March 5, 2004

• Joint Committee on Taxation Releases Estimates on Extending 2001-2003 Tax
• Congressional Scheduling
• Congressional Update
• Joint Interim Committee on Higher Education
• Sunset Advisory Commission Review of TG

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Joint Committee on Taxation Releases Estimates on Extending 2001-2003 Tax

Following the Congressional Budget Office's (CBO) earlier analysis of the president's FY 2005 budget request, the Congressional Joint Committee on Taxation (JCT) released its estimated budget effects of the administration's proposal to extend and make permanent certain 2001 and 2003 tax cuts.

Echoing the CBO, the JCT estimates that extending and making permanent the "Economic Growth and Tax Relief Reconciliation Act of 2001" (EGTRRA) and "Jobs and Growth Tax Relief Reconciliation Act of 2003" (JGTRRA) will result in revenue reductions totaling $1.17 trillion over the next ten years.

Since the FY 2005 request contains projections only through FY 2009, House and Senate Democrats reacted to the CBO/JCT ten-year estimates of the administration's tax proposals.

Calling the president's budget "a recipe for fiscal disaster," Senate Budget Committee Ranking Member Conrad stated that "[the president] leaves out the full cost of extending his tax cuts, which reach $1.6 trillion (including interest effects) over the ten-year period, 2005-2014."

House Minority Whip Hoyer also weighed in on the CBO/JCT estimates, stating that "the Bush budget for Fiscal 2005 deliberately excludes the costs of making earlier tax cuts permanent for one obvious and transparent reason — to hide their true cost."

Prior to the CBO/JCT analysis, Congressional Republicans had voiced their support for some — but not all — of the administration's tax proposals. During a recent Senate Budget Committee hearing, Chairman Nickles stated that he would not support the extension of certain business-related tax provisions that were aimed at stimulating the economy.

During a radio press conference last month, Senate Finance Committee Chairman Grassley's comments reflected Nickles' views. When asked about the president's proposal to make permanent a host of 2001 and 2003 tax cuts, Grassley stated that "I can't get his entire program through the Senate, particularly making permanent the rate reductions. I think I can in a year or two, but I won't be able to right now." Grassley went on to voice his support for making permanent three tax provisions before they expire at the end of this year:

1. Increase in income level for end point 10-percent rate bracket to $14,000 for married taxpayers filing joint returns and $7,000 for single taxpayers.
2. Increase in child credit amount to $1,000.
3. Increase in the basic standard deduction for married taxpayers filing joint returns to twice the standard deduction for single filers (a.k.a. marriage tax penalty relief).

The administration has at least one ally (Federal Reserve Chairman Greenspan) as it tries to enlist Congressional support for its tax cut proposals. During last week's Senate Budget Committee hearing, Greenspan stated repeatedly that the 2001 and 2003 tax cuts should be made permanent.

In light of JCT's estimated budget effects of the administration's tax proposals contained in the FY 2005 request, coupled with CBO's projection that deficits will continue through FY 2014, a Republican-led Congress will likely avoid rubberstamping the administration's tax cut initiatives this year. Look for fiscal conservatives such as House and Senate Budget Committee Chairmen Nussle and Nickles to shy away from supporting substantial tax cut extensions that they would otherwise support. Instead, it is likely that this year's House and Senate budget resolutions will be sharply focused on deficit reduction, e.g., reducing/freezing spending for domestic programs funded through discretionary appropriations.

The House Education and Workforce Committee has issued its report and recommendations to the House Budget Committee for consideration for inclusion in the House FY 2005 budget resolution. In it, the Committee supports the administration's proposals to require IRS data matching for income verification of Pell Grant applicants with any savings to go to the Pell Grant program, and, to review and evaluate the scheduled switch to a fixed interest rate for federal student loans, the current student loan repayment plans, the need for increased student loan limits, and the current method of budget scoring for the FFELP and FDLP.

