July 25, 2005

• Congressional Update
• FY 2006 Appropriations
• Higher Education Related Bills

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Congressional Update

HEA Reauthorization/HHS, Labor, Education FY 2006 Budget Reconciliation Advances — FY 2006 Labor, HHS, Education Appropriations Bills Advance
The first Session of the 109th Congress is scheduled to adjourn on September 30, 2005. The calendar for the remainder of the Session includes a 36 day recess (August 1st - September 5th). The only required legislation the Congress must pass by that date — if continuing resolutions are to be avoided — are the eleven FY 2006 appropriations bills. By the end of this month, the House will have passed all eleven and the Senate three.

In addition to having to pass the appropriations bills, the remaining seven weeks left in the current session will be occupied with approving presidential nominations, passing an energy bill, passing a transportation bill, passing (and considering a vote to override a veto) a stem cell research bill, and several reauthorization bills, including intelligence, defense, welfare, Head Start, agriculture, and higher education.

The Senate leadership has stated that its priorities for the remainder of the Session are passing the FY 2006 appropriations bills, homeland security (HR 2360), highway (HR 3), energy (HR 2419), and welfare (S. 617) reauthorizations, estate tax repeal (HR 8), and border-security legislation (HR 1817). The second tier Senate legislation that may be considered includes Social Security, medical malpractice, tax relief, and an additional war supplemental appropriations legislation.

Another issue that will take up the Senate's already tight floor schedule will be the consideration of the recently appointed Supreme Court nominee. The recent resignation announcement of Supreme Court Justice Sandra Day O'Connor that is effective upon confirmation of her replacement that the Administration wants to occur before the Supreme Court convenes on October 3, 2005, may substantially reduce the amount of time the Senate, and the Congress in general, will be able to devote to FY 2006 spending bills and any other legislation.

The House Education and Workforce Committee and Senate Health, Education, Labor, and Pensions Committee are working on HEA reauthorization bills. Both Committees will push toward producing a House reauthorization bill and Senate reauthorization bill by the August recess. No more committee hearings are scheduled, nor may there be any more until legislation is filed.

Last week, the House Committee reported HR 609, its version of the reauthorization bill and the House Labor, HHS, Education part of the FY 2006 budget reconciliation bill. The bill includes all or portions of several House bills concerning HEA reauthorization issues — HR 508, HR 509, HR 510, HR 511, HR 1293 — as well as several recommendations submitted by the Advisory Committee on Student Financial Assistance in its report The Student Aid Gauntlet: Making Access to College Simple and Certain. The bill will be scheduled for consideration by the full House in September. The bill makes significant changes to the FFELP concerning increased risk sharing for guarantors, lenders, and secondary markets in order to achieve the Committees targeted budget reconciliation savings. The Committee met its targeted reconciliation savings by including amendments in the reauthorization bill that reduce spending for higher education and student financial aid programs by $11 billion over the next five years.

Among proposed changes to the HEA, HR 609:

• increases the authorized annual Pell Grant to $6,000 for five years;
• establishes a new enhanced Pell Grant program for State Scholars;
• establishes a new "dual enrollment program" for community colleges at a cost of $125 million;
• moves all Stafford loans to a variable interest rate capped at 8.25 percent;
• recalls the federal portion of the Perkins Loan Program;
• increases student loan annual maximums to $3,500 and $4,500 for first year and second year borrowers, estimated to cost $3.3 billion;
• reduces Stafford loans fees to 1 percent for the FFELP and FDLP by 2010;
• reduces loan insurance for lenders from 98 percent to 96 percent and creates a new annual "loan holder" fee of .25 percent applied to each holder's outstanding balance of non-consolidated loans and to increase the consolidation loan fee from .50 percent to 1 percent;
• reduces the collection retention rate on consolidation loans for FFELP guarantors from 18.5 percent to 10 percent;
• reduces the FFELP guaranty agency reinsurance rate from 95 percent to 93 percent (with a commitment by the Committee Chairman to continue to review the fee because this provision neither saves nor generates revenue and may be destabilizing to the FFELP);
• repeals the "single holder rule";
• standardizes student loan repayment plans to the FDLP plans;
• restructures the loan consolidation program by applying a variable interest rate (three month T Bill + 2.3 percent) vs. fixed rate (three month T Bill + 3.3 percent) option for borrowers who obtain a Consolidation loan.

