MINUTES HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY October 22, 2015 The Higher Education Student Assistance Authority (HESAA) Board held a meeting on October 22, 2015 at 10:00 am at the HESAA of?ces in Hamilton. PRESENT: Mr. James Allen; Fr. Michael Braden; Ms. Audrey Bennerson, Secretary of Higher Education Designee; Ms. Gabrielle Charette, Esq.; Mr. Anthony Falcone; Dr. Jon Larson; Mr. Corey Amen, Treasurer?s Designee; Ms. Jean McDonald Rash; Mr. Luis Padilla; Mr. Bader Qarmout (teleconference); Mr. Shyam Shanna; Ms. Maria Torres (teleconference) and Ms. Christy Van Horn, Members. ABSENT: Mr. George Garcia, Esq. CALL TO ORDER Anthony Falcone called the meeting to order at 10:00 am. Mr. Falcone stated that the meeting had been noticed in compliance with the requirements of the Open Public Meetings Act. Mr. Falcone led those present in the Pledge of Allegiance. Mr. Falcone welcomed the Board members and advised that because some members were - participating via teleconference, Roseann Sorrentino would conduct a roll call for the resolutions. Mr. Falcone welcomed Geoffrey Stark, Esq., Deputy Attorney General, and Chris Howard, Esq., Governor?s Authorities Unit. Mr. Falcone advised that no members of the public registered to speak. Mr. Falcone asked Roscann Sorrentino to call the roll. CONSIDERATION OF THE MINUTES OF THE JULY 23, 2015 MEETING A motion to approve the minutes of the July 23, 2015 meeting was made by Mr. James Allen and seconded by Ms. Audrey Bennerson. The minutes were approved unanimously. REPORT OF THE AUDIT AND RESOLUTION 17:15 ACCEPTING AND ADOPTING THE FINANCIAL STATEMENTS AND INDEPENDENT REPORTS FOR FISCAL YEAR 2015 Christy Van Horn reported the audit committee met with the independent auditors on October 15, 2015 for a review of the audit report. She introduced Nancy Gunza, Engagement Principal, and Andrew Lee, Engagement Manager, of CliftonLarsonAllen, to report on the audit. Nancy Gunza advised that the Audit Committee engaged her ?rm to express an opinion on three sets of different ?nancial statements: one for the Programs; another for the other HESAA ?duciary funds and programs; and the last for the New?Jersey World Trade Center Scholarship Fund. She advised that CliftonLarsonAllen completed the audits and issued unmodi?ed opinions on all three statements, which is the best type of auditor?s opinion that can be received. The ?nancial statements that management prepared were in accordance with general accepted accounting principles. As a byproduct of the audit report on internal controls, Cli?onLarsonAllen did not ?nd any material weaknesses in the internal controls related to the ?nancial statements that were audited as well. Ms. Gunza further advised that they met with the Audit Committee on other items regarding the auditor?s responsibility and that there were no new accounting standards adopted during the year related to these reports. While there are certain items in the ?nancial statements that represent estimates, the auditors and the Audit Committee concluded that management?s basis for reporting those estimates was appropriate and reasonable. The auditors did not have any disagreements with management or dif?culties encountered in performing the audits, and had no corrected or uncorrected mistakes during the process. A motion to approve Resolution 17:15 was made by Ms. Christy Van Horn and seconded by Mr. James Allen. The motion passed unanimously. OFFICE OF LEGISLATIVE SERVICES OFFICE OF THE STATE AUDITOR REPORT Gabrielle Charette provided a summary of the Of?ce of the State Auditor?s Report to the Board. A copy of the report and the Authority?s written response to same was distributed to the members prior to the meeting and is posted on the State Auditor?s website. Mr. Shyam Sharma arrived at this point. REPORT OF THE BUDGET COMMITTEE AND RESOLUTION 18:15 ADOPTING A BOARD BUDGET POLICY STATEMENT FOR FISCAL YEAR 2017- Dr. Jon Larson made the following presentation to the Board. I am pleased to report that the budget committee of the HESAA Board met on October 1, 2015 to review FY 2017 Full-Time Tuition Aid Grant models re?ecting various award parameters, as well as anticipated funding requirements for all other State-supported programs administered by HESAA. I would like to begin by expressing the Board?s gratitude to Governor Christie and the Legislature for their continued support of New Jersey?s state grant and scholarship programs during these dif?cult economic times. Moreover, the Board, on behalf of the students and families served, would also like to express appreciation for this on?going commitment. During the 2015-16 academic year, the State?s ?nancial aid programs will provide more than 87,000 awards to State residents to pursue a postsecondary education, ultimately bene?tting New Jersey?s economy. 2 The FY 2017 Board Budget Policy Statement re?ects the Board?s fundamental principles of promoting access and affordability to postsecondary education for New Jersey?s residents through need?based student ?nancial aid, merit?based scholarships and loan redemption programs. In developing this budgetpolicy statement and its funding recommendations, the committee was mindful of the on-going ?scal challenges facing the State of New Jersey. While the committee af?rmed its commitment to advocate on behalf of students to achieve full funding of the full?time TAG Program in future years, its recommended funding levels re?ect the State?s ongoing ?scal constraints. The budget committee?s ?mding recommendations are as follows. all-T ime TAG Program When the Board met in July 2015, the Full?Time TAG Award Table that was adopted set awards using a base-year percentage increase structure for the second year. This structure ensures all awards, in all eligibility indexes at all institutions are increased by a percentage that is ?xed annually. At its October 1 meeting, the budget committee reviewed the following FY 2017 Full-Time TAG models. In light of continuing strong demand for TAG, all of the models included funding for an additional 2,000 awards, for a total 68,048 full-year equivalent awards using the base-year percentage structure. Model 1 a To provide funds to all eligible students with no TAG award increases would require an increased appropriation of nearly $9.89 million over FY 2016 for a total cost of $396,278 million. Model 2 0 To increase awards by 2% as well as fund all eligible students would require an estimated increased appropriation of $17817 million over FY 2016 for a total cost of $404205 million. Model 3 a To increase awards by 2.5% as well as fund all eligible students would require an increase of nearly $19.798 million over FY 2016 for a total cost of $406186 million. Model 4 0 To increase awards by 3.0% as well as fund all eligible students would require an increase of more than $21.744 million over FY 2016 for a total cost of $408132 million. In recognition of the continuing ?scal challenges facing the State, the committee is recommending that the Board support a request to increase funding for all students in all sectors by 2% over 2015?16 TAG awards. Accordingly, the committee recommends that Executive Director, Gabrielle Charette, request the funding required for the Full-Time TAG Program to achieve the following: 3 0 Maintain the current base?plus percentage increase structure of the TAG table; Increase awards by 2% over current 2015?16 TAG awards; and Recognize a likely increase in the number of eligible recipients to include 2,000 additional new awards. The projected cost to fund these award increases and provide for 2,000 additional new awards at these levels is $404.205 million, an increase of $17.817 million over FY 2016 resources. Part-Time TAG Program for County College Students The committee recommends $8.898 million in ?nding for the Part?Time Tuition Aid Grant Program for County College Students. At this funding level, awards would be set following the same parameters as the full?time TAG table. There is no anticipated program growth in the number of awards. However, an increase of $160,915 over the FY 2016 appropriation is requested to increase the value of awards. Governor ?s Urban Scholarship Program FY 2017 represents the ?fth year of funding this program. The committee is recommending funding of $700,000 to fund all eligible students as well as 130 graduating students who will receive a persistency award of $500. NJ STARS Program] STAR II Program Based on the current parameters of the programs, HESAA staff projected the cost of the NJ STARS and NJ STARS II Programs will be $7.006 million in FY 2017. An increase of $99,540 over the FY 2016 appropriation to recognize anticipated county college tuition increases. The merit?based NJ STARS Program covers the cost of tuition for up to 18 college?level credits each term, less other State and federal grants and scholarships. NJ STARS 11 annual award values are $2,500. To qualify for a NJ STARS II scholarship, total family income must be less than $250,000. All Other HESAA Programs eroded through State Appropriations The Board recommends funding the following programs accordingly: 0 Survivor Tuition Bene?ts Program Projected programs balances will be suf?cient to funds FY 2017 awards. 0 World Trade Center Scholarship Program Increase funding by $113,000 for a total appropriation of $315,000 for FY 2017 to maintain scholarships at current award value of $5,000 per year. 0 Primary Care Practitioner/Nursing Faculty Loan Redemption Program Continue level ?mding of $1.5 million for this program. A motion to approve Resolution 18: 15 was made by Mr. Bader Qarmout and seconded by Ms. Maria Torres. Christy Van Horn requested that staff provide the Board with a breakdown on the total cost of attendance for colleges and university prior to the next board meeting. Ms. Charette assured it her that I-IESAA would be able to provide that information. The motion passed unanimously. RESOLUTION 19:15 APPROVING A SENIOR MANAGER FOR AUTHORITY BOND ISSUES Gene Hutchins presented Resolution 19:15 to the Board. The Authority engages a Senior Manager for its bond transactions. In negotiated sales, such as those currently utilized by the Authority, the Senior Manager is responsible for developing structuring proposals, working with the rating agencies in the detailed cash?ow modeling of the bond transactions, and the marketing and management of the initial sale of the bonds. On August 31, 2015 the RFPs were sent to 64 underwriting ?rms who perform the role of Senior Manager in bond transactions, posted on website and advertised in the Trenton Times, Star Ledger, Courier News and Home News. An evaluation team consisting of the Executive Director, the Chief Financial Of?cer, Controller and Director of Legal Governmental Affairs reviewed the proposals based on the following criteria: The experience of the ?rm in advising on tax?exempt student loan revenue bond offerings; The relevant experience of the staff assigned to the Authority; The quality of the response to the The ability to meet the needs of the Authority in its transactions; and The fee proposed. HESAA received two proposals ?om underwriting ?rms. Of the two proposals, Bank of America Merrill proposal outlined a set of services that most closely matches the Authority?s needs. Bank of America Merrill has proposed to work with the Authority staff in the continued development of ?nancing structures tailored to meet program delivery objectives and the ?rm has a proven track record in bringing bond issues to market in an effective and ef?cient manner. Additionally, the Bank of America Merrill proposal outlined the depth of experience of assigned staff and the ?rm?s strong support of the Authority?s after bond sale needs, including consultation to the Authority regarding proposed changes to its loan programs. The other proposal also re?ected student loan experience but not to the same extent as Bank of America Merrill Bank of America Merrill has proposed a cost of $7.54 per thousand for ?xed rate bonds. A motion to approve Resolution 19:15 was made by Ms. Jean McDonald Rash and seconded by Dr. Jon Larson. Bader Qarmout asked questions regarding the second proposal received, speci?cally whether they were a major institution like Bank of America Merrill and what fees the second ?rm proposed. Gene Hutchins explained that while Ramirez proposed a lower fee of $5.37 per bond, that fee seemed underpriced based on the range of services required as part of an asset backed transaction. He explained that underwriting ?rms are now required to do extensive work with the underwriting agencies to duplicate their cash?ow models. That takes several months to complete and those costs did not appear to be covered in the Ramirez?s proposal. Ramirez is a relatively small company and most of their experiences is in MUNT general obligation bond issues where the cash?ows play a much smaller role. Mr. Hutchins further explained that the cost included in the Bank of America Merrill proposal allows HESAA to execute bond deals in a tinier matter, unlike four other state agencies with programs similar to wl?ch were delayed between 1 and 2 months in bringing their deals to market. Corey Amon questioned how the $7.54 rate compares to the current rate HESAA is paying and why Mr. Hutchins thought no other quali?ed banks or institutions responded to the RFP. Mr. Hutchins explained that the rate is a little less than a $1 more per bond and that the increase was expected to support the rating agency modeling process. He explained that due to staff turnover at the rating agencies, the rating agency modeling process starts over again and must tie-out to the senior manager?s models before their credit committees will sign off on the deal and approve assignment of investment?grade ratings. He explained that this process took at least 6 weeks of work last year which is behind the increase of costs of this proposal. Ms. Charette added that the fee is not to exceed $7.54 and depending on how the deal proceeds the amount could actually decrease. Mr. Hutchins con?rmed Mr. Amon?s supposition the rating agencies are now able to pass through higher costs because of regulatory issues. Regarding to the quali?ed institution question, Mr. Hutchins explained that as the FFELP industry has wound down; other investment banks are decreasing or eliminating staff allocated to student loan revenue bonds. As such, the industry is smaller but staff does not know why the few others in the market did not submit proposals. Ms. Charette added that it is not for want of outreach as HESAA sent the RFP to 64 ?rms. James Allen advised that while his son who lives in Charlotte, South Carolina is an Executive Vice President of Bank of America, we researched the issue and he has no con?ict with voting on this Resolution. The motion passed unanimously. RESOLUTION 20:15 APPOINTMENT OF DESIGNATED PURCHASER OF FEDERAL FAMILY EDUCATION LOAN PROGRAM (FFELP) REHABILITATION BANKRUPTCY LOANS Robert Clark presented Resolution 20:15 to the Board. 