Present at the meeting:
JD LaRock, Senate Staff
Tony Erwin, MASFAA President and NU
Julie Poorman, MASFAA GRC and Berklee
Zach Goodwin, MASFAA GRC and Mount Holyoke
Dave Janey, MASFAA Executive Council and BU
Kathy Osmond, MASFAA President-Elect and Wellesley
Sherri Avery, MASFAA Past-President and Brandeis
Bernie Pekala, MASFAA GRC Co-Chair and BC
Eileen O’Leary, MASFAA Past-President, MASFAA GRC, and Stonehill
Betsy Mayotte, MASFAA GRC and ASA
Susan Sullivan, MASFAA Executive Council and Bunker Hill
Elayne Peloquin, MASFAA Executive Council and MGH Institute of Health Professions
Tom Murphy, MASFAA Member and MEFA
Joe Lahoud, MASFAA Executive Council and ASA

Bernie Pekala, as organizer of the Conversation with JD LaRock welcomed JD and thanked Senator Kennedy and JD for championing the support of Higher Education financial aid assistance. He then provided introductory remarks and an overview of the Conversation, the five MASFAA points to be discussed with other matters discussed as time permitted.

I. Susan Sullivan started the discussion on the first point in the MASFAA position paper dealing with Pell funding and the need to reduce significant administrative burden associated with add-on programs such as ACG and SMART. She related her particularly time-consuming ordeal with ACG. The current programs cut out large numbers of community college attendees, and yet they comprise a group whose access to college is critical. Other MASFAA representatives described various difficulties with the programs, in addition to complications resulting from the way they have been interpreted by the Department of Education. Susan also spoke for the working poor, referencing the fact that an independent student with no dependents earning $16,000 in Boston is not eligible for the Pell as it currently stands. By not qualifying for Pell, students lose access to SEOG and MASSGrants. The cliff effect is steep. MASFAA representatives felt that they could not wholeheartedly endorse the proposed Promise Grant; they representatives favored putting all monies saved from reducing lender fees into the basic Pell Grant.

JD LaRock stated that Senator Kennedy basically agrees with our position. But we all know that programs do not go away. The Senator has tried to open up ACG and SMART to include part-time students, permanent residents and others here permanently, students in 5-year programs, and students attending colleges that do not calculate GPAs. He is in favor of our position to use the same “year” for all federal programs to ease the regulatory burden.

JD explained that the Promise Grant was to be a supplement to Pell that was tied to mandatory funding (while Pell funding is discretionary). Although Congress will probably not move forward on Promise, the trade-off will be less Pell money. Members of the House, it was noted, campaigned on the premise of lowering the interest rate on Stafford Loans. The Senate, wanting more Pell money, and House, wanting lower rates, will have to work out a compromise.

MASFAA noted that lowering the interest rate helps graduates in repayment; it does little to promote access.

II. Sherri Avery started the discussion regarding expanding the junior and senior loan limits and the issue of alternative loans. MASFAA supports expending the loan limits and is concerned about the amount of alternative loan borrowing. The ability to borrow additional money in the federal program might at least reduce the alternative loans that many students are getting. Julie reported data from Berklee on the upswing in alternative loans that has occurred there. Elayne pointed to the difficulties that students at her school who are considered 5th year undergraduates have in getting loans that are sufficient to fund their education. Tony remarked that, when faculties are creating programs, the issue of whether the program is UG (with lower borrowing capacity) or Grad (with higher) can come up. Elayne also mentioned how well-used and appreciated the Grad PLUS is due to its lower credit requirements and fixed interest rate as compared to alternative loans. Could it be model to follow in the UG area?

JD stated that a loan increase is likely. It might not be as much as wanted by the House. The Senate commitment is to increase the Pell Grant. He stated that our comments on alternative loans were well-taken, and the parallel to sub-prime loans is not lost on policy-makers. Middle income students face challenges in paying for high tuition costs, and often the alternative loan may seem to be a feasible path for them to take.

JD commented on the perception of tuition costs held by policy-makers. Our rising tuition charges are the other side of the dynamic. We have not convinced Congress that we are controlling our costs. We need to have a robust dialogue in this area. MASFAA members pointed out that data exist to show where colleges are spending, and much of the increase is for salaries (faculty in particular) and costs such as insurance, heating, and electricity. But as Bernie concluded, it is difficult to present quality information on complex matters in sound-bites.