Other proposals include:

• limiting eligibility for Pell Grants to 18 semesters/27 quarters;
• restructuring the campus-based allocation formula;
• reinstating the student loan disbursement provisions for low default rate schools;
• expanding the "90/10" income rule to all institutions;
• strengthening the "exceptional performer" provision;
• repealing Section 438(b)(2)(B), and
• directing the Secretary of Education to commissions an independent study on fraud and abuse prevention in Title IV student aid programs and submit the report and recommendations to Congress by December 31, 2007.

The bill can continue to be amended on the House floor in September, and, of course, in the Senate. However, the budget reconciliation-related provisions (which are primarily the student loan program provisions) will pass this year as a part of the FY 2006 appropriations process.

The Senate HELP Committee is still set on producing a bipartisan bill that the entire Committee can live with which will incorporate proposals to achieve budget reconciliation savings from Title IV of the HEA.

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FY 2006 Appropriations

With, or without, final passage of the HEA reauthorization, the budget reconciliation process will require changes to the HEA that will produce budgetary savings of several billions of dollars, which will, in effect, at least partially, reauthorize parts of the HEA.

The FY 2006 budget resolution calls for $2.6 trillion in spending (including $843 billion in discretionary spending), $106 billion in new tax cuts, and $35 billion in reconciliation savings. The FY 2006 appropriation ceiling, or cap, for education, health and human services, labor, and pension programs is $142.5 billion ($20.8 less than the current appropriation).

Of the targeted reconciliation savings, the resolution calls for $12.7 billion to come from programs under the jurisdiction of the House Education and Workforce Committee and $13.7 billion to come from the same programs under the jurisdiction of the Senate Health, Education, Labor, and Pensions Committee. The Committees will decide which laws to amend (including the Higher Education Act) to achieve their savings targets. As already stated, the House reauthorization bill includes changes to the FFELP that will achieve an $11 billion reconciliation savings over five years.

The House version of the Labor, Health and Human Services, and Education appropriation bill (HR 3010) was passed by the House in early July. The bill, while proposing to eliminate funding for 57 programs (estimated to save $2.8 billion), rejects the Administration's submission proposals to de-fund the Perkins Loan, LEAP, GEAR UP, TRIO Upward Bound and Talent Search programs. The bill proposes a $1 billion increase for FY 2006 Pell Grant funding to achieve a $4,100 maximum annual grant and earmarks $4.3 billion to permanently retire the program's accumulated shortfall. The bill proposes to fund for FY 2006:

• SEOG — $778.7 million (no increase);
• Work-Study — $990.3 million (no increase);
• Perkins Loan — $66.1 (no increase);
• LEAP — $65.6 million (no increase);
• Title III and Title V — $394 million (an increase of $3.1 million;
• TRIO — $836.5 million (no increase);
• GEAR UP — $306.5 million (no increase);
• Student loan 458 administrative funding — $124.8 million discretionary appropriations ($5 million increase);
• Community college job training initiative — $125 million (new program).

The bill also extends the repeal of Section 438(b)(2)(B) of the HEA and extends the repeal to the recycling of previous bond issues.

The House passed bill also rejected the Committee's proposal to phase out federal funding for the Corporation for Public Broadcasting.

The Senate version of HR 3010 is ready for consideration by the full Senate. The bill funds a $4,050 maximum annual Pell Grant and pays for the $4.3 billion shortfall. The bill also proposes to fund:

• SEOG — $804.8 million
• Work-Study —
• Perkins Loan — $66.1 million
• LEAP — $65.6 million
• Title III and Title V —
• TRIO — $836.5 million
• GEAR UP — $306.5 million
• Student loan 458 administrative funding — $124.8 million discretionary appropriations
• Community College job training initiative — $125 million

The bill provides $475 million for the Public Broadcasting Corporation.