6 As the State of New Jersey?s designated guaranty agency by the US. Department of Education, HESAA is responsible for the administration of the Federal Family Education Loan Program, (F FELP), which includes Federal Stafford, PLUS and Consolidation Loans. Loan Rehabilitation is provided for under the Federal Higher Education Act and allows borrowers with defaulted FFELP loans to remove the default status on their loans and repair their credit history if nine (9) consecutive, on~time, voluntary payments are made within a ten (10) month period. When borrowers have completed their bankruptcy actions they are also eligible to exit default status. The Higher Education Act also provides for payments of 16.0% of the principal and interest as collection costs to the guaranty agency when loans held in its pool of defaulted loans are rehabilitated. As a result, the rehabilitation program has been a signi?cant source of program revenue to the Authority?s Guaranty Agency Operating Fund. In, 2010, HESAA issued an RFP for Rehabilitation Loan purchases, which resulted in the appointment of Nelnet, Inc., as the designated purchaser of FFELP rehabilitation and bankruptcy loans. The ?nal extension of this contract with Nelnet expires on December 31, 2015. In order to continue sales of Rehabilitation and Bankruptcy loans, HESAA issued another RFP for this service on August 31, 2015. HESAA mailed the RFP to twelve possible purchasers, posted the RFP on website and advertised the RFP in the Trenton Times, Star Ledger, Courier News, and Home News. In response to the RFP, one proposal was received from a Rehabilitation Loan purchaser, Nelnet, Inc. The Rehabilitation Loan RFP Evaluation Committee, comprised of Controller, Assistant Controller, Associate Director of Servicing and Collections and Servicing and Collections Program Of?cer, met on October 2, 2015 to discuss the proposal and determine if the terms of the Nelnet Proposal, as well as the discount percentage stated in the new RF were acceptable. Under the current market conditions, potential purchasers of these loans are expected to make purchase offers at a discount, meaning that they would likely be below the outstanding amount of the loans. The discount proposed by Nelnet on all loan types is As a result of its evaluation, the Committee determined that the terms of the Nelnet proposal and the discount percentage were acceptable under the current market conditions for FFELP Rehabilitation and Bankruptcy Loan sales. It should be noted that even at the Nelnet proposed discount rate, HESAA will still realize a positive cash ?ow on these purchases. It is recommended that the Board approve the attached Resolution 20:15 Appointing Nelnet, Inc., as the Authority?s designated purchaser of FFELP rehabilitation and bankruptcy loans for the two year period ending December 31, 2017, with three l-year extensions at the option of the Authority. A motion to approve Resolution 20:15 was made by Mr. James Allen and seconded by Ms. Jean McDonald Rash. The motion passed unanimously. RESOLUTION 21:15 APPOINTING SPECIAL COUNSEL TO ASSIST IN THE REVIEW OF MATERIALS RELATED TO 529 PLAN AND PROVIDE GENERAL TAX ADVICE UPON REQUEST - Marnie Grodman presented this item to the Board. engages outside tax counsel to provide opinions and advice to staff with regards to the NJBEST college savings program, the Franklin Templeton 529 College Savings Plan and other tax issues that may arise. current agreement with Obermayer Rebmann Maxwell Hippel expires this December. As such, HESAA issued a Request for Quali?cations (RF Q) for future tax advice. In addition to publishing in local newspapers and posting on website, HESAA distributed the RFQ to sixteen law ?rms found on the Attorney General?s Approved Special Counsel lists for similar types of services. In response I-IESAA received two proposals. The evaluation team reviewed both proposals and found that Obermayer?s proposal displayed extensive experience with mutual funds generally and 529 plans speci?cally. The quali?cations of the attorneys working on these are high caliber and the proposed fees are below current market rates. While the second ?rm that submitted a proposal is Well reSpected and the attorneys that would work on matters demonstrate a depth of tax experience, their proposal did not exhibit any experience related to 529 plans. As such, it is recommended that the Board approve the appointment of Obermayer Rebmann MaxWell Hippel LLP as tax counsel for a term of two years with three optional one- year extensions at the rate of $325 per hour for attorneys and $100 per hour for paralegals. A motion to approve Resolution 21:15 was made by Mr. Bader Qarmout and seconded by Ms. Maria Torres. Luis Padilla asked whether the rate was negotiated with the ?rm. Ms. Grodman explained that the rate was included in the proposal. She advised that the rate has not increased from the prior retainer and that it is much lower than the other proposal which proposed a rate of $425 for partners, $325 for associates and $150 for paralegals. Maria Torres asked if this is the same ?rm I-IESAA currently uses and Anthony Falcone asked how long has engaged this ?rm. Ms. Grodman advised that this is the same ?rm HESAA is currently using and that the current contract was entered into ?ve years ago. Mr. Falcone questioned why HESAA only received two responses to the RFQ. Ms. Grodman responded that staff believes that at less than $10,000 worth of work per year the contract might not have been lucrative enough for other ?rms to want to make the effort to propose. The motion passed unanimously. RESOLUTION 23:15 APPROVING THE POLICY AND PROCEDURES FOR NJCLASS DUE TO STUDENT DEATH OR TOTAL DISABILITY WHEN THERE IS A SURVIVING PARTY ON LOAN Tera Gervasio, Director of Loans, presented this item to the Board. Before you today is Resolution 23:15, Approving the Policy and Procedures for NJCLASS Forgiveness/Compromise Due to Student Death or Total and Permanent Disability when there is a surviving party on the loan(s). The NJCLASS bond indentures as well as the NJCLASS Promissory note terms and conditions provide for loan forgiveness only in cases where the borrower dies or becomes totally and permanently disabled when they are the sole party to the loan. I-IESAA recognizes that the death or total and permanent disability of a student borrower exacts a toll on a family. As such, since the NJCLASS program?s inception in 1991, there have been situations in which HESAA has forgiven/compromised NJCLASS loan balances that do not qualify for forgiveness under the terms of the bond indentures. In these cases, I-IESAA has used its own operating revenues to pay the loan balance and reimburse the bond trust estates. In accordance with best practices, the State Auditor recommended that the I-IESAA Board review and approve the Loan Forgiveness/Compromise policy and procedure attached thereto. The Policy and Procedure document outlines the steps and guidelines staff follow to complete an analysis of each family?s individual situation and to render an objective and non?arbitrary decision. Additionally, the State Auditor recommended that on an annual basis, HESAA report to the Board on the families who have requested loan forgiveness/compromise, and of those families, the cases that were approved and those that were denied. Due to the personal information of these cases, this report will be shared with the Board during today?s closed session. It is recommended that the Board approve Resolution 23:15. A motion to approve Resolution 23:15 was made by Fr. Michael Braden and seconded by Mr. James Allen. The motion passed with twelve votes approving the Resolution and one vote in opposition to the Resolution. PRIMARY CARE PRACTITIONER LOAN REDEMPTION PROGRAM PRESENTATION Sharon Bryant, Director of the Primary Care Practitioner Loan Redemption Program, provided a summary of the attached power point to the Board. RESOLUTION 24:15 PROPOSED AMENDMENTS TO THE REGULATIONS GOVERNING THE PRIMARY CARE PRACTITIONER LOAN REDEMPTION PROGRAM, N.J.A.C. 9A: 16?2.l Marnie Grodman, Esq., presented this item to the Board. At the July meeting the Board approved the readoption with amendments of the regulations governing the Primary Care Practitioner Loan Program which was subsequently published in the September 8, 2015 New Jersey Register. In response to the initial proposal to readopt N.J.A.C. HESAA received comments recommending amendments to expand the applicant pool for potential participants in the Primary Care Practitioner Loan Redemption Program. I-IESAA agreed that these amendments would be bene?cial to the program. However, as the amendments were substantive they could not be made upon adoption and therefore need to be noticed as a new proposal. As such, staff recommends approving the attached resolution proposing an amendment to N.J.A.C. which permits potential participants to apply to the Program before they move to New Jersey and an amendment to N.J.A.C. which permits potential participants to apply for-the Program in anticipation of receiving their license. Both amendments will better serve New Jersey?s underserved areas by encouraging potential participants to apply for the program and provide these much needed services. A motion to approve Resolution 24:15 was made by Dr. Jon Larson and seconded by Fr. Michael Braden. The motion passed unanimously. EXECUTIVE REPORT Executive Director Gabrielle Charette gave the following report: At the last Board meeting, you will recall approving our entering into a new lease with the landlord for this complex. I am pleased to report that in August we executed that lease. We are now in the process of securing permits, commencing renovations and relocating staff. This is going to be a multi month endeavor, but I am confident under the direction of Chief of Staff Myer it will be accomplished with as little disruption to our students, institutions and employees as possible. For those of you who are interested in seeing the new space we will be occupying in Building 1, which is currently under construction, we have arranged for a brief hard hat tour following this meeting. Also at the last Board meeting, I informed you that I had appeared before the College Affordability Study Commission and presented an overview of our NICLASS and NJBEST programs. Since that time, we have been working collaboratively with the Commission providing data as requested, and I have been invited to appear again in November. Last month, We went live with our TAG Graduation Data Collection application. You will recall that last year this Board approved regulations requiring all TAG participating institutions to 10 annually report the graduation rates of TAG recipients. This year, institutions have until November 16th to report their graduation rates to HESAA using our online form. Several institutions have already submitted their reports and while the data is still preliminary the reports I have seen so far "seem to indicate positive trends for TAG students. While there are a number of people here at I-IESAA who were instrumental in taking this project ?om concept to implementation, I would like to thank Magda Torres for being the point of contact with the institutions as technical questions arise. This month we commenced our annual School Counselor Training Institute, we have 8 sessions scheduled across the state for high school guidance counselors to learn about the latest developments in both state and federal student aid programs. Counselors earn four professional development credits for their participation in what has become a "must do" course for New Jersey's high school guidance community. One of the topics that I am sure will come up at the Institute sessions is the recent announcement by the US Department of Education to move to what is called prior, prior year for FAF SA ?lers in academic year 2017?2018. Prior, prior year allows students to ?le their FAFSAS with income data from two years prior as Opposed to one year prior. Since HESAA uses the PAP SA to determine eligibility for state funded aid this announcement was carefully studied by our Grants and Scholarship staff. While we think it may increase the number of requests for reevaluation of eligibility because of more recent changes in an .individual's ?nancial circumstances, on balance we believe it will allow students to ?le earlier, receive eligibility determinations sooner in the process, and therefore be better equipped to make school selection decisions armed with the knowledge of how much assistance they will receive. We have also done some legal research with respect to this initiative and have determined that no statutory or regulatory changes are required to state law in order for I-IESAA to be able to utilize prior, prior year data. Although there never seems to be a slow time at I-IESAA, certainly the summer is our busiest season. This summer was exceptionally busy due in part to the hacking in May of the Internal Revenue Service's computer system. Following the hacking, the - for security reasons - prohibited tax ?lers from downloading their tax return transcripts requiring them to wait for paper copies to be sent via postal mail. This in turn caused a number of delays for state grant recipients as HESAA requires tax return transcripts for those students selected for veri?cation. Despite the busy time of year and the attendant challenges, I want to commend Heather Hillman who runs our Customer Care line and her staff. I received a number of complimentary letters and emails from students and parents this summer. I can't share them all with you but I would like to read part of one, "Hi Heather, I can't thank you enough for all the help you gave me. You even called me back on a Saturday! You had answers to all my questions, and if you didn't have them readily available, you found them and called me with them. Although the Customer Care line is always front and center in responding to inquiries they are not the only individuals at who provide quality customer service. Two weeks ago, I received an email ?rom an administrator at Middletown High School South who wrote am sending this email to praise to two employees who work for your organization, Ms. Magda 1 1 Torres and Ms. Josette Greene. In the course of submitting information to the HESAA organization I encountered some dif?culty. Both Ms. Greene and Ms. Torres went above and beyond to give assistance. They were professional and well trained. I deal with all types of customer service situations on a regular basis and these ladies deserve acknowledgement for their ?ne work." NEW BUSINESS Student Advisory Committee Luis Padilla, chair of the SAC, requested input from the Board as to how the SAC could better serve the Board and the Community. Anthony Falcone and Christy Van Horn discussed ideas for the SAC members to provide education to the high schools. The Board agreed that as SAC members are closer in age to high school students, the students may respond to the college students better than school or I-IESAA of?cials. Shyam Sharma and Luis Padilla told the Board about an event they have scheduled at. Lodi High School in November. Anthony Falcone advised that it would be helpful for students to testify at the next College Affordability Study Commission hearing regarding. the importance of programs such as TAG. Dr. Larson advised that the SAC members may want to work with their sectors with regards to reaching out to legislators and testifying at budget meetings. There was additional discussion regarding how the SAC members could encourage on time FAF SA ?ling and assist with College Goal Sunday. ADJOURNMENT Mr. Falcone announced that after adjouming this meeting the Board would enter a closed session, pursuant to the Open Public Meetings Act, to discuss pending litigation. Ms. Grodrnan explained this would be a closed session pursuant to N.J.S.A. and (7) discussing private records and matters that fall under the attorney-client privilege. Details of the discussion pertaining to pending litigation can be disclosed to the public upon the conclusion of the litigation. A motion to adjourn and go to closed session was made by Mr. Bader Qarmout and seconded by Mr. James Allen. Mr. Falcone announced that the next regularly scheduled Board meeting is Thursday January 28, 2016 2015 at 2:00 PM. There will be ethics training conducted for all Board members immediately following the current meeting. The meeting adjourned at 11:30 am. 12 CHRIS CHRISTIE Governor KIM GUADAGNO Lt. Governor TO: FROM: SUBJECT: DATE: Summary State of New Jersey HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY 4 QUAKERBRIDGE PLAZA PO BOX 545 TRENTON, NJ 08625 - 0545 1-800-792-86 70 GABRIELLE CHARETTE, E50. Executive Director MEMORANDUM Members, Higher Education Student Assistance Authority HESAA Board Audit Committee Report of the Audit Committee and Resolution 17:15 Accepting and Adopting the Financial Statements and Independent Auditors? Reports for Fiscal Year 2015 October 22, 2015 Attached for your review, comment and adoption is Resolution 17:15 Accepting and Adopting the Financial Statements and Independent Auditors? Reports for Fiscal Year 2015. Background The Audit Committee of the Authority is comprised of the Chair, Vice-Chair and one public member of the Board, as well as a member of the Board having accounting or related ?nancial experience, which includes Anthony Falcone, Christy Van Horn, James Allen and Chris McDonough. The Committee met with representatives of CliftonLarsonAllen on October 15, 2015 to review and discuss the 2015 Financial Statements and CliftonLarsonAllen?s unmodi?ed reports. Recommendations The Audit Committee recommends that the HESAA Board accept and adopt the Financial Statements and Independent Auditors? Reports for Fiscal Year 2015. Attachment RESOLUTION 17:15 ACCEPTING AND ADOPTING THE FINANCIAL STATEMENTS AND INDEPENDENT REPORTS FOR FISCAL YEAR 2014 Moved by: Ms. Christy Van Horn Seconded by: Mr. James Allen WHEREAS: WHEREAS: WHEREAS: WHEREAS: WHEREAS: The Higher Education Student Assistance Authority (HESAA) prepared three separate ?nancial statements for Fiscal Year 2015 (?2015 Financial Statements?) which were audited by the independent auditor CliftonLarsonAllen and The members of the Board Audit Committee met with CliftonLarsonAllen LLP on July 23, 2015, prior to the commencement of the audit; and The members of the Board Audit Committee have received and reviewed the Financial Statements and the unmodi?ed reports of CliftonLarsonAllen LLP dated for the year ending June 30, 2015; and The members of the Board Audit Committee met with representatives of CliftonLarsonAllen LLP on October 15, 2015 to discuss the 2015 Financial Statements and Cli?onLarsonAllen?s unmodi?ed reports; and The members of the Board Audit Committee recommend that the HESAA Board accept and adopt the Financial Statements and Independent Auditors? Reports for Fiscal Year 2015. NOW THEREFORE, BE IT: RESOLVED: RESOLVED: That the HESAA Board accepts and adopts the Fiscal Year 2015 Financial Statements and Independent Auditor?s Reports as attached hereto; and be it further That the attached Fiscal Year 2015 Financial Statements and Independent Auditor?s Reports shall be posted on website at and submitted to the State Treasurer and Governor?s Authorities Unit. October 22, 2015 New Jersey State Legislature Of?ce of Legislative Services Office of the State Auditor EXECUTIVE SUMMARY HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY We found the ?nancial transactions included in our testing were in compliance with enabling legislation, were reasonable, and were recorded properly in the accounting systems. We also found the HESAA was meeting its administrative responsibilities for the grant, scholarship, and loan programs. In making these determinations, we noted certain internal control and compliance weaknesses meriting management?s attention concerning the re-employment of retirees, the NJCLASS Program, the Law Enforcement Of?cer Memorial Scholarships Program, and the NJBEST. We further determined select general controls over the information systems were adequate, however, we noted weaknesses in the areas of system access controls and risk assessment/ security plan that merit management?s attention. We also made an observation concerning contracted temporary employees. AUDIT HIGHLIGHTS 0 Select contracts with employment agencies contained ?pass-through? agreements, through which the HESAA recommends individuals to be hired by the employment agencies and assigned to the HESAA. Nine former employees have returned to the HESAA through these agreements, including six former employees currently collecting a state pension. Although on the employment agencies? payrolls and charged under the contracts, the HESAA maintains complete control over the rate of pay, locations, assignments, and supervision of these employees. In addition, these individuals are performing job duties similar to their previous HESAA employment. The circumstances surrOunding the current retirees working under these contracts appear to be a circumvention of post?retirement rules and there is suf?cient evidence to refer the matter to the Division of Pensions and Bene?ts for further review. 