court ruling), state authorization of online programs (also reversed by a Federal court ruling), and academic issues, like the definition of credit hour. It is likely that higher education will play a big role in the second term because the President, in his State of the Union address, put forward a proposal to reshape the financial aid programs in order to encourage colleges to hold down tuition costs. Many members of the higher education community have opined that the Department of Education will continue its efforts to regulate postsecondary institutions in the second term.
It is not clear who will push for the development and implementation of any new proposals at the Department of Education since the previous Administration initiatives, the gainful employment rules and the student loan program overhaul, were carried out by two successive Deputy Under Secretaries, Robert Shireman and James Kvaal. Another high level Department official who dealt with colleges and universities, Eduardo M. Ochoa, the Assistant Secretary for Postsecondary Education, left in May to become interim President of Cal State Monterey Bay. David Bergeron, a career staff member, is Acting Assistant Secretary for Postsecondary Education.
There are also some members of the higher education community who believe that the Department of Education’s policies will be run out of the White House where the Domestic Policy Council will have a large role in focusing on college affordability and completion.
Whoever the new political appointees will be, they will likely be focusing on a number of higher education issues such as possibly retooling the gainful employment rules, developing reauthorization proposals (because the Higher Education Act will expire next year), and developing proposals to encourage colleges and universities to keep their tuition costs down.
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On November 5, 2012, the House Education and the Workforce Committee Chairman John Kline (R-MN), Subcommittee on Higher Education and Workforce Training Chairwoman Virginia Foxx (R-NC), Congresswoman Judy Biggert (R-IL), Senate Health, Education, Labor, and Pensions Committee Ranking Member Mike Enzi (R-WY), Senator Lamar Alexander (R-TN), Senator Tom Coburn (R-OK), and Senator John Cornyn (R-TX) sent a letter to the Government Accountability Office (GAO) requesting an investigation into the Obama Administration’s management of the Direct Loan Program.
According to a press release, Chairman Kline said: “The sheer volume of complaints about the Direct Loan program is extremely disconcerting, and raises serious questions about the Obama Administration’s ability to serve student loan borrowers effectively…With the federal government now responsible for all student lending, we have a responsibility to conduct strong oversight of the Direct Loan program to ensure it is working for borrowers and taxpayers.”
The press release listed a number of complaints received by the House Education Committee regarding interactions with the Direct Loan program. The complaints include: missing financial information and payments; loans moved to new servicers without notice to the borrower; borrowers suddenly moved to forbearance; problems with the loan rehabilitation program; poor customer service, etc.
The letter sent to the GAO asks it to address a set of 14 questions on the management of the Direct Loan program. It is unlikely that the GAO will respond in an expeditious manner since a separate request made to the GAO on March 27, 2012 to examine the oversight of the Federal Student Aid’s collections program, including the Direct Loan rehabilitation program, did not get underway until September 2012 and is still not completed.
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On October 16, 2012, the Consumer Financial Protection Bureau (CFPB) released its first annual report from its Private Student Loan Ombudsman, which represents recommendations to Congress and the Secretaries of Treasury and Education. Based on almost 2,900 borrower complaints, the report draws conclusions on private education loan servicing quality and the need for refinancing options. The report also raised questions regarding active-duty servicemembers and their difficulty receiving benefits under the Servicemembers Civil Relief Act.
Part One of the report focuses on the types of borrower complaints received by the CFPB. Of the complaints, 65 percent related to repayment issues; 30 percent related to collection issues; and only 5 percent were related to loan origination issues. The most common repayment concern related to negotiating repayment plans during periods of unemployment, underemployment, or financial hardship. The report identifies multiple servicing programs, such as inability to refinance, inability to access repayment plans previously advertised, and bankruptcy-triggered defaults.
Part Two of the report offers recommendations from the Ombudsman, such as the need for a private education loan refinance option. Part Two also addresses potential market opportunities for investors and entrepreneurs to provide refinancing options to private loan borrowers and urges colleges and universities to provide more assistance and counseling to current and former students on debt management.