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Congressional Scheduling

The Senate's near-term schedule is slowly coming into focus. Early this week, the Republican leadership relayed to its caucus that the body will likely use all of next week (March 8-12) to debate the FY 2005 budget resolution. Majority Leader Frist may bring to the floor welfare reform reauthorization — or extension — legislation after the Senate completes its work on S. 1637, the "Jumpstart Our Business Strength (JOBS) Act."

Meanwhile, the Senate Budget Committee passed its FY2005 budget resolution which sets spending caps for next year. The $2.4 trillion resolution includes $814 billion discretionary spending and is $7 billion less than the Administration's budget proposal. The resolution proposes to freeze most spending at the current year's levels. Among the proposed increases are a five percent increase for defense, a 15 percent increase for homeland security, and an increase to $5,050 in the annual maximum Pell Grant. It is expected that the resolution will change dramatically by the time the full Senate finishes its consideration of the measure next week. The House Budget Committee will hold a markup of its FY2005 budget blueprint next Tuesday or Wednesday.

The Congress is not in session during the periods March 15-21, April 12-18, May 24-31, and June 28-July 5, the entire month of August, and during the two weeks the Democratic and Republican parties hold their conventions.

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Congressional Update

HEA Reauthorization
To date, two comprehensive HEA reauthorization bills have been introduced — both by Democrats. House bill (HR 3180) and Senate bill (S 1793) include significant increases in student aid authorizations and accountability provisions. Both are regarded as more political statements than legislation with any realistic chance of passage.

HR 3180 includes just about everything for everyone, e.g., dramatic increases in authorized funding levels for Title IV programs, repeal of the single holder rule, reconsolidation for student loan borrowers, new programs for HSIs and HBCUs. Since the Democrats are in the minority, this bill likewise will receive little attention by the House Committee.

S 1793 is the Senate HELP Committee Democrats, led by Senator Kennedy, have Reauthorization bill — the College Quality, Affordability, and Diversity Act — which, like the House Democrats' bill, proposes to increase authorized funding levels for all Title IV programs reaching $11, 600 for the maximum Pell Grant (like HR 3180) by 2009, increase authorized funding levels for Title III and Title V institutions, increase authorized funding for the GEARUP and TRIO programs, increase the tax credit of the Hope Scholarship and Lifetime Learning Credit, repeal the Federal Direct Loan Program (FDLP) loan origination fee, establish financial incentives for institutions that participate in the FDLP, establish a grant program for consortia of institutions that propose programs that reduce the cost of education for students, establish a college cost summit involving the Education Department and representatives from institutions to develop collaborative plans to control college costs, allow reconsolidation of loans made through the FDLP, allow FDLP income contingent loan forgiveness for borrowers who are employed in the public sector, e.g., government, education, law enforcement, etc., and made (while employed in the public sector job) 120 payments through ICR, and reduce subsidies paid by the federal government to FFELP lenders and holders of FFELP loans.

Both House and Senate committee staffs are working on comprehensive bipartisan bills with the goal to have each bill ready for full committee consideration by early spring, passage by each chamber and in conference by early summer. The legislation will include aspects of HR 331 — The College Affordability Act — but not the tuition cap provisions.

However, because of several other issues — some legislative and some purely political — this will be an extremely difficult goal to achieve before the 108th Congress adjourns in time to allow Members to engage in any meaningful fall campaigning, especially considering that the Congress is in recess for the entire month of August as well as during the two party conventions.

The major issues that will impact both the HEA Reauthorization process and annual appropriations will remain the growing annual federal budget deficits and multi trillion dollar national debt, the 2004 general election in which the control of the Congress and White house will up for grabs (not to mention many state legislatures and governorships), the changing role of the federal government's responsibilities to support domestic education, health, and human service programs vs. the role of national defense/homeland security, and competing, high profile programs and initiatives, e.g., Social Security, Medicare, Head Start, IDEA, welfare reform, and further tax relief will impact the timing of the HEA reauthorization bill.