0 The NJCLASS program makes loans available for the bene?t of students who have additional ?nancial need beyond a federally insured student loan and who meet the established eligibility criteria. Our audit of this loan program disclosed internal control and/or compliance de?ciencies in the areas of maximum loan amounts, reporting and tracking of loan fraud, loan forgiveness, and Internal Revenue Service reporting. 0 We reviewed the general controls for three systems (NJGRANTS, NJCLASS, and NJLOANS) that contain student application and institutional data for grants, scholarships, and loans. Our review found that HESAA does not have formal policies and procedures for granting and removing user access to the three systems. Our review of individuals with access to at least one of the HESAA systems noted a number of Logon IDs that should be reviewed for removal and passwords that were not updated. AUDITEE RESPONSE The department generally concurs with our ?ndings and recommendations. For the complete audit report or to print this Executive Summary, click on the attached ?les. New Jersey State Legislature Of?ce of Legislative Services Of?ce of the State Auditor Higher Education Student Assistance Authority July 1, 2013 to April 30, 2015 Stephen M. Eells State Auditor LEGISLATIVE SERVICES COMMISSION OFFICE OF THE STATE AUDITOR VINCENT (609) 847-3470 Chairman FAX (609) 633-0834 SENATOR STEPHEN M. BELLS . ANAR. THOMAS KE Stave 3mm; 5m ?35:an Assistant State Auditor ?1333? mm? OFFICE OF LEGISLATIVE SERVICES JR OFFICE OF THE STATE AUDITOR JOSEPH 125 SOUTH WARREN STREET STEPHEN M. SWEENEY PO BOX 067 LORETTA WEINBERG TRENTON NJ 08625 0067 GENERAL ASSEMBLY JON M. BRAMNICK DAVID J. ROSEN ANTHONY M. BUCCO . . JOHN J. Arecmn'c Dzrecfor THOMAS P. GIBLIN (609) 847-390] LOUIS n. GREENWM-D ALISON Ll'i'l?ELl. MCHOSE scow T. RUMANA The Honorable Chris Christie Governor of New Jersey The Honorable Stephen M. Sweeney President of the Senate The Honorable Vincent Prieto Speaker of the General Assembly Mr. David J. Rosen Executive Director Of?ce of Legislative Services Enclosed is our report on the audit of the Higher Education Student Assistance Authority for the period of July 1, 2013 to April 30, 2015. Ifyou would like a personal brie?ng, please call me at (609) 847-3470. Stephen . Eells State Auditor October 6, 2015 HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY Table of Contents Scope .. 1 Objectives .. 1 Methodology .. .1 Conclusions .. .. 2 Findings and Recommendations Former HESAA Employees Placed on Employment Agency Payroll .. 3 New Jersey College Loans to Assist State Students (NJ CLASS) Pro 4 Law Enforcement Of?cer Memorial Scholarships Program .. New Jersey?s 529 College Savings Plan (NJBEST) .. 6 System Access Controls .. 7 Risk Assessment/Security Plan .. 8 Observation Contracted Temporary Employees .. 9 Auditee Response .. 10 HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY Scope We have completed an audit of the Higher Education Student Assistance Authority (HESAA) for the period July 1, 2013 to April 30, 2015. Our audit included ?nancial activities accounted for in the state?s General Fund and the authority?s off-line accounts. The HESAA is a component unit of the state and is organizationally considered in, but not of, the. Department of State. The HESAA functions independent of any supervision and control by the department as a non?pro?t, state?designated authority. The HESAA administers New Jersey?s student grant and scholarship programs including the Tuition Aid Grant (TAG) and the New Jersey Student Tuition Assistance Reward Scholarship (NJ STARS) Programs. In addition, it administers the New Jersey College Loans to Assist State Students (NJCLASS) Program and the New Jersey Better Educational Sayings Trust HESAA expenditures for the audit period totaled $822 million, I - -. We also reviewed certain general controls over the information systems including security management, physical security, contingency planning, change management, and logical access. Objectives The objectives of our audit were to determine whether ?nancial transactions, were in compliance with enabling legislation, were reasonable, and were recorded properly, in the accounting systems. An additional objective was to determine whether the- HESAA was meeting its administrative responsibilities for the grant, scholarship, and loan programs. We also determined the adequacy of select general controls over the information systems including security management, physical security, contingency planning, change management, and logical access. I This audit was conducted pursuant to the State Auditor?s responsibilities asset forth in Article VII, Section 1, Paragraph 6 of the State Constitution and Title 52 of the New Jersey Statutes. Methodology Our audit was conducted with Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain suf?cient, appropriate evidence to provide a reasonable basis for our ?ndings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our ?ndings and conclusions based on our audit objectives. In preparation for our testing, we studied legislation, the administrative code, circular letters promulgated by the Department of Treasury, and the pelicies of the HESAA. Provisions that we considered signi?cant were documented and compliance with those requirements was veri?ed by interview, observation, and through our testing of ?nancial transactions and student records at the HESAA and at selected institutions. We also read budget messages, reviewed ?nancial Page 1 HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY trends, and interviewed HESAA and institution personnel to obtain an understanding of the programs and the internal controls. A nonstatistical sampling approach was used. Our samples of ?nancial transactions were judgmentally selected and were designed to provide conclusions about the validity of transactions, as well as internal control and compliance attributes. Our samples of grant, scholarship, and loan recipients were judgmentally selected and designed to determine eligibility and program compliance. Conclusions We?found the ?nancial transactions included in our testing were in compliance with enabling legislation, were reasonable, and were recorded properly in the accounting systems. We also found the HESAA was meeting its administrative responsibilities for the grant, scholarship, and - loan programs. In making these determinations, we noted certain internal control and compliance weaknesses meriting management?s attention concerning the re-employment of retirees, the NJ CLASS Program, the Law Enforcement Of?cer Memorial Scholarships Program, and the NJBEST. We further determined select general controls over the information systems were adequate, however, we noted weaknesses in the areas of system access controls and risk assessment/security plan that merit management?s attention. We also made an observation concerning contracted temporary employees. Page 2 HIGHER EDUCATION STUDENT ASSISTANCE Aurnonrrv Former HESAA Employees Placed on Employment Agency Payroll Practice appears to circumvent the Division of Pensions and Bene?ts post?retirement rules. The HESAA augments its workforce through contracts with a number of employment agencies. Within certain contracts the HESAA established pass?through agreements, through which the HESAA recommends indiyiduals to be hired by an employment agency and assigned to the HESAA- Nine former employees. have returned to the HESAA through these agreements, . including six former employees currently collecting a state pension. Although on the employment agencies? payrolls and charged under the contracts, the HESAA maintains complete control over the rate of pay, locations, assignments, and supervision of these employees. In addition, these individuals are performing job duties similar to their previous HESAA employment. For their general "and administrative role, the employment agencies receive fees ranging from 22 percent to 30 percent above the employees? hourly rates, totaling over $100,000 during the audit period. New Jersey Statutes provide for post-retirement work restrictions that limit the amount of annual earnings and New Jersey Administrative Code requires ?Bona tide severance from employment? before the re?employment of retired members from any of New ersey?s state? administered retirement systems. This is necessary to comply with Internal Revenue Code requirements. In addition, there is a form for all state agencies titled, ?Noti?cation of Employment after Retirement", which should be submitted within 15 calendar days of the date of hire for review by the Division of Pensions and Bene?ts. The circumstances surrounding the current retirees working under these contracts appear to be a circumvention of these post? retirement rules and there is suf?cient evidence to refer the matter to the Division of Pensions and Bene?ts for further review. HESAA also operates a summer internship program in a similar vein in which they select the indiViduals and establish the hourly rate of pay but use the employment agency as the conduit. Recommendation We recommend the HESAA refer this matter to the Division of Pension and Bene?ts. In addition, they should discontinue their practice of placing former employees or retirees on employment agencies? payrolls. If there is a continued, justi?able need for the services provided by these individuals, they should be brought back as employees on the authority?s payroll, subject to the limitations and requirements set by the Division of Pensions and Bene?ts. MM . Page 3 HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY l" Newr Jersey College Loans to Assist State Students (NJCLASS) Program Program controls need to be strengthened. The NJCLASS program established within the HESAA, ?shall make loans available in such amounts necessary to ensure that student loans remain generally available to, or for the bene?t of, eligible students who are not eligible for, or have additional ?nancial need beyond, a federally insured student loan and who meet the established eligibility criteria?. Our audit of the . 'loan program disclosed internal control and/or compliance de?ciencies in the areas of maximumloan amounts, reporting and tracking of loan fraud, loan forgiveness, and Internal; Revenue Service reporting. - Maximum Loan Amount New Jersey Statutes state a maximum loan amount should be established based on such factors as the cost of attending a particular institution, family income, value of family assets, or other factors the HESAA may consider relevant. We found the HESAA has not established a maximum loan amount or any formulaic process to determine one on a case?by?case basis. This has resulted in 1,242 individuals that have had total loans disbursed over $200,000; whether student, co?borrowcr, and/or cosigner. In one instance, a family of six with a combined parental - yearly income of $181,000, residing in a house valued at approximately $163,000, received loans totaling $832,395. A Reporting and Tracking of Fraud New Jersey Statutes state that any person who having obtained an NJCLASS loan, solicits, applies for, or acceptssuch loan or any person who knowingly or will?illy furnishes any false or misleading information for the purpose of obtaining a loan, or enabling another to obtain a loan, shall be guilty of a crime of the fourth degree. We found the HESAA determined 16 individuals in 2013 and 7 individuals in 2014 had allegedly obtained 39 individual loans totaling $456,727 fraudulently and did not refer them to the New Jersey Of?ce of the Attorney General for prosecution. We further found a HESAA policy that states when an individual declares they were put on a loan fraudulently, their information is completely removed from the NJCLASS system. This prevents the HESAA from performing edit checks on future. applications to identify similarities with past fraudulent activity. . Forgiveness The New Jersey Administrative Code establishes rules governing the discharge of NJ CLASS loan balances for death or total and permanent disability of a borrower. These rules also state that other borrowers or co?signer's of the loan would remain obligated to repay the loan. The HESAA executive staff created an internal policy, without seeking the HESAA Board?s approval, which allows the two individuals which currently comprise the executive staff to forgive loan obligations of other borrowers and co?signers. The NJCLASS trust is refunded Page 4 HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY - through the HESAA general revenue sources without board involvement. HESAA management has stated that the approval of the HESAA Board was not required for this policy. We found from July 2013 to August 2014, HESAA executive staff approved seven other borrowers or co- signers for loan forgiveness totaling $21 1,5 95. Internal Revenue Service Reporting The Internal Revenue Service requires a Form Cancelation of Debt for any student loan principal canceled of $600 or more to be sent to the taxpayer and to the Internal Revenue Service. We found seven individuals that should havereceived a Form 1099-C for calendar year 2013 totaling $211,554 but did not. Principal amounts canceled ranged from $818 to $76,487. In addition, we found one individual that received a Form for $39,166 representing four loans when the actual amount canceled totaled $52,835 for ?ve loans, a difference of $13,669. Recommendation We recommend the HESAA improve their internal control and/or compliance de?ciencies in . the areas of maximum loan amounts, reporting and tracking of hand, forgiveness, and Internal Revenue Service reporting. Speci?cally HESAA should: a Comply with New Jersey Statutes by establishing a maximum loan amount. 0 Refer all suspected fraud cases to the Attorney General?s O?ice and maintain the names on the NJ CLASS system. 0 Obtain approval from the HESAA Board for the loan forgiveness policy. In addition, the Board should be included in the loan forgiveness process to ensure transparency. - Comply with Internal Revenue Service requirements and issue Form when applicable. WW Law Enforcement Of?cer Memorial Scholarships Program Improvements should he made to the payment process. The Law Enforcement Of?cer Memorial Scholarships Program provides scholarships for undergraduate study at eligible New Jersey institutions of higher education for the dependent children of New Jersey law enforcement of?cers killed in the line of duty. The amount of the recipient?s scholarship is determined annually and is renewable for up to four years. Certi?cations are sent to the institutions to verify the dependent is currently registered for the semester and making satisfactory academic progress. In addition, the HESAA requests certi?cation of the student?s enrollment status (full or part?time) and the cost of attendance Page 5 HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY depending upon whether the student commutes or boards at the institution. Eight individuals received at least one scholarship for the period Fall 2013 through Fall 2014 totaling $194,438. Our review of those scholarships found. four instances of improper payments and. noncompliance with the New Jersey Administrative Code (NJ AC) including the following. a $15,274 was sent to an institution even though the certi?cation stated the student was not enrolled. The institution noted the error and subsequently returned the funds. in $21,465 was sent to an institution-even thoughthe certi?cation stated the cost of attendance would be $9,625 resulting in an overpayment of $1 1,840. a $5,248 was sent to an institution even though the certi?cation stated the student was part? time. The NJAC requires the student to be currently enrolled, or plan to be enrolled, as a full-time undergraduate student. 