These bills and comprehensive information about each can be accessed at thomas.loc.gov, appropriations.house.gov, and www.appropriations.senate.gov.

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Higher Education Related Bills

HR 507 — College Access and Opportunity Act of 2005 (Replaced by HR 609)
This bill is the initial House Republicans' Higher Education Reauthorization bill to be introduced during the 109th Congress. It is, essentially, a re-filed HR 4283 from the 108th Congress, which had the same title (with the exception of the year).

Among the bill's provisions, HR 507 proposes to:

• revise the definition of higher education institution that brings proprietary schools under the definition;
• repeal provisions that apply to proprietary schools;
• move all student loans to a variable interest rate;
• reduce student loan origination fees;
• increase student loan annual limits;
• reauthorize and amend the loan guaranty VFA provision by repealing inducement waiver provision;
• revise the campus-based allocation formula;
• reinstate student loan provisions for low default schools to allow quicker disbursement of loan funds to students;
• increase Pell Grant funding;
• strengthen funding for Title III and Title V institutions;
• increase accountability, transparency, and access to cost and consumer information, and
• expand teacher loan forgiveness programs.

HR 508 — The FED UP Higher Education Technical Amendments Act
This bill was filed as HR 12 during the 108th Congress and HR 4866 during the 107th Congress. Among the bill's provisions, it proposes to extend the provisions concerning exemptions from the 30 day delayed disbursements of student loan funds to first time borrowers and multiple disbursements of loan funds for low default schools; clarifies return of Title IV fund regulations; allow student loan forbearances to be requested in writing. HR 508 has one cosponsor.

HR 509 — International Studies in Higher Education Act
This bill is HR 3077 filed during the 108th Congress. It proposes to reauthorize Title VI of the HEA and establishes a program to support and promote international studies for students who pursue careers in international relations. HR 3077 was passed by the House last year.

HR 510 — Graduate Opportunities in Higher Education Act
This legislation was filed during the 108th Congress as HR 3076 and was passed by the House. The bill proposes to reauthorize Title VII of the HEA and adds a new provision that promotes graduate teacher education programs in K-12 shortage areas.

HR 511 — Pell Grant Plus Act
This bill was introduced last year as HR 3894. The bill proposes to award an additional Pell Grant of $1,000 for two years to Pell recipients who graduate from high school with a postsecondary education preparatory diploma.

HR 555 — School as Lender Reform Act
This bill proposes to amend and clarify the school as lender program authorized under Section 435(d)(2) of the HEA, to require revenues generated to a participating institution are to be used to supplement need based grants already in existence; that contracts between schools and lenders by awarded through competitive bidding; and that participating schools offer lower amounts of loan aid to their student aid recipients.

HR 609 — College Access and Opportunity Act of 2005
Substitute for HR 507. HR 609 differs from HR 507 with respect to the Pell Grant provision. This bill has 5 cosponsors.

HR 625
This legislation proposes to amend the IRS Code to prohibit the use of Pell Grant and SEOG as offsets to the Hope Scholarship Tax credit.

HR 670 — Teacher Recruitment and Retention Act of 2005
This bill proposes to make the student loan forgiveness increase $17,500 included in the last two appropriations bills permanent.

HR 1009
This bill proposes to allow student loan borrowers who have consolidated their loans to reconsolidate with their choice of lender or consolidator.

HR 1030
This legislation requires institutions to enter into agreements with for profit organizations for participation in the federal Work-Study program.

HR 1032
This bill proposes to extend the single disbursement for student loans for low default rate schools.

HR 1033
This bill proposes to eliminate the limitation of the deduction of student loan interest on income tax returns.