Listed are student aid and Reauthorization related bills. Those bills with an "R" are bills introduced by members of the majority party and have the best chance of being considered by the House and Senate at this time.

Four House Reauthorization bills have been passed by the House and are awaiting action by the Senate Health, Education, Labor, and Pensions (HELP) Committee. These bills are HRs 438, 2211, 3076, and 3077. All of these bills are incorporated into the Administration's initial round of Reauthorization proposals. In addition HR 3613, HR 2956, HR 696, S 1742, and part of HR 12 are included in the Administration's first Reauthorization submission.

R HR 12
The FED UP Higher Education Technical Amendments Act of 2003 incorporates provisions from the 107th Congress' failed HR 4866 by Representative Buck McKeon (R-CA). The bill includes the same provisions of the original HR 4866 as it was filed last summer, including:

• the extensions of the two provisions that expired on October 1, 2002 that allowed low student loan default rate schools to disburse loan funds in a single disbursement and to waive the 30 day delay for disbursement of loan funds to first time, first year borrowers (included in the Administration's Reauthorization proposals);
• clarification of two return of Title IV funds issues;
• allowing requests for student loan repayment forbearances to made in ways other than in writing;
• allowing students who were home schooled to be eligible for Title IV student aid.

Two new provisions added to HR 12 are:

• allowing the discharge of student loan debt for spouses of police, firefighters, rescue and safety personnel, and members of the Armed Forces who died or became permanent and totally disabled as a result of the September 11, 2001 attacks in new York and Washington, DC; and
• allowing the waiver of the 50 percent restriction on an institution's ability to offer coursework through telecommunications for institution's with student loan default rates below 10 percent.

R HR 438/HR 647
Increases the student loan forgiveness amount for math, science, and special education teachers to $17,500. (Included in the Administration's Reauthorization Proposals)

Passed by the full House.

HR 696
This bill clarifies that only current students convicted of a drug offense are ineligible to receive Title IV student aid. (Included in the Administration's Reauthorization proposals)

HR 942/S. 835
Repeals the student loan single holder provision.

HR 1304
Amends the student interest tax deduction law by making it a tax credit.

HR 1306
The College Opportunity for a better America Act of 2003 provides student loan forgiveness to student loan borrowers who are employed in public service jobs in shortage areas, including teachers, child care workers, nurses, and child welfare workers and replaces the income sensitive repayment provisions in the FFELP to income contingent.

HR 1684
The Student Adjustment Act proposes to amend the 1996 Illegal Immigration Reform and Immigrant Responsibility Act and the Immigration and Nationality Act to grant permanent legal residency status to middle school, high school, and college students who are undocumented immigrants who have been in the U.S. for at least five years.

R HR 2211
The Ready to Teach Act proposes to align the teacher training programs in the HEA with those established under 2001's No Child left behind Act (PL 107-110).

Passed by the full House.

HR 2238
The Next Generation Hispanic Serving Institutions bill is the Congressional Hispanic Caucus' HEA Reauthorization legislation. The bill proposes to establish new grant program to promote graduate programs at HSIs.

HR 2504
The Student Loan Fairness Consolidation Act of 2003 proposes to allow student loan borrowers to refinance their consolidated student loan debt consolidated under the current variable rate formula for Stafford loans.

HR 2505
The College Loan Assistance Act of 2003 proposes to allow student loan borrowers to refinance their consolidated student loan debt at a fixed, weighted average rate capped at 6.8 percent, increase the maximum Pell Grant to $7,000 in 2004, and repeal the student loan origination fee.

HR 2622/S. 1753
These bills propose to amend the Fair Credit Reporting Act (FCRA) to extend preemptions of state credit reporting laws that expire on January 1, 2004, establish new provisions to prevent identity theft, increase consumer access to credit information, improve the accuracy of credit information, and promote financial literacy. The California Congressional delegation opposed the bill because it preempts the California state law by requiring consumer opt-in provisions, allows the continued use of SSNs for identification purposes, does not include language that requires consumers to be notified when an adverse credit decision has been made based on information in a credit report or language that allows a consumer to correct incorrect information, and is not tough enough on penalties for identity thieves that use stolen credit information to commit other crimes, e.g., terrorist acts.