0 $12,648 was sent to an institution even though the certi?cation stated the cost of attendance would be $6,336. The amount paid was based on the cost of attendance shown on the institution?s internet site. In addition, the NJAC requires that students should receive noti?cation specifying the amount of the scholarship based on their annual cost of undergraduate study and other available state ?nancial assistance. No noti?cations were made to the students. Recommendation We recommend the HESAA strengthen the overall review process of the certi?cations received. from the institutions. In addition, the HESAA should provide student noti?cations as required by the New Jersey Administrative Code. New Jersey?s 529 College Savings Plan (NJBEST) Accurate and complete data should be maintained and utilized for scholarship awards. A database used by the HESAA to administer the scholarship portion of the New Jersey Better Educational Savings Trust (NIBEST) was found to contain inaccurate and incomplete data for the issuance and tracking of scholarships. NJBEST is a quali?ed tuition savings program administered by the HESAA. An investment management ?rm is under contract to manage the college cost savings portion of the program and provide the HESAA with account information which they use to administer an associated scholarship program. On average, 548 one?time scholarships totaling $592,000 are awarded annually to individuals within the NJBEST program. Scholarships are awarded to students who attend a New Jersey institution of higher education and meet eligibility requirements which include having a NJBEST account for at Page 6 HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY least four years; making account contributions of $1,200 or greater; and having made a quali?ed withdrawal from the account. We found the database of 15,000 records contained 25 individuals 1with two social security numbers, 143 individuals on the database twice, and 1,133 individuals who received scholarships totaling $1.1 million with a blank disbursement date ?eld, which would document the required withdrawal was made. Six months after the initial review of thedatabase, HESAA provided an updated database which also included inaccurate and incomplete data. Although improvements had been made, the database included 14 individuals that had two social security numbers, 4 individuals were on the database twice, and 1,104 individuals received scholarships totaling $1.1 million with blank disbursement date ?eld. In addition, we noted one individual, who appeared twice on the database, received two scholarships: one for $1,250 in January 2014 and another for $1,500 in November 2014. . Recommendation We recommend the HESAA establish an accurate and complete database to include all of the eligibility requirement information to ensure the scholarships are only given when requirements are met by the student. Wm System Access Controls Access control policies and procedures should be formally developed and properly implemented. The HESAA utilizes three application systems to help meet its goals and objectives. We reviewed the general controls for the three systems (NJ GRANTS, NJ CLASS, and NJLOANS) that contain student application and institutional data for grants, scholarships, and loans. Our review found that HESAA does not have formal policies and procedures for granting and removing user access to the three systems. Attached to user access request forms there is a Summary of Security Awareness for HESAA Systems (summary). The summary outlines that inactive logon will be suspended after 6 months and deleted after one year. In addition, logon' passwords are required to be changed every 90 days. Access to the systems is granted to staff and contracted employees at the HESAA, in?state and out-of-stateinstitutions, lenders, and attorneys. Our review of the 942 individuals with access to at least one of the HESAA systems disclosed the following. There were 80 logon IDs that had not accessed a system in greater than six months. 9 There were 21 logon IDS that had not accessed a system in greater than one year. 0 There were 305 logon IDs that had not updated passwords in greater than 90 days. Page 7 STUDENT ASSISTANCE AUTHORITY An additional review of system access found the following. 0 Seven users had multiple logon IDs associated With their name, one of which had three separate logon IDs. Separated employees are not removed timely. Three of forty full?time employees separated between. July 1, 2012 and December '31, 2014 did not have their access removed timely from the system, one of which had access removed 124 days after the date of separation. Six of forty-two separated temporary employees during that same time period did not have their access removed timely, one of which had access removed 60 days after the date of -separation.- Federal Information System Controls Audit Manual (F ISCAM) standards require application access control policies be formally developed, documented, and properly implemented. Effective application access controls provide reasonable assurance that only authorized personnel have access to the application and only for authorized purposes. Recommendation We recommend the HESAA formally develop and implement access control policies and procedures including the guidelines within the Summary of Security Awareness for HESAA Systems. In addition, separated individuals should be removed from the systems in a timely manner. more Risk Assessment/Security Plan A security plan should be formally developed to identify threats to each system. Federal Information System Controls Audit Manual (FISCAM) standards require the development, documentation, and implementation of a security plan based on a risk assessment of each system or application. The lack of a comprehensive security plan increases the risk that existing controls may be ineffective or inadequate to protect the application and its data against - unauthorized use, disclosure, modi?cation, in loss. Our review found no evidence that risk assessments are performed or documented. In addition, no formal security plan has been developed, documented, and implemented for the NJGRANTS and NJCLASS systems. A formal security plan has been developed for the NJLOANS system, but it is outdated and does not include certain key information that should be included pursuant to the FISCAM standards. Page 8 HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY Recommendation We recommend HESAA formally perform risk assessments and develop, document, and implement'security plans for each application or system pursuant to the FISCAM standards. WW Observation Contracted Temporary Employees The Fiscal Year 2015 workforce as presented in the 2016 State Budget indicates that the authority operates with a workforce of 134 employees. However, the HESAA has an additional 110 individuals on staff through the use of temporary employment agencies. This distorts the actual workforce needed to operate the authority and it would appear to be a questionable business practice to have such a high percentage of employees with little or no ?ownership? for the mission of the HESAA and having access to customer data. In addition, we noted a temporary employee holding an Assistant Director position and ?fteen temporary employees that have been assigned to the HESAA for over four years. was Page 9 State of New Jersey HIGHER EDUCATION STUDENT ASSISTANCE 4 PLAZA CHRIS CHRISTIE p0 30X 545 NJ 08625- 0545 KIM GUADAGNO 1 600-792?236 70 (humane Cmm?ra ESQ. Lt. Governor gsaa. org Exawtwe Director September 29, 2015 Mr. John .I. Termyna, Assistant State Auditor Office of the State Auditor 125 South Warren Street PD. Box 067 Trenton, NJ 08625-0057 Dear Mr. Termyna: Thank you for the opportunity to review and respond to the draft audit report regarding the Higher Education Student Assistance Authority (HESAM for the period July 1, 2013 to April 30, 2015. I am pleased that the audit concluded that HESAA's ?nancial transactions were in compliance with enabling legislation, were reasonable, were recorded properly in the accounting systems and that HESAA was meeting its administrative reSponsibility for the grant, scholarship and loan programs. Notwithstanding the above, the audit noted some matters which merit management's attention. Below, HESAA offers information on the current status of these matters, as well as our corrective actions to address these matters and their corresponding recommendations. Former HESAA Employee's Placed on Employment Agency Payroll Recommendation: We recommend the HESAA refer this matter to the Division of Pension and Benefits. in addition, they should discontinue their practice of placing former employees or retirees on employment agencies' payrolls. if there is a continued, justi?able need for the services provided by these individuals, they should he brought back as employees on the authority's payroll, subject to the limitations and requirements set by the Division of Pensions and Benefits. J. Termyna 2 September 29, 2015 Response: HESAA has contacted the New Jersey Division of Pensions and Bene?ts (Division) to confirm that its hiring practices comply with applicable rules governing the employment of retirees. HESAA will fully comply with the Division's guidance on this matter. New Jersey College Loans to Assist State Students Program Recommendation: We recommend the HESAA improve their internal control and/or compliance deficiencies in the areas of maximum loan amounts, reporting and tracking of fraud, forgiveness, and internal Revenue Service reporting. Spech?ically HESAA should: Comply with New Jersey Statutes by establishing a maximum loan amount. Refer all suspected fraud cases to the Attorney General '3 Office and maintain the names on the NJCLASS system. Obtain approval from the HESAA Board for the loan forgiveness policy. in addition, the Board should be included in the loan forgiveness process to ensure transparency. Comply with internal Revenue Service requirements and issue Form when applicable. Response: With respect to the first bullet, HESAA believes its regulation at NJ.A.C. which states in pertinent part "the amount borrowed for an Loan Program loan shall not exceed a student's estimated cost of attendance at the eligible institution minus all other ?nancial assistance for which the student is eligible for the academic period for which the loan is intended" does establish maximum loan amounts in compliance with the statute. It should be noted that before HESAA makes any NJCLASS loan, we require school certi?cation to ensure that the amount of the loan is the cost of attendance less all other financial assistance. In cases where the loan is not certi?ed, HESAA cancels the loan. If the loan is certified for an amount less than requested by the borrower, HESAA only approves the loan for the certified amount. Notwithstanding the above, we understand that the State Auditor believes that a maximum loan amount should be a speci?c aggregate dollar amount, rather than the cost of attendance less other ?nancial aid. Given the negative consequences of over-borrowing for both the borrowers and the Authority, HESAA has formed an internal Task Force to look at this issue and determine an appropriate aggregate dollar amount. With respect to the second bullet, upon this issue being brought to our attention, we immediately began referring all fraud cases to the Attorney General's Office. J. Termyna 3 September 29, 2015 As to maintaining the names on the NJCLASS system, it is important to note that when a fraud or forgery is reported to HESAA, the alleged victim must submit documentation including a police report to HESAA to support his/her claim. HESAA then thoroughly investigates the claim and renders a determination in the matter. After the investigation is complete, and only when it is determined that a fraud or forgery actually occurred, will HESAA remove the victim's name from the loan record to prevent any further credit reporting of the victim in accordance with the federal Fair Credit Reporting Act. HESAA believes that not removing an individual who has successfully demonstrated that he/she is a victim of fraud or forgery could unfairly prejudice that individual in future loan applications. However, should a victim of fraud be released from a loan, co-sign a subsequent loan and then claim they were victimized a second time, HESAA in the second investigation will have the individual's history and will give the subsequent claim of fraud or forgery the additional scrutiny it merits. Finally, it should be noted that when one individual successfully demonstrates fraud or forgery, all other parties to the loan remain on the system so that in the event the perpetrator of the fraud or forgery attempts to apply for additional loans his/her application will be flagged and handled appropriately. With respect to the third bullet, the agenda for the upcoming October 22, 2015 Board meeting will include approval of the loan forgiveness policy. In addition, the Board will be fully briefed on all loan forgiveness requests received, granted or denied during Fiscal Year 2015. Due to the Personally identi?able Information (Pll) in the loan forgiveness applications, this briefing will take place in closed session and will occur on an annual basis each October for the ?scal yearjust ended. With respect to the fourth bullet, HESAA concurs with the State Auditor's ?nding and has implemented a reconciliation process between the Finance Department and the Servicing and Collections Unit to ensure that all cases of loan discharge and/or loan forgiveness are reported appropriately to the ?85 on a Form 1099-(2 and in the timeframes mandated by the IRS. Law Enforcement Of?cer Memorial Scholarships Program Recommendation: We recommend that the HESAA strengthen the overall review process of the certifications received from the institutions. In addition, the HESAA should provide student noti?cations as required by the New Jersey Administrative Code. Resgonse: HESAA concurs that a strengthening of the overall review process was necessary and has taken steps to achieve same. For example, HESAA has reformatted the school and HESAA certi?cation form to clearly indicate to the schools and HESAA staff the certification steps that must be followed and the eligibility criteria that must be met. in addition, HESAA has implemented a final review process that requires all approved applications be re-checked one last time prior to payment. HESAA concurs that students should be notified directly by the Authority and'will do so on a going forward basis. J. Termyna 4 September 29, 2015 'Finally, it should be noted that in the cases cited in the report where errors were made, all erroneous payments were refunded to the Authority. New Jersey's 529 College Savings Plan Recommendation: We recommend the HESAA establish an accurate and complete database to include all of the eligibility requirement information to ensure the scholarships are only given when requirements are met by the student. Response: HESAA concurs with this recommendation; and since this matter was initially brought to our attention, we have been working with Franklin Templeton to re?ne the data ?le they provide to us. The file Franklin Templeton now sends HESAA contains the necessary eligibility criteria including disbursement dates. With respect to duplicate individuals appearing on the report, each instance must be investigated on a case by case basis, to make sure that they are indeed duplicates and not individuals who have more than one NJBEST account. Both HESAA and Franklin Templeton have established procedures and processes to ensure that true duplicates are culled from the file. Systems Access Controls Recommendation: We recommend the HESAA formally, develop and implement access control policies and procedures including the guidelines within the Summary of Security Awareness for HESAA Systems. in addition, separated individuals should be removed from the systems in a timely manner. Response: HESAA concurs with this recommendation and we are in the process of developing and implementing access control policies and procedures which will address, among other things, removing system access for separated individuals in a timely manner. Risk AssessmentlSecur'm: Plan Recommendation: We recommend HESAA formally perform risk assessments and develop, document, and implement security plans for each application or