HR 1293 — Access & Equity in Higher Education Act
This is the re-filed HR 4102 from the 108th Congress which did not pass. It is the Coalition for Better Student Loans HEA reauthorization bill which proposes to increase annual and aggregate student loan limits, reduce loan fees, make all student loans subject to a variable interest rate, and, extends the FDLP income sensitive repayment plan to the FFELP. HR 1293 has 31 cosponsors.

HR 1338 — College Loan Assistance Act
This bill proposes to allow borrowers with consolidated student loans to reconsolidate their debt. The bill also proposes to increase the annual maximum Pell Grant to $7,000.

HR 1380 — The Higher Education Affordability Act
This bill proposes to allow certain student loan borrowers to deduct the full amount of their student loan interest from their taxes; add the amount of scholarship aid to tuition and fees for tax deduction purposes; increase the annual maximum amount of annual contributions to ESAs to $5,000; and, expand the use of Hope Scholarship tax credits to books and supplies.

HR 1425/S. 754 — Student Aid Reward Act (STAR) of 2005
This legislation, originally introduced during the last Congress as the Direct Loan Reward Act (HR 4370) proposes to provide financial incentives to institutions if they switch participation from the higher cost of the two major student loan programs to the lower cost program (FFELP and FDLP). Any savings to the federal government resulting from the switch would be split 50/50 between the school and the federal government for use in other student financial aid. The Congressional Budget Office has estimated the bill could generate a federal savings of up to $12 billion over ten years. The intent of the bill is that this savings would be used to double the appropriation for the Pell Grant program by almost 100 percent over this period. HR 1425 has 35 cosponsors, the most of any HEA reauthorization-related bill. The Senate companion has three.

HR 1617
This bill proposes to allow student loan borrowers to consolidate their loan debt one time and choose a variable or fixed rate, amends Section 438 of the HEA, and repeals the single holder rule.

HR 1766/HR 2666
This legislation proposes to allow the treatment of student loan origination fees as tax deductible interest and simplify the treatment of student loan interest and allocation of loan interest, fees, and principal payments.

HR 2132 — Higher Education Relief Opportunities for Students Act of 2005 (HEROES)
This bill proposes to continue to allow the Secretary of Education to waive student loan obligations of active duty military personnel.

HR 2340/S. 117 — Loan Forgiveness for Head Start Teachers
This bill proposes to extend student loan forgiveness (Perkins, FFELP, and FDLP) to Head Start teachers who have taught in the program for five, or more, years.

HR 2564 — Tuition Deduction Permanency act of 2005
This legislation proposes to make the annual $4,000 student loan income tax deduction enacted in 2001 permanent.

HR 2739 — College Affordability and Accountability Act
This bill proposes to reward states that implement effective higher education cost containment plans with additional Pell Grant funds.

HR 2815 — College Access and Affordability Act
This bill proposes to expand the HOPE and Lifetime Learning Credits and provide student loan forgiveness for public employees.

HR 2927/S. 1249 — Student Fairness Act
This bill proposes to require the Education department to rebate Pell Grant funds to students lost due to the Department's updating of tax tables for 2005-2006 that resulted in some students' expected EFC increasing. The HR has 14 cosponsors and the Senate bill has three.

HR 2960 — College Opportunity Act for All Act
This legislation proposes to double the maximum authorized Pell Grant and make it a year round program; encourage state's to control higher education costs; make a fixed or variable student loan interest rate an option; double the TRIO and GEAR UP authorized appropriation; Increase funding for Title III and Title V; allow refinancing of consolidated student loans; simplify the student aid application; repeal Section 438(b)(2)(B)(ii) special allowance provision.

S. 9 — Lifetime of Education Opportunities Act of 2005
This is a "sense of the senate" Republican omnibus education bill that includes HEA reauthorization provisions. It is, for the most part, legislation that expresses "the sense of the Senate" concerning a host of K-16 education issues. Included among these are that during the reauthorization process, the Senate should address:

• "the rising costs of higher education";
• "promote student academic preparation";
• "encourage efforts to increase the availability of financial aid information";
• "simplify the student aid application process";
• "improve the level of accountability in the federal student aid programs";
• "address the Pell Grant shortfall";
• "reduce the time to graduation", and
• support stronger partnerships between businesses and higher education".