III. Kathy kicked off the topic of Perkins loans. We support the funding of federal FCC. Perkins is a long-standing and well-used loan program. Colleges match the federal FCC and are invested in the program. While Stafford levels are modest (even if increased), the Perkins allows us to package additional loan monies that are subsidized and at low rates. Also, we can sometimes head off a high need student from going to the alternative market by packaging an additional loan in the form of a Perkins. Bernie pointed out that, for the last few years, consolidation has increased our Perkins funds, but as consolidation activity dies down, we will need new FCC. Consolidation produced a significant flow of cash into Perkins, but the flow from consolidated loans is not sustainable.

JD commented that talking about Perkins as an add-on to the Stafford to meet need and as an option to an alternative loan might be fruitful for us in getting additional Perkins funding. We are still up against the issue of Congress putting money into programs like Pell and Perkins versus cutting the Stafford interest rate. He requested more information from MASFAA regarding the various ways Perkins Loans solve funding shortfalls for students.

IV. Eileen O’Leary introduced the topic of the Sunshine Act and disclosure. MASFAA is in favor of disclosure, not just regarding preferred FFEL lenders but for all lenders, both in Stafford Loans and in alternative loans. The danger is that lenders will go direct-to-consumer, and parents and students will bypass college websites to choose what seems to be the easiest solution to their quandary, the mailing that they receive in their home. We would like to see a uniform disclosure. It was suggested to offer a repository of lender information that was managed according to federal authority.

JD felt that we have an opportunity to achieve this goal. He indicated that this has been discussed and many agree that this resource would be valuable for all students and parents. He advised that we come up with suggested language.

Elayne inquired if the Direct Lending framework was strong enough to withstand a major volume increase given that many schools are considering DL.

JD responded that it could. Eileen mentioned, as she being Past-President of the National Direct Student Loan Coalition, the group had asked the Department of Education about increased DL capacity and the Department concluded that DL could withstand 50% of current FFELP volume, and within a couple of years, 100%.

During the FFELP and DL conversations, JD also noted Senator Kennedy's high regard of the ethical practice and business approach of MEFA and ASA.

V. Tony started the discussion on the loan auction and the idea that it would start as a pilot program for parent PLUS. While we know that it is a pilot effort, we have concerns. Bernie and other MASFAA representatives raised the following issues:

1. Why will two lenders be chosen and not three (current bills are recommending a minimum of three lenders on preferred lists)?
2. Will the auction idea benefit students?
3. Where does DL stand in all of this and can it be one of the choices that students have?
4. Is the department’s assessment of greater capacity realistic?
5. What will happen if lenders are driven from the program? Auction seems to favor large lenders.
6. Will the student choose from two lenders in his/her state of residence or the state in which the college is located?
7. The time-line does not appear to allow realistically for evaluation.

JD appreciates our concerns and is open to suggestions. He stated that the process that reached the auction conclusion was bipartisan and took two months to negotiate and work out. There is much consensus in the Senate. Senators were concerned about state-based non-profits, and now these lenders can match a winning bid. In general, lenders are all thought to be over-subsidized. From the 1970s on, subsidies have decreased while profits have increased. The auction concept is one used by the government in other areas, and it is a tested mechanism for saving tax-payer dollars. CBO estimates that 2 billion could be saved on the parent PLUS over 5 years ($400,000,000 per year).

Other questions/concerns:

• Would it be possible to have a 6 month grace period on the Grad PLUS?
• On the account maintenance fee, consideration should be given to guaranty agencies with large numbers of private colleges and graduate schools in their clientele. The larger the loan, the more advising a borrower needs.
• Advising is important in avoiding direct-to-consumer issues.
• Colleges with institutional need-based loans (usually those who also fund institutional need when it is higher than federal need) are not alternative lenders and should not be lumped in with them in any legislation about alternative loans.
• The goal of simplicity needs to be balanced by the realities of the aid population. For example, students with negative AGIs are not in the same boat as students with genuinely low earned incomes. When students such as those with negative incomes receive large amounts of federal aid, the credibility of the aid system is undermined, and other students who should receive more federal dollars cannot do so. Simplicity should not become simplistic.
• Regarding the Brown amendment (a federal alternative loan proposal), is that a viable concept? If yes, could it be considered to provide an option to the private loan market?

According to JD, this reauthorization sought to clean up ethics and the excess subsidies going to lenders. The next reauthorization might be the place to test out a bolder framework for federal aid.

One final note, MASFAA officially extended an invitation to JD to present at the annual MASFAA conference (November 7-9). JD mentioned that if his scheduled permitted, he would try to speak at the conference.