system. J. Termyna 5 September 29, 2015 ?6520058: HESAA Concurs with this recommendation and will develop, document, and implement security plans for each application or system which will include key information pursuant to FISCAM standards. Development of the plans will include a risk assessment phase. Contracted Temporary Employees While pleased with the services rendered by our temporary employees, HESAA recognizes the benefits of hiring full~time employees and has made significant strides in this direction. To date, numerous job postings have been issued, search committees formed, interviews conducted and most importantly quali?ed candidates hired. Speci?cally, with respect to the Assistant Director position noted in the audit, HESAA has identified a quali?ed candidate, received the requisite approval to hire, and made an offer that was accepted with an anticipated start date of Monday, October 5, 2015. In closing, I would like to thank your audit staff for their diligent work and the professionalism they exhibited throughout their time at HESAA. if you have any questions, pleasedo not hesitate to contact me directly. Charette, Esq. Executive Director State of New Jersey HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY 4 QUAKERBRIDGE PLAZA CHRIs CHRISTIE p0 30X 545 Govemor TRENTON, NJ 08625 -0545 KIM GUADA GNO 1 -800-792-86 70 GABRIELLE CHARETTE, E50. Lt. Governor hesamorg Executive Director 0 A TO: Members, Higher Education Student Assistance Authority FROM: Gabrielle Charette, BM Executive Director SUBJECT: Report of the Budget Committee and Resolution 18:15 Adopting a Board Budget Policy Statement for Fiscal Year 2017 DATE: October 22, 2015 Summary Attached for your review, comment and adoption is Resolution 18:15 Adopting a Board Budget Policy Statement for Fiscal Year 2017. Dr. Jon Larson will report the results of the Budget Committee?s meeting. In general, the Committee?s recommendation for FY 2017 continues support for those policies advanced in Fiscal Year 2016. Background The Budget Committee of the Authority is comprised of the Executive Committee of the Board, which includes Gabrielle Charette, Anthony Falcone, Christy Van Horn, James Allen and Jon Larson. The Committee met on October 1, 2015 with HESAA staff to develop a Board Budget Policy Statement for Fiscal Year 2017. Recommendations The Budget Committee recommends adoption of the attached policy statement and Resolution 18:15. Attachments (2) RESOLUTION 18:15 ADOPTING A BOARD BUDGET POLICY STATEMENT FOR Moved by: Seconded by: WHEREAS: WHEREAS: STATE FISCAL YEAR 2017 Mr. Bader Qarmout Ms. Maria Torres The Higher Education Student Assistance Authority (I-IESAA) Board is responsible for recommending budget policies in support of New Jersey?s student ?nancial aid programs; and On October 1, 2015 the Board?s budget committee met with staff to review background information and to draft a FY 2017 budget policy statement for consideration by the full Board. NOW THEREFORE, LET IT BE: RESOLVED: RESOLVED: RESOLVED: That the HESAA Board strongly af?rms the importance of preserving education access and affordability for all residents of the State of New Jersey and recognizing academic achievement; and be it further That the Board hereby adopts the budget policy statement for FY 2017 as advanced by the budget committee and described in the attachment to this resolution; and be it ?lrther That HESAA shall endeavor to maximize FY 2017 resources available for State-funded student assistance programs in keeping with the attached budget policy statement, subject to re?nement of underlying projections. October 22, 2015 FY 2017 BUDGET POLICY STATEMENT FOR THE HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY BOARD Pursuant to N.J.S.A. 18Az7lA?9f., the Higher Education Student Assistance Authority (I-IESAA) is the lead State agency in determining policy on student assistance issues. Consequently, the HESAA Board is charged with developing budget recommendations for all programs administered by the Authority. These recommendations are submitted to the Executive Director for review and submission to the Division of Budget and Accounting. The Board would like to take this opportunity to thank Governor Christie and the Legislature for their sustained support of New Jersey?s State grant and scholarship programs during these challenging ?scal times. Moreover, the Board, on behalf of the students and families served, would also like to express its appreciation for this on-going commitment. During the 2015-2016 academic year, the State?s ?nancial aid programs will provide approximately 87,000 awards to State residents to pursue a postsecondary education, ultimately bene?tting New Jersey?s economy. The Fiscal Year 2017 Budget Policy Statement reflects the Board?s fundamental principles of promoting access and affordability to postsecondary education for New Jersey residents through need- based student ?nancial aid and merit?based scholarship programs. In formulating this budget policy recommendation, the Board remained mindful of its role as student advocate to achieve full funding of the full-time TAG Program, while recognizing the on-going ?scal challenges facing the State of New Jersey. Funding requirements based on various TAG table parameters were reviewed. The Board feels that the ?mding recommendation outlined below is the most reasonable in light of the State?s ?scal challenges and the needs of New Jersey students and families. However, it wishes to reaf?rm its long?standing commitment to achieve full funding of the full-time TAG Program and affordability, access and choice for all students. The full-time TAG Program is one of the most important sources of aid available to low? and middle?income New Jersey students, who must cover ever-increasing postsecondary education expenses. Full funding of the TAG Program would help these students meet expenses and achieve their educational goals, ultimately bene?tting New ersey?s economy. The funding recommendations and priorities staff will advance over the course of the budget process will re?ect the Board?s position as expressed in this policy statement. General Policy Recommendations 0 The role of the HESAA Board in the budget process is to advocate policies that advance higher education access, choice, affordability, and academic achievement for New Jersey residents. 0 The Board supports, as its funding priority, ensuring protection of the State?s historical commitment to all eligible full-time students under the need-based TAG Program. 0 The Board supports continued funding of the Part-Time TAG Program for County College Students. 0 Future award values, funding and expenditures for the Part-Time TAG Program for County College Students, from year to year or within a year, must always be considered separately from award values, funding and expenditures for the full?time TAG Program because TAG and Part- Time TAG are separate line items in the State budget. 0 FY2017 is the ?fth year of the Govemor?s Urban Scholarship providing $1,000 renewable scholarship awards to students who rank in the top 5% of their class with a GPA of 3.0 or higher and demonstrate ?nancial need, no matter whether they attend a public or non-public high school. Students must reside in but not necessarily attend high school in one of 14 high-need communities identi?ed by the NJ Department of Education and the NJ Department of Community Affairs. Key to maintaining higher education access and affordability for New Jersey families is the ability of State grant programs to provide predictability and stability to ?nancially needy students and their families and the institutions they seek to attend. With this goal in mind, we present the following funding recommendations: Funding Policy Recommendations Tuition Aid Grants for ull-Time Students The I-IESAA Board recommends the following funding policies for full-time TAG: 0 Awards to all eligible students who apply by the application deadlines. Continue to provide full?time TAG awards using the base?year percentage increase structure. Beginning in FY 2015, full-time TAG awards were structured on a base-year percentage increase. The base-plus percentage structure ensures all awards, in all eligibility indexes at all institutions are increased by a percentage that is ?xed annually. - Recognize an increase in the number of eligible recipients to include 2,000 additional new awards. Provide for a contingency mechanism that ensures suf?cient reserves to cover increases in program costs not anticipated in the budget. Part-Time Tuition Aid Grants for EOF Students The Board recommends funding for the Part-Time TAG for EOF Students Program at a level suf?cient to maintain the current program and re?ect any increases in TAG. Part-Time Tuition Aid Grant Proaram for County College Students In accordance with the Board?s long-standing tenets for this program, provide awards to all eligible students who apply by the application deadlines at one-half or three-quarters of the dollar value of full-time awards, within available funding levels. NJ Student Tuition Assistance Reward Scholarship/NJ Student Tuition Assistance Reward Scholarship 11 Programs The Board recommends continued funding to support all students who meet the eligibility requirements of the NJ STARS and NJ STARS 11 Programs. Governor?s Urban Scholarship Program The Governor?s Urban Scholarship Program, created in 2012, provides New Jersey high school students who reside in 14 high?need communities identi?ed by the Department of Education (DOE) and the Department of Community Affairs (DCA) the opportunity and resources they need to pursue higher education opportunities. For FY 2017 the ?fth class of $1,000 renewable scholarship awards will be made available to New Jersey high school graduates who rank in the top 5% of their class with a GPA of 3.0 or higher and demonstrate ?nancial need, no matter whether they attend a public or non-public high school. In addition, a persistency award of $500 is provided to students in their ?nal term of the scholarship upon completion of their associate or baccalaureate degree. The Board recommends continued funding to support the Governor?s Urban Scholarship recipients. All Other HESAA Programs Funded through State Appropriations The Board recommends funding the following programs as indicated below: Survivor Tuition Bene?ts Program To fund anticipated program participants, projected program balances will be sufficient to fund FY 2017 awards. World Trade Center Scholarship Program Recognizing that the program is committed to funding the majority of the students through 2024, the Board requests increasing funding by $113,000 for a total of $315,000 for FY 2017 to maintain scholarships at current award value of $5,000 per year. Primary Care Practitioner/Nursng Faculty Loan Redemption Program The Board recommends continuation of level funding for this program which provides funding for both redemption of student loans for practitioners in medically underserved areas across the State as well as funding for the Nursing Faculty Loan Redemption Program which is one mechanism for addressing the State?s current critical shortage of both nurses and nursing faculty. HESAA Revenue and Fee-Supported Programs Federal Family Education Loan Program (FFELP) Federal Direct Loan Servicing New Jersey College Loans to Assist State Students (NJCLASS) New Jersey Better Educational Savings Trust (NJBEST) Program NJBEST Scholarships Law Enforcement Of?cer Memorial Scholarship Program World Trade Center Scholarship Program (Public and Private Donations) FOR INFORMATION ONLY THIS PAGE IS NOT PART OF THE RESOLUTION Estimated Additional" State Appropriations Necessary to Implement the HESAA Board?s FY 2017 Budget Policy Statement Full?Time Tuition Aid Grants Provides awards for students based on their current award levels plus a percentage increase not to exceed Table assumes 68,048 awards An increase of 2,000 additional new awards $17,817,000 Part-Time TAG for County Colleges Provides pro-rated full-time TAG awards to students enrolled part-time (6-1 1 credits) Table assumes 12,619 half-time and full?time awards No increase in the number of awards $160,915 NJ STARS 11 NJ STARS provides scholarships to cover up to the cost of tuition for students who graduate in the top 15% of their class and attend their county college full?time. NJ STARS II is a continuation of NJ STARS. The scholarship of up to $2500 is available for graduating NJ STARS who transfer to New Jersey four-year public and private colleges and universities. No increase in the number of awards Recognizes anticipated tuition increases at the county colleges $99,500 World Trade Center Scholarship Program The World Trade Center Scholarship program provides $5,000 annual scholarships to the surviving children of individuals killed or missing as a result of the attacks on September 11, 2001, or the children of individuals who have died as a result of exposure to the sites. This program has been supported in part by private donations which will be ?illy expended during FY 2017. State funds required to maintain scholarship awards at $5,000 annually $113,000 Total Estimated Additional State Appropriations Potentially Needed to Implement the HESAA Board?s FY 2016 Budget Policy Statement $18,190,415 State of New Jersey HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY 4 PLAZA CHRIS CHRISTIE p0 30X 54 5 60m? TRENTON, NJ 08625-0545 KIM GUADAGNO 1 -800-792-86 70 GABRIELLE CHARETTE, ESQ. Lt. Governor hesaa, org Executive Director 0 A TO: Members, Higher Education Student Assistance Authority THROUGH: Gabrielle Charette, 13qu Executive Director FROM: Eugene Hutchins Chief Financial Of?cer SUBJECT: Resolution 19:15 Appointing a Senior Manager for Authority Bond Issues DATE: October 22, 2015 Introduction The Higher Education Student Assistance Authority or the ?Authority?) engages a senior manager for its bond transactions. In negotiated sales, such as those currently utilized by the Authority, the Senior Manager is responsible for developing structuring proposals, working with the rating agencies in the detailed cash?ow modeling of the bond transactions, and the marketing and management of the initial sale of the bonds. The Senior Manager works with Financial Advisor to answer any issues raised by bond counsel, the bond trustee, rating agencies, and potential investors. Background A. Selection Process The Authority procedures call for Request for Proposal (RF P) documents to be developed and circulated to prospective underwriting ?rms by Authority staff. On August 31, 2015 the RFPs were sent to 64 underwriting ?rms?who perform the role of Senior Manager in bond transactions, posted on website and advertised in the Trenton Times, Star Ledger, Courier News and Home News. An evaluation team consisting of the Executive Director, the Chief Financial Officer, Controller and Director of Legal Governmental Affairs reviewed the proposals based on the following criteria: 1. The experience of the ?rm in advising on tax-exempt student loan revenue bond offerings; the relevant experience of the staff assigned to the Authority; the quality of the response to the the ability to meet the needs of the Authority; and the fee proposed. HESAA received two proposals from underwriting ?rms. Of the two proposals, Bank of America Merrill proposal outlined a set of services that most closely matches the Authority?s needs. Bank of America Merrill has proposed to work closely with Authority staff in the continued development of ?nancing structures tailored to match program delivery objectives and the ?rm has a proven track record in bringing bond issues to market in an effective and ef?cient manner. Additionally, the Bank of America Merrill proposal outlined the depth of experience of assigned staff and the ?rrn?s strong support of the Authority?s after bond sale needs, including consultation to the Authority regarding proposed changes to its loan programs. The other proposal also re?ected student loan industry experience but not to the same extent as Bank of America Merrill The Bank of America Merrill proposal re?ected an in- depth understanding of the issues involved in the structuring of the Authority's bond issues, the scope of work currently required in working with the rating agency modeling teams, and the ?nancing and student bene?t issues facing the Authority?s loan programs. Bank of America Merrill has demonstrated its effectiveness as an underwriter during previous HESAA bond issues. In 2009 - 2015, Bank of America Merrill structured transactions which eliminated nearly $1.1 billion of failed ARS and terminated two thirds of a billion dollars of swap notional amounts, while creating over $100 million in equity. Bank of America Merrill also completed the ?rst placement of municipal subordinated bonds for student loans since before the ?nancial crisis. In the last year and a half, the ?rm structured transactions that provided another $450 million in capital for the origination of NJ CLASS loans at favorable rates, which enabled HESAA to offer its borrowers lower loan rates. Bank of America Merrill has