Bill is in a House/Senate conference committee.

HR 2711
The Student Loan Fairness Act of 2003 is similar to 2504 and 2505. It proposes to repeal the single holder rule, allow reconsolidations of consolidated student loans at a variable rate of 2.3 percent plus the 91 Day Treasury Bill rate, capped at 6.8 percent, and also lowers the cap on Stafford and Plus loans 6.8 percent and 7.5 percent.

R HR 2956 — Financial Aid Simplification Act
This bill proposes to direct the federal Advisory Committee on Student Financial Aid to conduct another study on ways to simplify the SFA needs analysis process and the FAFSA, and to submit recommendations to Congress. (Included in the Administration's Reauthorization proposals)

R HR 3039 — Expanding Opportunities in Higher Education
This bill proposes to increase the funding authorizations for all Title IV programs, TRIO, minority serving institutions, GEARUP, and loan forgiveness for student loan borrowers working in public service jobs.

R HR 3076 — Graduate Opportunities in Education Act
This bill proposes to reauthorize Title VII of the HEA and adds new language that supports graduate programs that educate teachers in K-12 shortage areas, e.g., mathematics, science, English as a Second language, and special education.

Passed by full House.

R HR 3077 — International Studies in Higher Education Act
This bill proposes to reauthorize Title VI of the HEA which establishes a program to support postsecondary education programs in international studies for students who wish to pursue careers in international relations and students who wish to become fluent in foreign languages.

Passed by the full House.

HR 3180 — College for All Act
This is the House Democrats HEA Reauthorization bill. Included among the bill's provisions are proposals to increase authorized funding levels for all Title IV SFA programs to restore their 1985 buying power; increase funding levels and expand programs that focus on increasing access to postsecondary education for minority students and children of migrant farmers; allow student loan borrowers to reconsolidate their student loan debt with the lender of their choosing; repeal student loan fees paid by the borrower; establish a new program to establish and enhance graduate programs at HSIs; and, increase authorized funding levels for minority serving institutions.

R HR 3311 — College Affordability in Higher Education Act of 2003
This bill proposes to place a flexible federal formula cap on the annual increase in the cost of education charged by different types of postsecondary education institutions. The bill also includes a "college affordability experimentation site program" that proposes to provide regulatory relief to institutions that develop and implement "innovative approaches to delivering higher education while increasing college affordability". The bill's effective date in 2008, with actual implementation beginning in 2011.

HR 3384 — Student Loan Interest Full Deductibility Act
This bill proposes to remove the annual $2,500 interest cap and $65,000 annual income cap from the student loan interest income tax deduction.

R HR 3412 — Higher Education Affordability and Equity Act
This bill proposes to repeal the cap on the annual student loan interest income tax deduction, increase the maximum annual income to qualify for the deduction to $100,000 and $200,000, increase the annual maximum contribution to education savings accounts to $5,000, and exclude the amount of gift aid from the income calculation for student financial aid.

HR 3519 — College Affordability and Accountability Act
This bill includes similar the provisions as those included in S 1793 concerning encouraging and rewarding state's and institutions to control tuition costs in exchange for increased Pell Grant funds. It directs the Advisory Committee on Student Financial Aid to conduct a comprehensive study on college costs and to make recommendations on effective ways the federal and state governments and institutions can best finance higher education.

R HR 3613 — Student Aid Streamlined Disclosure Act
This bill proposes to require income verification for all Pell Grant recipients through a data match with the IRS. The bill is being promoted as a way to use up to $400 million annually in mistakenly awarded Pell Grant money to ineligible students to award to eligible students. (Included in the Administration's Reauthorization proposals)

R HR 3894 — Pell Grants Plus Act
This bill proposes to award an additional $1,000 Pell Grant to recipients who have graduated from high school with a college preparatory diploma.