Part Three of the report offers other recommendations from the Ombudsman, including the need for Congress to identify opportunities to encourage loan modification and refinance options as it did for the home mortgage market. To the Secretaries of Treasury and Education, the report recommends assessing whether efforts to correct problems in mortgage servicing could be applied to private student loan servicing and continuing initiatives to increase the use of Income-Based Repayment on Title IV loans to potentially free up resources for borrowers to more easily make their private loan repayments.
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On October 18, 2012, the Consumer Financial Protection Bureau (CFPB) issued a report that describes the unique servicing obstacles by servicemembers during student loan repayment. The report titled “The Next Front? Student Loan Servicing and the Cost to Our Men and Women in Uniform,” describes servicemember complaints that include not being able to get the information they need and being met with roadblocks when they do try to pursue their benefits. The CFPB notes that the average cumulative amount of student loan debt for active-duty servicemembers graduating from college in 2008 was about $26,000, according to the National Center for Education Statistics (NCES).
The CFPB reported that the servicemembers’ complaints revealed that they receive incomplete or inaccurate information, have difficulty navigating the system of benefits, and face roadblocks when they try to get their benefits. In releasing its report, the CFPB also announced that it has established a partnership with the Department of Defense to create better awareness of the rights and options for servicemember student loan borrowers. The partnership will include training Judge Advocate Generals, Education Service Officers, and working with personal financial counselors on military bases.
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On October 16, 2012, the New America Foundation released its report on the “Pay As You Earn” Income-Based Repayment (IBR) Program, titled “Safety Net or Windfall? Examining Changes to Income-Based Repayment for Federal Student Loans.” The report examines impending changes to the federal repayment program that caps repayment on student loans at 10 percent of discretionary income and provides for loan forgiveness after 20 years of payments (instead of 15 percent of discretionary income and 25 years of payments in the current program). The expanded “Pay as You Earn” (PAYE) Program was announced last October as part of the Administration’s “We Can’t Wait” initiatives that bypass the Congress approval process in favor of the President’s executive authority powers.
Using a specially developed calculator that estimates the monthly payments a borrower will make under the original IBR, PAYE IBR, and other repayment plans like standard 10-year and consolidation. The calculator accounts for a borrower’s loan balance, interest rate, income, and family size over the entire repayment period. It also calculates the total payments over the life of the loan, and the amount of loan forgiveness the borrower will receive.
According to the report, use of the calculator found that the PAYE Program benefits borrowers with high student debt loans and discretionary income, and does not necessarily target the greatest benefits to struggling borrowers who have low-incomes and did not borrow as much. The report states that for low-income borrowers (earning less than $25,000), the new PAYE Program only lowers their monthly payments by as little as $5 and at most $20 compared to the original IBR. On the other hand, high-income borrowers with high debt loads incurred from graduate and professional school attendance could see a significant portion of their balance forgiven (up to thousands of dollars). At the same time, middle-income borrowers will receive some increase in benefits under the PAYE Program, but only if they borrow the maximum in federal student loans ($31,000 for dependent undergraduates).
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On October 24, 2012, The College Board released its “Trends in Student Aid” and “Trends in College Pricing” reports, which contain comprehensive data on tuition and fees, student loans, and grant aid. The report revealed that total borrowing for education (federal, parent, and non-federal loans) decreased by 4 percent between 2010-2011 and 2011-2012, the first decline in 20 years.
In 2011-2012, about 25.5 million undergraduates received some form of federal student aid, with 51 percent of their aid in grants, 40 percent in loans, and 9 percent in combination of tax credits and deductions or work study. With respect to student borrowing, average total borrowing per full time equivalent from 2001-2002 to 2011-2012 increased by 55 percent in inflation adjusted dollars. The average loan amount borrowed in the Stafford Loan program declined from $5,767 (in 2011 dollars) in 2001-2002 to $5,538 in 2006-2007; however, increased to $6,676 in 2011-2012. Nonfederal loans grew from about $7.9 billion (in 2011 dollars) in 2001-2002 to $25.2 billion in 2007-2008. Since that year, nonfederal loans have declined to about $8.1 billion. By September 30, 2011, 9.1 percent of borrowers who entered repayment in 2009-2010 defaulted on their federal loans, the highest rate since 1996.