also provided valuable portfolio analysis and advice to the Authority on restructuring of its student loan underwriting criteria, which has contributed to lower NJCLASS loan default rates over the last several years. The proposed fee caps to Bank of America from a negotiated bond sale are based upon rates per thousand dollars of bonds sold and the types of bonds sold. The proposed rates are inclusive of management fees, expenses, and ?takedown? (or the commission rate paid to the bond salespeople). Takedown is set relative to market conditions at the time of sale in consultation with the Financial Advisor. Bank of America has proposed a cost of $7.54 per thousand for ?xed rate bonds. The proposed fees are based on an estimated $250 Million Authority bond sale. Although its fee structure is higher than the other proposing ?rm, the anticipated savings in resulting lower costs of capital as a result of the ?rm?s superior level of student loan ?nancing experience, along with its demonstrated strength in developing innovative structures and excellent execution are expected to bene?t HESAA and its borrowers many multiples above the differential in proposed fees. Bank of America Merrill has also proposed to continue its assistance to I-IESAA through post?sale management of trust estate ?nances, including advising the Authority?s ?nance staff on the early retirement of bonds when possible, which will result in substantial additional cost savings to the Authority. It is the opinion of the RF Evaluation Committee that Bank of America Merrill approach to developing the Authority?s bond ?nancings and the scope of services proposed were superior to the other respondent, and closely meet the needs of the Authority. Recommendation It is recommended that the Board approve the attached Resolution 19:15, Approving the Appointment of Bank of America Merrill as the Authority?s Senior Manager for 2016 and 2017. Attachments RESOLUTION 19:15 APPOINTING A SENIOR MANAGER FOR AUTHORITY BOND ISSUES Moved by: Seconded by: WHEREAS: WHEREAS: WHEREAS: WHEREAS: WHEREAS: Ms. Jean McDonald Rash Dr. Jon Larson There is a need for the Higher Education Student Assistance Authority (the ?Authority?) to appoint a Senior Manager in connection with its Student Loan Revenue Bonds; and The Authority has established procedures for the methods of procurement of advisory services related to the issuance of bonds; and Pursuant to these procedures on August 31, 2015 the RFPs were sent to 64 underwriting ?rms who perform the role of Senior Manager in bond transactions, posted on website and advertised in the Trenton Times, Star Ledger, Courier News and Home News; and An Evaluation Committee comprised of the Authority?s Executive Director, Chief Financial Of?cer, Controller and Director of Legal Affairs reviewed all of the proposals; and Bank of America Merrill received the highest score as a result of such evaluation. NOW, THEREFORE, LET IT BE: RESOLVED: That the Board approves a 2? year appointment of Bank of America Merrill as the Senior Manager at a cost of $7.54 per thousand for ?xed rate bonds based on a $250 Million bond issue. October 22, 2015 EVALUATION SCORE SHEET HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY (Senior Manager Proposal Evaluation) BIDDER Bank of America Merrill DATE 10/2/2015 SUMMARY OF EVALUATION COMMENTS: Strong capitalization to support underwriting of portions of bond issues, extensive retail and institutional distribution network, as well as demonstrated ability to market asset-secured bonds and ability to fully support the rating agency process including side-by-side in-depth modeling oftransactions as part of Master Trust. Scoring 9-10 Excellent 7-8 Very Good 5-6 Good 3-4 Fair 1-2 Poor 0 No Response CRITERIA Score 1 Score 2 Score 3 Score 4 WEIGHT TOTAL The experience of the firm in advising on tax-exempt student loan revenue . 9 8 9 8 20 bond offerings 580 The relevant experience of the staff assigned to the Authority 10 10 20 740 The quality of the response to the RFP 9 15 510 The ability to meet the needs of the Authority CD 01 15 540 00 0300010 The fee proposed 6 7 15 375 The technical qualifications, experience and time commitment of personnel assigned to the project, as demonstrated by descriptions of 9 9 9 9 15 experience contained in the RFP response 540 Total 3385 EVALUATION SCORE SHEET HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY (Senior Manager Proposal Evaluation) BIDDER Ramirez Co. Inc. DATE 10/2/2015 SUMMARY OF EVALUATION COMMENTS: Concern over firm's capitalization and ability to support underwriting of HESAA's bonds, strength and depth of market distributution of asset-secured bonds, and ability to support rating agencies in the in-depth cashflow modeling they are required to do as part of their ratings approval processes. Scoring 9-10 Excellent 7-8 Very Good 5-6 Good 3-4 Fair 1-2 Poor 0 No Response CRITERIA Score 1 Score 2 Score 3 Score 4 WEIGHT TOTAL The experience of the firm in advising on tax-exempt student loan revenue bond offerings 6 7 20 460 The relevant experience of the staff assigned to the Authority 20 540 The quality of the response to the RFP 15 375 The ability to meet the needs of the Authority 15 315 unsorme r-u3Lnoo The fee proposed 15 450 The technical qualifications, experience and time commitment of personnel assigned to the project, as demonstrated by descriptions of 7 8 experience contained in the RFP response 5 5 15 390 Total 2530 Higher Education Student Assistance Firm Total Score Bank of America Merrill 3385 Ramirez 8: Co. Inc. 2530 Senior Manager Fees Firm Management Fee Takedown Expenses Total Bank of America Merrill $1.95 $5.29 $0.30 $7.54 Ramirez Co. Inc. $0.50 $4.60 $0.27 $5.37 State of New Jersey HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY 4 QUAKERBRIDGE PLAZA CHRIS CHRISTIE p0 30X 545 Governor BENTON, NJ 08625-0545 KIM GUADAGNO 1-800-792-86 70 GABRIELLE CHARETTE, ESQ. Lt. Govemor hesaa, org Executive Director MEMORANDUM TO: Members, Higher Education Student Assistance Authority THROUGH: Gabrielle Charette, Esq?a Executive Director FROM: Robert J. Clark, CPA 6% Rehabilitation Loan RFP Evaluation Committee SUBJECT: Resolution 20:15 Appointment of Designated Purchaser of Federal Family Education Loan Program (FFELP) Rehabilitation Bankruptcy Loans DATE: October 22, 2015 Background As the State of New Jersey?s designated guaranty agency by the US. Department of Education, the Higher Education Student Assistance Authority (HESAA) is responsible for the administration of the Federal Family Education Loan Program (FFELP), which includes Federal Stafford (subsidized and unsubsidized) Loans, Federal PLUS (parent and graduate/professional) Loans, and Federal Consolidation Loans. Loan Rehabilitation is provided for under the Federal Higher Education Act of 1965, as amended and allows borrowers with defaulted FFELP loans to remove the default status on their loans and repair their credit history if nine (9) consecutive, on-time, voluntary payments are made within a ten (10) month period. When borrowers have completed their bankruptcy actions they are similarly eligible to exit default status. The Higher Education Act provides for payments of 16.0% of the principal and interest as collection costs to the guaranty agency when loans held in its pool of defaulted loans are rehabilitated. As a result, in addition to the bene?ts that the rehabilitation program provides to FFELP borrowers, it has been a signi?cant source of program revenue to the Authority?s Guaranty Agency Operating Fund. From February 2002 through May 2010, the NJ FELP Loan Program 1998 Trust Estate purchased pools of rehabilitated defaulted FFELP loans after they met the requirements for rehabilitation as described above. However, in 2010, the re?nancing plan for the debt supporting existing FFELP loans owned by HESAA from failed Auction Rate Bonds to Libor-Indexed Floating Rate Notes, including rehabilitation loans, resulted in a bond issue that did not allow for origination or purchase of additional FFELP loans by the Program. As a result of these circumstances, in order to be able to continue to offer the rehabilitation option to its defaulted FFELP borrowers, on September 27, 2010, HESAA issued an RFP for Rehabilitation Loan purchases, which resulted in the appointment of Nelnet, Inc., as the designated purchaser of FFELP rehabilitations and bankruptcy loans. The ?nal extension of this contract with Nelnet expires on December 31, 2015. In order to continue sales of Rehabilitation and Bankruptcy loans, HESAA issued another RFP for Rehabilitation Loan purchases on August 31, 2015. HESAA mailed the RFP to twelve possible purchasers, posted the RFP on website and advertised the RFP in the Trenton Times, Star Ledger, Courier News, and Home News. In response to the RFP, one proposal was received from a Rehabilitation Loan purchaser, Nelnet, Inc. The Rehabilitation Loan RFP Evaluation Committee, comprised of Controller, Assistant Controller, Associate Director of Servicing and Collections and Servicing and Collections Program Of?cer, met on October 2, 2015 to discuss the proposal and determine if the terms of the Nelnet Proposal, as well as the discount percentage stated in the new RFP were acceptable. Under the current market conditions, potential purchasers of these loans are expected to make purchase offers at a discount, meaning that they would likely be below the outstanding amount of the loans. The discount proposed by Nelnet on all loan types is As a result of its evaluation, the Committee determined that the terms of the Nelnet proposal and the discount percentage were acceptable under the current market conditions for FFELP Rehabilitation and Bankruptcy Loan sales. It should be noted that even at the Nelnet proposed discount rate, HESAA will still realize a positive cash ?ow from these purchases. Recommendation It is recommended that the Board approve the attached Resolution 20:15 Appointing Nelnet, Inc., as the Authority?s designated purchaser of FFELP rehabilitation and bankruptcy loans for the two year period ending December 31, 2017, with three 1-year extensions at the option of the Authority. Attachment RESOLUTION 20:15 APPOINTMENT OF DESIGNATED PURCHASER OF FEDERAL FAMILY EDUCATION LOAN PROGRAM (FFELP) REHABILITATION BANKRUPTCY Moved By: Seconded By: WHEREAS: WHEREAS: WHEREAS: WHEREAS: WHEREAS: LOANS Mr. James Allen Ms. Jean McDonald Rash On August 31, 2015 the Higher Education Student Assistance Authority (HESAA) issued a Request for Proposals for a designated purchaser of Federal Family Education Loan Program (FFELP) rehabilitation and bankruptcy loans; and HESAA mailed the RFP to twelve possible purchasers, posted the RFP on website and advertised the RFP in the Trenton Times, Star Ledger, Courier News, and Home News; and One proposal was received from current designated purchaser, Nelnet, Inc.; and An evaluation committee, comprised of Controller, Assistant Controller, Associate Director of Servicing and Collections and Servicing and Collections Program Of?cer, met on October 2, 2015, reviewed Nelnet, Inc?s proposal and determined the terms of the proposal were acceptable; and The discount proposed by Nelnet, Inc. for the purchase of all loan types is which the evaluation committee deemed reasonable under current market conditions. NOW, THEREFORE, LET IT BE: RESOLVED: That the Higher Education Student Assistance Authority appoints Nelnet, Inc., as the designated purchaser of FFELP rehabilitation and bankruptcy loans for a period of two years, with an initial expiration date of December 31, 2017, and subject to three additional one?year extensions at the option of the Higher Education Student Assistance Authority. October 22, 2015 State of New Jersey HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY 4 QUAKERBRIDGE PLAZA CHRIS CHRISTIE p0 30X 54 5 6mm? TRENTON, NJ 08625-0545 KIM GUADA GNO 1 -800- 792-86 70 GABRIELLE CHARETTE, ESQ. Lt. Governor hesaa.0rg Executive Director 0 A TO: Members, Higher Education Student Assistance Authority THROUGH: Gabrielle Charette, Esqw Executive Director FROM: Marnie B. Grodman, Esq. Director, Legal Governmental Affairs SUBJECT: Resolution 21 :15 Appointing Special Counsel to Assist in the Review of Materials Related to 529 Plans and Provide General Tax Advice Upon Request DATE: October 22, 2015 Background The Higher Education Student Assistance Authority (HESAA) administers the New Jersey Better Educational Savings Trust (NJBEST) program, New Jersey?s State quali?ed tuition program under Section 529 of the Federal Internal Revenue Code of 1986, as well as the Franklin Templeton 529 College Savings Plan (?529 Plans?). On August 31, 2015, I-IESAA issued a Request for Quali?cations (RFQ) seeking proposals from quali?ed law ?rms for the appointment of Special Counsel to assist in the review of materials related to the 529 Plans as well as to provide general tax advice as questions arise. The selected ?rm will serve for a term of 2 years with three optional one?year extensions. The appointed ?rm will provide opinions and advice to HESAA on all documents prepared by investment manager, Franklin Templeton, related to the 529 Plans. These documents include but are not limited to: investor handbook supplements, disclosure updates, contract amendments and supplements, and dealer program distribution agreements. Additionally, HESAA requires responses to speci?c tax questions that may arise from time to time in relation to its business and program, including but not limited to issues related to student loans, student loan forgiveness, scholarships and employee bene?ts. HESAA mailed the RFQ to the law ?rm currently providing these services for as well as sixteen other ?rms found on the Attorney General?s Approved Special Counsel lists, posted the RFQ on website and advertised the RFQ in the Trenton Times, Star Ledger, Courier News, and Home News. HESAA received proposals from two law ?rms. Selection Process An evaluation committee made up of Chief Financial Of?cer, Director of Legal and Governmental Affairs, and Chief Compliance Of?cer met and reviewed each of the proposals. The selection criteria for reviewing Collection Counsel proposals are as follows: 0 Knowledge and experience of the ?rm and the named attorneys with regards to federal tax law generally, and Section 529 plans speci?cally; Resources of the ?rm; Approach to communication with Past experience of HESAA with the ?rm and/or named attorneys; and Fees. Attached to this memo is a summary of the scores each ?rm received from each member of the evaluation committee. Based on a thorough review of the proposals the evaluation committee recommends appointing Obermayer Rebmann Maxwell Hippel LLP as special counsel to assist in the review of materials related to 529 Plans and to provide general tax advice upon request. Obermayer?s proposal displayed extensive experience with mutual funds generally and 529 plans speci?cally. The quali?cations of the attorneys working on these are high caliber and the proposed fees are below current market rates. While the second ?rm that submitted a proposal is well respected and the attorneys that would work on matters demonstrate a depth of tax experience, their proposal did not exhibit any experience related to 529 plans. Recommendation It is recommended that the Board approve Resolution 21:15 Appointing Obermayer Rebmann Maxwell Hippel LLP as Special Counsel to Assist in the Review of Materials Related to 529 Plans and to provide general tax advice upon request at a rate of $325 per hour for attorneys and $100 per hour for paralegals for a term of two year with three optional one-year extensions. Attachments RESOLUTION 21:15 APPOINTING SPECIAL COUNSEL TO ASSIST IN THE REVIEW OF MATERIALS RELATED TO 529 PLANS and PROVIDE GENERAL TAX ADVICE UPON REQUEST Moved by: Seconded by: WHEREAS: WHEREAS: WHEREAS: WHEREAS: WHEREAS: Mr. Bader Qarmout Ms. Maria Torres On August 31, 2015, the Higher Education Student Assistance Authority (HESAA) issued a Request for Quali?cations (RFQ) seeking proposals from quali?ed law ?rms for the appointment of Special Counsel to assist in the review of materials related to the 529 Plans and to provide general tax advice upon request; and I-IESAA mailed the RFQ to the law ?rm currently providing these services for HESAA as well as sixteen other ?rms found on the Attorney General?s Approved Special Counsel lists, posted the RFQ on website and advertised the RFQ in the Trenton Times, Star Ledger, Courier News, and Home News; and Two ?rms submitted proposals; and An evaluation committee made up of Chief Financial Of?cer, Director of Legal and Governmental Affairs, and Chief Compliance Of?cer met and reviewed each of the proposals; and Oberrnayer Rebmann Maxwell Hippel LLP received the highest score as a result of such evaluation. NOW, THEREFORE, LET IT BE: RESOLVED: That the Board appoints Oberrnayer Rebmann Maxwell Hippel LLP as Special Counsel to Assist in the Review of Materials Related to 529 Plans and to provide general tax advice upon request at a rate of $325 per hour for attorneys and $100 per hour for paralegals for a term of two years with three possible one?year extensions. October 22, 2015 EVALUATION SCORE SHEET HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY (Tax Counsel Proposal Evaluation) BIDDER Gibbons DATE 10/2/2015 SUMMARY OF EVALUATION COMMENTS: This firm seemed more suited to act as bond counsel then as general tax counsel. The firm did not provide any responses with regards to their experience with 529 plans. Scoring 9-10 Excellent 7-8 Very Good 5-6 Good 3-4 Fair 1?2 Poor 0 No Response CRITERIA Score 1 Score 2 Score 3 WEIGHT TOTAL Knowledge and experience of the firm and the named attorneys with regards to federal tax law generally, and Section 529 plans specifically Resources of the firm 00 IN. 20 192 Apporach to communications with HESAA 20 154 Past experience of HESAA with the firm and/or named attorneys, if moo . 