The bill includes "sense of the Senate" clauses concerning minority serving institutions.

S. 15 — Quality Education for All Act
This is the Senate Democrat "sense of the senate" education bill that includes HEA reauthorization provisions. Among its higher education-related provisions, this bill proposes to:

• reauthorize and increase the authorized appropriations for the TRIO and GEAR UP programs;
• hold certain Pell grant recipients harmless when the annual tax table updates are made;
• a "sense of the Senate " provision that states the maximum annual Pell Grant for 2006-2007 should be $5,100;
• to exempt payment of tuition and fees and increase student loan forgiveness (to be paid for through diversion of FFELP special allowance payments authorized under Sec. 438(b ) for students planning to teach mathematics, science, and special education, and
• expand the income tax deduction for higher education expenses.

S. 371 — The College Quality, Affordability, and Diversity Improvement Act of 2005
This is the refilled S. 1793, the Senate Democrat's HEA reauthorization bill from the last Congress. Among the bill's provisions, the bill proposes to;

• raise the annual authorized levels for the Pell Grant, TRIO, GEAR UP, LEAP, Title III and Title V programs;
• increase the student loan forgiveness amounts for certain teachers;
• increase the amount of earnings exempted from the need analysis process;
• eliminates the student loan origination fee;
• indexes each state's share of Pell Grant funding to the state's effort in providing student aid;
• allows reconsolidation of student loans into the FDLP;
• establishes a comprehensive program to increase recruitment, retention, and graduation of low income students, and
• a competitive grant program to fund initiatives to reduce college costs.

S. 371 includes provisions from HR 1425 — the Student Aid Reward (STAR) Act that proposes to provide financial incentives to institutions if they switch participation from the FFELP to the FDLP. Any savings to the federal government resulting from the switch would be split 50/50 between the school and the federal government for use in other student financial aid. The Congressional Budget Office has estimated the bill could generate a federal savings of up to $12 billion over ten years. The intent of the bill is that this savings would be used to double the appropriation for the Pell Grant program by almost 100% over this period. S. 371 has seven cosponsors.

S. 697 — Higher Education Opportunity through Pell Grant Expansion Act of 2005
This legislation proposes to increase the annual maximum Pell Grant to $5,100 and index the grant amount to inflation. The increase would be paid for by changes to section 438 of the HEA.

S. 1029 — Accessing College through Comprehensive Early Outreach and State Partnerships Act
This bill proposes to expand the LEAP program and to establish a new program to provide matching grants to states to establish partnerships within each state to develop and delivery programs and services that increase postsecondary education enrollment.

S. 1030 — Financial Aid Form Simplification Act
This bill proposes to implement the Federal Advisory Committee on Student Financial Aid's recommendations outlined in its latest report "The Student Aid Gauntlet". This bill has three cosponsors.

S. 1098 — Student Loan Abuse Prevention Act
This legislation proposes makes and retroactive changes made to Section 438 of the HEA by the last Congress and uses any savings to encourage student loan borrowers with 9.5% student loans to consolidate, increase appropriations for the Teacher loan Forgiveness Act and Pell Grants.

S. 1183 — 21st century Federal Pell Grant Plus Act
This bill proposes allow students pursuing engineering, mathematics, science, and foreign language degrees to receive additional Pell Grant assistance.

S. 1261 — The Higher Education Simplification and Deregulation Act of 2005
This legislation proposes to implement some of the Advisory Committee on Student Financial Aid's recommendations to simplify the SFA application process and to establish a new requirement directing ED to publish a list of the 200 college and universities "best buys" based on a list of criteria including type of institution, lowest tuition and fees, lowest cost of attendance, available SFA per student.

S. Res. 8 — Expressing the sense of the Senate regarding the maximum Federal Pell Grant
This resolution states the sense of the senate is that the maximum Pell Grant for 2005-2006 should be $4,500 and for 2010-2011, $9,000.

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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