S. 589 — Homeland Security Workforce Act
This bill proposes to allow the forgiveness of federal student loan debt up to $60,000 for borrowers who work in national security positions within the federal government for at least three years.

Passed the Senate.

S. 1742
This bill proposes to establish a variable interest rate for consolidation loans and maintain the variable interest rate for regular Stafford loans. (Included in the Administration's Reauthorization proposals)

S. 1793 — College Quality, Affordability, and Diversity Act
This bill is the Senate Democrats' Reauthorization bill. Like the House Democrats' bill, it proposes to increase authorized funding levels for all Title IV programs reaching $11, 600 for the maximum Pell Grant (like HR 3180) by 2009, increase authorized funding levels for Title III and Title V institutions, increase authorized funding for the GEARUP and TRIO programs, increase the tax credit of the Hope Scholarship and Lifetime Learning Credit, repeal the Federal Direct Loan Program (FDLP) loan origination fee, establish financial incentives for institutions that participate in the FDLP, establish a grant program for consortia of institutions that propose programs that reduce the cost of education for students, establish a college cost summit involving the Education Department and representatives from institutions to develop collaborative plans to control college costs, allow reconsolidation of loans made through the FDLP, allow FDLP income contingent loan forgiveness for borrowers who are employed in the public sector, e.g., government, education, law enforcement, etc., and made (while employed in the public sector job) 120 payments through ICR, and reduce subsidies paid by the federal government to FFELP lenders and holders of FFELP loans.

R S. 1968 — Financial Literacy in Higher Education Act
This bill proposes to build on the consumer financial literacy provisions included in HR 2622 passed in November 2003 and signed into law. The bill would fund five pilot financial literacy projects at universities to improve financial and economic literacy of college students.

R S 2048
This bill proposes to make permanent the income tax deduction for qualified tuition expenses enacted as a temporary provision in 2001.

R S 2050
This bill proposes to make permanent all of the education related income tax provisions enacted as temporary provisions in 2001.

S 2087
This bill proposes to expand the Hope Scholarship tax credit to $2,500 per year and for four years of college, and directs the Treasury department to develop a mechanism to immediately credit the institution with the tax credit benefit.

S ___ The Nontraditional Student Success Act
This bill proposes to: increase the maximum authorized Pell Grant to $11,600 by 2008; increase the income protection allowance for working independent students from $5,000 to $13,000 and to $18,000 for students with children; exclude the EITC and child tax credit from inclusion in the need analysis process; increase the percentage of education expenses that can be counted towards the Lifetime Learning tax credit from 20 percent to 50 percent; and make Pell Grants available year-round.

These bills, and related information, will be able to be accessed at thomas.loc.gov.

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Joint Interim Committee on Higher Education

Future hearing dates for the Committee are January 20th, February 17th, March 16th, April 20th, and May 18th. For additional information about the Joint Committee go to www.house.state.tx.us/committees/835.htm.

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Sunset Advisory Commission Review of TG

The Sunset Advisory Commission review of TG will commence with a staff review beginning in April 2004. The schedule calls for the staff to complete its report to the Commission by Mid October 2004. The Commission will convene in a public hearing in Austin to receive the staff's report, TG's response, and public testimony in mid November 2004. The Commission will then adopt the final staff report in mid December 2004. The Regular Session of the 79th Texas Legislature, which convenes on January 11, 2005 for 140 days, will consider legislation to "reauthorize TG for another 12 years.

Anyone wishing to provide input to the Sunset staff concerning TG, or TG's Self Evaluation Report (SER), can do so now by completing the Feedback Form at www.sunset.state.tx.us/question.htm.

TG's SER can be accessed at the same website at www.sunset.state.tx.us/79threports/tgsl/ser.pdf.

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For more information, contact:

TG Congressional and Legislative Relations
(512) 219-4503
P.O. Box 83100
Round Rock, TX 78683-3100