5 applicable 4 20 52 The fee proposed 5 6 6 20 102 Total 527 EVALUATION SCORE SHEET HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY (Tax Counsel Proposal Evaluation) BIDDER Obermayer Rebmann Maxwell Hippel DATE 10/2/2015 SUMMARY OF EVALUATION COMMENTS: Counsel?s resume was very impressive. Response focused on experience with 529 plans and advising HESAA. Scoring 9-10 Excellent 7-8 Very Good 5-6 Good 3-4 Fair 1-2 Poor 0 No Response CRITERIA Score 1 Score 2 Score 3 WEIGHT TOTAL Knowledge and experience of the firm and the named attorneys with regards to federal tax law generally, and Section 529 plans specifically 20 234 Resources of the firm 00 20 184 Apporach to communications with HESAA 20 192 Past experience of HESAA with the firm and/or named attorneys, if applicable 10 20 252 The fee proposed 20 243 Total 1105 Bidder Score Gibbons 527 Obermayer Rebmann Maxwell Hippell LLP 1105 State of New Jersey HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY 4 QUAKERBRIDGE PLAZA CHRIS CHRISTIE p0 BOX 54 5 00m? TRENTON, NJ 08625- 0545 KIM GUADAGNO I -800-792?86 70 GARRIELLE CHARETTE, ESQ. Lt. Governor wwuzhesaa. org Executive Director 0 A TO: Members, Higher Education Student Assistance Authority FROM: Gabrielle Charette, Esq Executive Director SUBJECT: Resolution 23:15 Approving the Policy and Procedures for NJCLASS Forgiveness/Compromise Due to Student Death or Total and Permanent Disability When There is a Surviving Party on the Loan(s) DATE: October 22, 2015 Background The NJ CLASS bond indentures only provide for forgiveness of a loan when the borrower dies or becomes totally and permanently disabled and there are no co-signers or co-borrowers remaining on the loan. The Higher Education Student Assistance Authority (HESAA) recognizes that the death or total and permanent disability of a student exacts a tremendous toll on his or her family members. As such, since the program's inception in 1991 there have been situations in which HESAA has forgiven/compromised NJ CLASS loans that do not qualify for forgiveness under the bond indentures. In these situations, HESAA has used its operating revenues to pay off the loan balance and reimburse the bond trust estates. In accordance with best practices, the State Auditor recommended that the HESAA Board review and approve the policy and procedures that staff follows for the forgiveness/compromise of NJCLASS loans outside the bond trust estates due to student death or total and permanent disability when there is a surviving co-signer or co-borrower on the loan(s). The attached Policy and Procedure for Forgiveness/Compromise of NJCLASS Loan(s) When a Student Borrower Dies or Becomes Totally and Permanently Disabled and there is a Surviving Party on the Loan(s) provides for a careful analysis of each family?s individual situation and provides guidelines for making a non?arbitrary determination of each family?s eligibility for forgiveness or compromise. The Auditor also recommended that on an annual basis staff report to the Board on who requested loan forgiveness/compromise, and the amount and type of forgiveness/compromise requests granted as well as those that were denied. Since compliance with this recommendation requires the revelation of personally identi?able information, this report will be provided in closed session. Recommendation It is recommended that the Board Approve Resolution 23:15 Approving the attached Policy and Procedures for NJ CLASS Forgiveness/Compromise Due to Student Death or Total and Permanent Disability When there is a Surviving Party on the Loan(s). Attachments RESOLUTION 23:15 APPROVING THE POLICY AND PROCEDURES FOR NJCLASS DUE TO STUDENT DEATH OR TOTAL AND PERMANENT DISABILITY WHEN THERE IS A SURVIVING PARTY ON THE Moved by: Fr. Michael Braden Seconded by: MT. James Allen WHEREAS: WHEREAS: WHEREAS: WHEREAS: The Higher Education Student Assistance Authority (HESAA) recognizes that the death or total and permanent disability of a student exacts a tremendous toll on his or family members; and The NJCLASS bond indentures only provide for forgiveness of a loan when the borrower dies or becomes totally and permanently disabled and there are no co-signers or co-borrowers on the loan; and Since the program's inception in 1991 there have been situations in which HESAA has forgiven/compromised NJ CLASS loans that do not qualify for forgiveness under the bond indentures using its operating revenues to pay off the loan balance and reimburse the bond trust estates; and A formal Policy and Procedures for NJCLASS Forgiveness/Compromise Due to Student Death or Total and Permanent Disability When there is a Surviving Party on the Loan(s) ensure that there is a careful analysis of each family?s individual situation and guidelines for making a non-arbitrary determination of each family?s eligibility for forgiveness or compromise. NOW THEREFORE, LET IT BE: RESOLVED: That the Board approves the attached Policy and Procedures for NJ CLASS Forgiveness/Compromise due to Student Death or Total and Permanent Disability whether there is a surviving party on the loan. October 22, 2015 POLICY AND PROCEDURE FOR NJCLASS 7 I I FORGIVENESSICOMPROMISE DUE TO STUDENT DEATH 0R TOTAL AND PERMANENT DISABILITY WHEN THERE IS A SURVIVING PARTY ON THE - r? Ll . .IQTANQE. $0,189le . .exlifiift'hofn'ffji??Date: November 3, 2015 Procedure Owner Teresa Gervasio Procedure NJCLASS Forgiveness/Compromise clue to student death or total disability Related Policies Related Procedures NIA Storage Location Compliance drive (J:\Procedures ?nal version) Effective Date . 1 Next Review Date 11/1/16 Version Number 1.0 The purpose of this voluntary policy and procedure document is for the Authority to: 1. establish the criteria and process for the forgiveness of NJCLASS loan(s) when a student dies or becomes totally and permanently disabled during the in?school period and there is a surviving co?signer or co?borrovver on the loan(s); 2. establish the criteria and process for forgiveness of NJCLASS loan(s) when a student dies or becomes totally and permanently disabled after the in-school period and there is a surviving co-signer or co- borrower on the loan(s) who asserts a severe ?nancial hardship; and 3. establish the criteria and process for compromise of NJCLASS loan(s) when a student borrower dies or becomes totally and permanently disabled after the in-school period and there is a surviving co?signer or co-borrower on the loan whose circumstances do not meet the de?nition of severe ?nancial hardship. In-School Period - At least half?time enrollment in the school(s) for which the loan(s) were made as part of obtaining a baccalaureate or graduate or professional degree. The in-school period extends for the immediate six months following graduation, withdrawal or less than time enrollment. Plans to enroll or enrollment at another institution for an additional degree do not meet the de?nition. Transferring to another institution prior to receiving the degree for which the loan(s) were taken does fall within the de?nition. Students pursuing associate degrees in ultimate pursuit of a baccalaureate degree are considered to be within the in-school period between earning the associate degree and prior to commencing the baccalaureate degree, provided evidence of acceptance to a BA program is provided. Loan Forgiveness Committee - The Executive Director, the Chief Financial Of?cer, the Director of Legal and Government Affairs and the Director of Student Loans. Severe Financial Hardship - Situations where the overall ?nancial circumstances of the individual seeking relief are such that helshe is unable to maintain a basic standard of living and still make debt payments and these circumstances are likely to persist for the balance of the life of the loan. Totally and Permanently Disabled - The condition of any individual who is unable to work and earn money or attend school because of an injury or illness that is expected to continue inde?nitely or result in death. An Revised: 11/03/ 15 Page 1 of 5 individual is not considered totally and permanently disabled if he or she continues to receive an equal or greater amount of income from the source of income that was used to meet the minimum income requirements at the time the loan was approved. This voluntary policy applies to all NJCLASS loan forgiveness applications that are received from co-signers and co-borrowers of loans for student borrowers who died or became totally and permanently disabled while still enrolled in school, after the in~school period ended, and compromise offers that are received from surviving co? signers and co?borrowers. This policy is voluntary in so far that it is subject to the availability of suf?cient funds and the discretion of the Authority to engage in ForgivenessiCompromise of NJCLASS loans; however should the Authority decide to engage in Forgiveness/Compromise it must be done as speci?ed in this Policy and Procedure. N.J.A.C. the NJCLASS Promissory Note Terms and Conditions and the bond indentures provide for the discharge of NJCLASS loans when there is only one responsible party remaining on the loan. The regulations, promissory note and the bond indentures do not provide for discharge when the student borrower dies or becomes totally and permanently disabled and there is a surviving co-signer or co-borrower. Notwithstanding the above, through its own resources, on its own volition and without prejudice to bondholders, HESAA would like to offer loan forgiveness or compromise to co~borrowers and co-signers on loans when a student borrower dies or becomes totally and permanently disabled. The type of relief offered to a forgiveness applicant is dependent upon when the death or total and permanent disability occurred. In those cases where the death or total and permanent disability occurred after the in-school period, the relief is dependent on the ?nancial circumstances of the applicant. FORGIVENESS ln-School Period HESAA recognizes that the death/disability of a young person who has not had the chance to reach his/her full potential or realize the bene?t of degree attainment exacts a tremendous toll on surviving family members. When a student dies or becomes disabled during the in-school period, HESAA through its own available resources from outside the bond trust estates, will typically forgive all of the outstanding balances on any NJCLASS loans. In the event that the deceased student borrower had life insurance andIor sizable assets in hisIher estate, HESAA will adjust the amount of forgiveness based on the amount of life insurance andfor assets. In these situations and in making the adjustment, HESAA will consider the bene?ciary of the life insurance, the heirs to the estate and the amount of any ?nal resting expenses incurred by the applicant. Post In-School Period HESAA recognizes that paying a recurring debt for a deceased or disabled loved one can take its toll on family members even after the student has realized the bene?t of the education. In these cases, HESAA offers two options to co-signers/co-borrowers depending on the ?nancial circumstances of the applicant: A. Severe Financial Hardship Forgiveness HESAA recognizes that for some co-signers and co-borrowers repaying the debt, without the ?nancial contribution of the deceased or disabled student borrower, imposes a severe ?nancial hardship. If a severe ?nancial hardship is determined, HESAA will forgive the remaining debt. Revised: 11/03/15 Page 2 of 5 B. Compromise HESAA recognizes that even where a severe ?nancial hardship does not exist, the repayment of a recurring debt can cause emotional distress. In these cases, to allow a co-signer and/or co-borrower to achieve closure, HESAA is willing to accept a lump sum payment as settlement of the debt. V. PROCEDURE Ira-School Period All co-signers/co-borrowers (married co-signers, co?borrowers can apply jointly) who seek forgiveness from their NJCLASS obligation due to deathldisability of the student during the in-school period must: 1. complete HESAA's ln?school Period Loan Forgiveness Application; 2. attest to the accuracy of the information supplied; 3 provide HESAA with a copy of the student?s death certi?cate or medical documentation suf?cient to prove total and permanent disability if the student has not already been discharged from the loan; and 4. provide HESAA with any other relevant information to the particular case as may be deemed necessary by the Loan Forgiveness Committee upon speci?c case review. The Loan Forgiveness Committee will review all of the above?referenced documents in their entirety. Subject to the availability of funds, the Committee will forgive any outstanding balances on NJCLASS loans unless the student had life insurance andior sizable assets. In those instances, if the applicant for forgiveness is the student's life insurance bene?ciary or heir, HESAA will adjust the forgiveness amount by the amount of the insurance or assets less any ?nal resting expenses incurred by the applicant. Post In-School Period A. Severe Financial Hardship Forgiveness All co-signerstco?borrowers (married co?signers, co?borrowers can apply jointly) who seek forgiveness from their NJCLASS obligation due to deathfdisability of the student after the in?school period due to severe ?nancial hardship must: 1. complete HESAA's Financial Hardship Loan Forgiveness Application and provide HESAA with any and all requested ?nancial documentation including but not limited to tax returns, W-ZS and ?nancial statements; 2. attest to the accuracy of the information supplied; 3. provide HESAA with a copy of the decedent's death certi?cate or medical documentation suf?cient to prove total and permanent disability if the student as not already been discharged from the loan; 4. provide HESAA with any other relevant information to the particular case as may be deemed necessary by the Loan Forgiveness Committee upon speci?c case review. The Loan Forgiveness Committee will review all of the above-referenced documents in their entirety to determine if a severe ?nancial hardship exists. To render this determination the Committee will consider whether: 1. the applicant can maintain, based on current income, assets and expenses, a basic standard of living for himself or herself and any dependents if required to repay the loans; 2. the applicant's current circumstances are likely to persist for a signi?cant portion of the repayment period of the loan; and 3. the applicant made good faith efforts to satisfy the loan prior to the occurrence of the circumstances that now make repayment problematic. In those cases where the applicant cannot maintain a basic standard of living and the applicant's circumstances are likely to persist, and -if applicable? the borrower andlor applicant made good faith efforts to satisfy the loan prior to the occurrence of the of the circumstances, the Loan Forgiveness Committee will forgive the remaining balance on the loan. Revised: 11/03/15 Page 3 of 5 B. Compromise Co-signersfco-borrowers who seek compromise of their NJCLASS obligation due to deathidisability of the student I after the in?school period must: 1. submit a written offer of compromise and agree if the offer is accepted by HESAA to submit the required funds to the Authority within 15 business days of acceptance; and 2. provide HESAA with a copy of the decedent's death certi?cate or medical documentation suf?cient to prove total and permanent disability if the student has not already been discharged from the loan. The Loan Forgiveness Committee will accept compromise offers that equal at least 85% of the original principal balances, less principal payments made to the date of the application or its disposition. All forgiveness decisions are ?nal agency decisions and are communicated in writing to the requesting party. In accordance with federal tax law, any principal amount equal to or greater than $600 that is forgiven or compromised is reported to the Internal Revenue Service (IRS) and the recipient of the forgivenessfcompromise is sent a Form 1099c, Cancellation of Debt. HESAA employees who are not members of the Committee are not authorized to render determinations in these matters. This policy does not apply if the student died or became totally and permanently disabled while participating in, attempting to participate in, or fleeing from participation in an indictable offense or felony. This policy does not apply if the student died or became totally and permanently disabled after participating in, attempting to participate in, or ?eeing from participation in or attempted participation in an indictable offense or felony if the cause of death or disability is related to injuries sustained during the commission, attempted commission, or ?ight from the commission or attempted commission of the indictable offense/felony. The application of this exclusion is not contingent upon any decision of any prosecuting authority. VII. ENFORCEMENT All HESAA staff is responsible for complying with the directives of this policy. Violations will be brought to the attention of the Executive Director and may result in disciplinary action. VERSION HISTORY AND APPROVALS Revision Review History . i a 7 Effective Version Date Description Version Author 1.0 Original Gabrielle Charette, Esq. APPROVED BY POLICY OWNER: Name Teresa Gervasio DATE Title Director of Student Loans APPROVED BY POLICY APPROVER: Name Gabrielle Charette, Esq. DATE Title Executive Director Revised: 11/03/15 Page 4'of 5 HIGH mwmumorw on Financial ma POLICY AND PROCEDURE FOR NJCLASS FORGIVENESSICOMPROMISE DUE TO STUDENT DEATH OR TOTAL AND PERMANENT DISABILITY WHEN THERE IS A SURVIVING PARTY ON THE Employee Name: (please print) Employee Signature: Unit: Date: I have received and read POLICY AND PROCEDURE FOR NJCLASS FORGIVENESSICOMPROMISE DUE TO STUDENT DEATH OR TOTAL AND PERMANENT DISABILITY WHEN THERE IS A SURVIVING PARTY ON THE and I understand that I am responsible for complying with this Procedure. Revised: 11/03/15 Page 5 of 5 State of New Jersey HIGHER EDUCATION STUDENT A5515 TA NCE AUTHORITY 4 QUAKERBRIDGE PLAZA CHRIS CHRISTIE p0 BOX 54 5 Governor Tamra/v, NJ 08625? 