During the 2011-2012 academic year, $236.7 billion in financial aid was distributed to undergraduate and graduate students in the form of grants, Federal Work-Study (FWS), federal loans and federal tax credits and deductions. The number of students receiving Pell Grants increased from 2.7 million in 1981-1982 to 9.4 million in 2011-2012. The average Pell Grant per recipient was $3,685 in 2011-2012.
According to the College Board, average tuition and fees for in-state students at public four-year colleges and universities increased from $8,256 in 2011-2012 to $8,655 in 2012-2013, a 4.8 percent increase. Total charges, including room and board for students living on campus, average $30,911. Average published tuition and fees at private nonprofit four-year institutions increased from $27,883 in 2011-2012 to $29,056 in 2012-2013, a 4.2 percent increase. Total charges, including room and board for out-of-state students living on campus, average $39,518. Average tuition and fees at for-profit institutions increased $14,737 in 2011-2012 to $15,172 in 2012-2013, a 3 percent increase.
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On November 1, 2012, the Department of Education issued final regulations in the Federal Register amending the federal loan programs that implement a new Income-Contingent Repayment (ICR) plan in the Direct Loan program based on the President’s “Pay As You Earn” repayment initiative, incorporate recent statutory changes in the Income-Based Repayment (IBR) plan in the Direct Loan and FFEL programs, and streamline and add clarity to the total and permanent disability (TPD) discharge process for borrowers in the Title IV loan programs.
Under the current income-based repayment plan, monthly payments are capped at 15 percent of their discretionary income and borrowers can receive loan forgiveness after 25 years of payments. Under the statutory changes made in the Student Aid and Financial Responsibility Act (SAFRA) included in the Health Care and Reconciliation Act of 2010 (P.L. 111-152) to the IBR plan available to borrowers on or after July 1, 2014, monthly payments are capped at 10 percent of their discretionary income and borrowers can receive loan forgiveness after 20 years of payments.
The final regulations also streamline the process under which borrowers, who are eligible for a total and permanent disability, can have their loans discharged. Effective July 1, 2013, borrowers with federal student loans will have to submit only one discharge application to the Department of Education rather than having to notify each lender and guaranty agency. Many members of the higher education community believed that the loan discharge process for disabled borrowers was burdensome. As a result of the public criticism, the Department took another look at the regulations.
The provisions of the final regulations are generally effective July 1, 2013; however, by virtue of his executive authority, President Obama announced that under the “Pay as You Earn” program, the IBR will take effect this fall. The Secretary plans to publish a separate Federal Register to announce that the IBR plan will become available to borrowers soon.
On November 1, 2012, the New America Foundation issued a press release on the “Pay As You Earn” program which states that “[t]he biggest winners under the new policy are not borrowers struggling to repay undergraduate debt, but graduate and professional students who can borrow unlimited amounts of federal student loans.” On October 16, 2012, the New American Foundation released a report titled “Safety Net or Windfall? Examining Changes to Income-Based Repayment for Federal Student Loans,” which examined the changes to the federal repayment program that now caps repayment on federal loans at 10 percent of discretionary income and provides for loan forgiveness after 20 years of repayment instead of 15 percent of discretionary income and loan forgiveness after 25 years of repayment. The report concluded that the “Pay As You Earn’ program provides a back loaded benefit to aid borrowers with high student loan balances and incomes instead of low-income borrowers.
On November 1, 2012, the Institute for College Access and Success (TICAS) issued a press release applauding the release of the Department of Education’s final regulations on loan issues. The press release notes that the final regulations for the Administration’s new “Pay As You Earn” repayment plan will provide additional repayment relief to recent graduates who are entering the job market with record student loan debt and facing near record unemployment rates.
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