0545 KIM GUADAGNO I -800~792-86 70 GABRIELLE CHARETTE, ESQ. Lt. Governor hesaa_ org Executive Director 0 A T0: Members, Higher Education Student Assistance Authority Board THROUGH: Gabrielle Charette, ESW Executive Director FROM: Marnie B. Grodman, Esq/9&1} Director, Legal and Governmental Affairs Administrative Practice Of?cer SUBJECT: Resolution 24:15 ~Pr0posed Amendments to the Regulations Governing the Primary Care Practitioner Loan Redemption Program, N.J.A.C. DATE: October 22, 2015 Background Pursuant to N.J.S.A. the Higher Education Student Assistance Authority (HESAA) is statutorily responsible for the administration of the Primary Care Practitioner Loan Redemption Program (?Program?) and for the promulgation of all rules to that effect. HESAA received comments in response to its proposal to readopt N.J.A.C. recommending amendments to N.J.A.C. and (a)2 to expand the applicant pool for potential participants in the Primary Care Practitioner Loan Redemption Program. HESAA agreed that these amendments would be bene?cial to the program. However, as the amendments were substantive they could not be made upon adoption and therefore need to be noticed as a new proposal. The Program provides for the redemption of a portion of the eligible qualifying loan expenses of primary care practitioners for each year of service at an approved site. The proposed amendment to N.J.A.C. permits potential participants to apply to the Program before they move to New Jersey. This amendment encourages practitioners to move to New Jersey and practice in New Jersey?s underserved areas. Similarly, the proposed amendment to N.J.A.C. permits potential participants to apply for the Program in anticipation of receiving their license. This amendment encourages practitioners to practice in New Jersey?s underserved areas and to eliminate delays in accepting participants into the program. Full text of the proposal follows (additions indicated in boldface thus; deletions indicated in brackets [thus]): Eligibility To be eligible for participation in the program, an applicant must: 1. [Be a resident of the State of New Jersey at the time of application and maintain] Maintain residency in the State of New Jersey throughout participation in the program; 2. [Be licensed to practice as a primary care practitioner in the State of New Jersey at the time of application and maintain] Maintain a license to practice as a primary care practitioner in the State throughout participation in the program; 3. Agree to practice primary care at an approved site; 4. Not be in default on any eligible qualifying loan; and 5. Adhere to the following performance standards: i. Enter into a mutually acceptable contract with an approved site; ii. Report to the Authority, on the form provided by the Authority, on the program participant's performance of services rendered at an approved site prior to the repayment of the annual amount of eligible redemption; and If the approved site is a clinic which is part of the extramural network of dental clinics established by the Rutgers School of Dental Medicine of the Rutgers Biomedical and Health Sciences, the program participant shall also meet performance standards set by the Rutgers School of Dental Medicine. Recommendation It is recommended that the Board approve Resolution 24:15 Proposed Amendments to Regulations Governing the Primary Care Practitioner Loan Redemption Program, N.J.A.C. Attachment RESOLUTION 24:15 PROPOSED AMENDMENTS TO THE REGULATIONS GOVERNING THE PRIMARY CARE PRACTITIONER LOAN REDEMPTION PROGRAM, Moved by: Seconded by: WHEREAS: WHEREAS: WHEREAS: WHEREAS: N.J.A.C. Dr. Jon Larson Fr. Michael Braden The Higher Education Student Assistance Authority is statutorily responsible for the administration of the Primary Care Practitioner Loan Redemption Program; and HESAA received comments in response to its proposal to readopt N.J.A.C. 9A216 recommending amendments to N.J.A.C. and (a)2 to expand the applicant pool for potential participants in the Primary Care Practitioner Loan Redemption Program; and HESAA agreed that these amendments would be bene?cial to the program; and The amendments could not be made upon adoption as they were substantive and therefore need to be noticed as a new proposal. NOW, THEREFORE, LET IT BE: RESOLVED: That the Board approves and authorizes publishing the Proposed Amendments of Regulations Governing the Primary Care Practitioner Loan Redemption Program, N.J.A.C. in the New Jersey Register. October 22, 2015 10/26/2015 Primary Care Practitioner Loan Redemption Program of New Jersey Improving Healthcare In Undersmed Areas Throughout New Jersey Primary Care Practitioner Loan Redemption Program of New Jersey 92H: To increase the provision of primary care services by encouraging providers to practice in Federal or State designated underserved areas throughout New Jersey Primary Care Practitioner Loan Redemption Program of New Jersey The is a State loan repayment program and has been in existence since 1992 Legislatiyely responsible by New Jersey Higher Education of Student Assistance Authority (HESAA) The is contracted to Rutgers Biomedical and Health Sciences (RBHS) formerly UMDNJ for administration and is based on the Newark campus The program was ?rst established for primary care Physicians and Dentists and redeemed loans up to $70,000. In 1999, legislation was passed to include Midievel participants (Certi?ed Physician Assistants, Certi?ed Nurse Midwives, Certi?ed Nurse Practitioners) and loan repayment amounts were increased up to $120,000. In 2009, legislation was passed to change the name to Practitioner; eliminate 2 year limit for out of schoollresidency; and to include part time service obligation in the third and fourth year of enrollment. STATE LOAN programs?eggistrin 32 states y, areLusuBally administered by the?VStates' Department of Health oythe Department 'ofjHigher Education ?gs 1 K, Participants-cannot partICIpatetonifegdleralvand state simultaneoust participate in thefedetal matching grant program; provides a 50150 match to placegproviders in Federal Health'Profess'ioQI?al Shortage was 9i" . - a FEDERAL LOAN REPAYMENT 0 National Health Comices Corps Loan Repayent}P?rifafg Applications accepted once ayear NySQofferstwo levels of funding based on the need of the community! Health Professional Shortage Area (HPSA) scores. HPSA sco es of 14+ - pays up, to $60,000 for 2 years full time; years part tithe. HPSA scor 135? pays upto $40,000 for 2 years full tim; 4 years part time Taitstree loar?grepayment yr 5? PrayiderlSiteeligibility requirements NHC sitesare exclusive to?federally designated sites - .1 rams We? .. ?lm {gm 1 0/26/201 5 Primary Care Practitioner Loan Redemption Program of New Jersey PURPOSE The assists primary care providers in the repayment of qualifying educational loans incurred during medical school, dental school or graduate education in exchange for providing primary care services at approved sites in underserved areas in New Jersey. providers may redeem up to $120,000 over a four-year period of service for eligible loans used to finance their medical education. Decision Making Th're are two Committees responsible for the overall operation of the The Steering mittee provides oversight responsibility for program and policy decisions. The Committee mee at least annually and on call at the request of the chairperson. The Selection Committee is charge with the review of all placement site and provider applications and determines all approvals an non approve a. i ese eels ons?ar based on requirements as stipulated in the Selection Committe meets and on an as needed basis. Throughout the Committees have been comprised of representatives from the ?Mfollowing? Organizations; QNEW J};ng of HEALTH lg?; JERSEY DEPARTMENTOF HuMAiv SERVICES 7 - ?NEWJeasisY HIGHER STUDENT ASSISTANCE AUTHRITY Qu/iu?ry 557; 5 4 If: -, ,3 LEGAL Seawces L: 7 ?sRureen? HEALTH SCIENCES UMDNJ a, a A PLACEMENT Sires; a R. 9" 10/26/2015 10/26/2015 MEDICAL or Family Practice/Famin Medicine 9 Internal Medicine Pediatrics Obstetrics/Gynecology DENTAL or General Dentists Pedodontists Certified Physician Assistants Certified Nurse Midwives Certified Nurse Practitioners Non-Eligible Disciplines/Specialties MID-LEVELS: - General Surgery and Surgical Sub- Specialties . Emergency Medicine Mental Health a Specialty Medicine Cardiothoracic Surgery a Orthopedics DENTAL: 0 General Surgery and Surgical Sub- Specialties (Oral Surgery) 0 Orthodontics In-Patient Settings and Emergency Medicine 10/26/2015 Provider Requirements I Physicians: must complete primary medical care residency in-Intemal Medicine. Family Practice/Medicine, Pediatrics, Obstetricsl'Gynecology Dentists: graduation from an accredited dental school. not required to complete residency Physician Assistants: satisfactory completion of a Committee on Allied Health Education and Accreditation (CAHEA) approved training program for primary care physician assistants Nurse Practitioners: graduation from a post baccalaureate or Master's degree program accredited by the National League of Nursing as either a Family Nurse Practitioner, Primary Ambulatory Nurse Practitioner. Primary Healthcare Adult Nurse Practitioner. Pediatric Nurse Practitioner, OBIGYN or Women's Health Nurse Practitioner Nurse Midwives: satisfactory completion of a program accredited by the American College of NurseIMidwives or the American College of Nurse Midwives Certi?cation Council Licensed to practice in the State of New Jersey Resident in State of New Jersey Free of default on educational loans Sign contract with approved Site Required to sign a contract for a minimum of 2 years; can renew for a and year Must work full-time during your initial two years. part-time service option to work during and year Must work a minimum of 40 hours per week to be considered full-time (at least 32 hours must be spent providing direct patient care; remaining 8 hours for administrative time) New Jersey Medically Underserved Index (NJMUI) These municipalities have been designated as underserved by the Commissioner of Health based on the New Jersey Medically Underserved index (NJMUI). The State designated underserved areas are used to place primary care participants in the New Jersey Primary Care Practitioner Loan Redemption Program. The NJMUI ranks municipaiities with populations of 5,000 or more according to indicators that are potentially indicative of a lack of access to comprehensive and timely primary health care. Populations of 30,000 or more were evaluated according to four economic indicators; the values for health status indicators were generally too small to provide valid statistics. Geographic areas not designated on the NJMUI can be considered on a case by case basis, if adequate documentation is provided to support the designation. New Jersey Medically Underserved lndex~1999 Municipalities with Populations of 5, to 29.999 Bridgman city Ftiirfield township Paulshoro borough Asbury Park city Salom city Burma Vista township Pleasanlville u?ty Lower township City of Orange township Phillipsburg low nship Egg Harbor City Kcunsburg borough Populations Woodbury city Mulliru township ?f sofom I Middle township Gloucester n'ty Manna: River township Mill N"Wark my Aunmc my borough Hummonton town Camden my Ea? OW?th my Fairvww borough Mount Holly township ?mm? Pal-"non my Long my my lorsey city Perth Amboy city Clementon borough Clayton borough Pussdi?. [ngmn Harrison town Egg Harbor township New Brunswick city Elizabeth (113/ Gar?eld city North Hanover township Union (ily Lakewood township Upper Dmrlicld township Ocean ll Iwnship Pluin?eld city West New York town Lodi borough Riverside township Vineland city Pine Hill borough Union Boarh borough Franklin borough Pmlessionul Shortage Amos (HPSAS) as dirsignulzid by the Fodeml Division of Designations ol' the HRSA Department of Health und Human Survirm an: ohgiblw pluiriuent sit:- art-us for partit ipunu.? in the F. To learn more about the Primary Care Loan Redemption Program of New Jersey, we. invite you to visit our website at http://rb Approved sites must be located in a New Jersey Medically Underserved Index! Health Professional Shortage Area (NJMUIIHPSA) If a site is not located in a site must complete a Patient Origin Study and demonstrate at least 80% of its patients come from underserved areas as listed on the NJMUI Ambulatory primary care settings: I Non-pro?t or private non-pro?t of?ces and private practices (solo or group) that serve medically underserved populations 4 Federally Quali?ed Health Centers FQHC look-alikes/Community Health Centers (CHCs) Health Centers providing services to migrant and seasonal farm workers Rural Health Ctinics (RHCs) Hospital af?liated primary care outpatient clinics School based clinics County, State. and Federal Correctional facilities (Immigration and Customs Enforcement (ICE) sites 10/26/2015 Placement Site Obligations To hire providers to work at the site on a full?time basis (40 hour)slweek; a minimum of 32 hours must be spent providing primary care . Offer providers comparable salaries and bene?ts based on prevailing rates In the surrounding area 0 Be located in a State designated underserved area as defined by the Commissioner of Health or in a Federally designated Health Professional Shortage Area (H PSA) Demonstrate that it provides services to an underserved population. Accept MedicaidIMedicaid Managed Care 0 Use sliding fee scale for patients falling under 250% of the federal poverty levels 0 Sign a Placement Site agreement and complete required Reports I Six month evaluations for each enrolled provider I Submit Quarterly Service Reports (QSRs) documents a providers productivity I Annual Evaluation HIStoricaI oven/rem? Performance Standards were established Health (NJDOH) in 1992 for Primary gllCare Erectitiioner Loan Redemption [Progra'mk'to measure provider?" productivity by specialty. The NJ reguiresith'eSubmission of Quarterly Service Reports LmOnitc?ir its?provider?s annual productivity. 2' 1 0/26/201 5 Primary Care Practitioner Loan Redemption Program of New Jersey Productivity Standards v. (lament Productivity 3 I Specialty ag?ysrandar'ds Practice Loan Redemption Payments Eligible loans exclusive to: - Loans incurred during medical/dental/graduate school education Federal or commercial loans used for school tuition and reasonable educational expenses Eligible for loan repayment after 12 months of full time service 4- Payments are issued in the form of two party checks payable to the provider and lender 4- Loan redemption payments are no longer taxable income for Federal; taxable income for State 1 01261201 5 Based on a providers outstanding debt level: - 1st year: 18% of outstanding loan balance up to $21,600 - 2nd year: 26% of outstanding loan balance up to $31,200 - 3rd year: 28% of outstanding loan balance up to $33,600 - 4th year: 28% of outstanding loan balance up to $33,600 Total Amount Redeemed= $120,000 The maximum loan repayment amount over a four year period of service while enrolled in the is $120,000. All loan repa ments must be used to re ay the approved uaiifying educational loans. oan repa ments are taxab Income and reported to State of New Jersey Division of Taxation. ederal taxes are no longer applicable. My"? 52014 to .1033; 30?5201?7 The LRB?ierliQIIEdaTOta' ?.20 0" I, ~