August 1, 2005

• Congressional Update
• HEA Reauthorization/HHS, Labor, Education FY 2006 Budget Reconciliation/Appropriations Update
• FY 2006 Appropriations

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Congressional Update

Institutional Accountability Provision Included in House Higher Education Act (HEA) Reauthorization Bill

Tucked away in the 333 page House HEA reauthorization bill — HR 609 — is a provision guaranteed to be of interest to colleges and universities-in particular, to Texas colleges and universities. Section 108 of the bill — Consumer Information And Public Accountability In Higher Education — proposes to amend Section 131 of the HEA to add accountability measures to the Act for Colleges and Universities. In addition to requiring institutions to report specified data to the Department of Education including tuition and fees, cost of attendance, financial aid availability and use, amount of federal loans, instructional costs per student, faculty/student ratios, completion and graduation rates, transfer of credit policy that will be made available to the public via a Department internet Web site; HR 609 proposes to implement a "college affordability index".

The proposed index will be developed using some of the data collected by the Department from the institutions and will be equal to the percentage increase in tuition and fees charged to first time, full time, undergraduate students between the first and third academic years divided by the percentage increase in the Consumer Price Index calculated during the same time period.

The bill proposes that, effective on June 30, 2009, any institution that receives federal funding that has a college affordability index that exceeds 2.0 for any three year interval ending on or after that date will be required to provide to the Education Department a detailed explanation of the reasons for the increase along with an action plan explaining what steps the institution is taking to reduce its index. The Department will make the institutional report available to the public on its Web site.

In the event that an identified institution fails to submit a report to the Department, or fails to reduce its index, the Department may impose a $25,000 fine on the institution, will make a detailed report on the institution's failure to comply available to the public and appropriate state agencies, place the institution on an "affordability alert status", notify the institution's accrediting body of its failure to comply, and may require the Department's Inspector General to conduct an investigation and audit of the institution.

The bill also proposes a General Accountability Office study of the program to be submitted to the Congress in 2013.

There are exemptions to the proposed policy for institutions that exceed the 2.0 index by small amounts.

This Section is of particular interest to Texas because of the recent deregulation of tuition for public institutions. The resulting percentage increase in tuition by these institutions may have, if this provision were in effect, affected virtually all of Texas' public universities.

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HEA Reauthorization/HHS, Labor, Education FY 2006 Budget Reconciliation/Appropriations Update

The first Session of the 109th Congress is scheduled to adjourn on September 30, 2005. The Congress is in recess for 36 days (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. Before the Congress recessed for the month of August, the House had passed all eleven and the Senate three. Two (Interior and Legislative Branch) were sent to the President on July 29th.

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, defense, 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 include Social Security, medical malpractice, tax relief, and another 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'Conner 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 are:

• 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" and job training program for community colleges at a cost of $125 million;
• moves all Stafford loans to a variable interest rate capped at 8.25 per cent;
• recall 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 loan fees to one per cent for the FFELP and FDLP by 2010 and mandates its collection;
• reduces loan reinsurance for lenders from 98 per cent to 96 per cent (exceptional performer — 98 per cent) and creating a new annual "loan holder" fee of .25 per cent applied to each holder's outstanding balance of non-consolidated loans and to increase the consolidation loan fee from .50 per cent to one per cent ;
• reduces the collection retention rate on consolidation loans for FFELP guarantors from 18.5 per cent to 10 per cent;
• reduces the FFELP guaranty agency reinsurance rate from 95 per cent to 93 per cent (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 (3 month T-Bill + 2.3 per cent) vs. fixed rate (3 month T-Bill + 3.3 per cent) with a .5 per cent origination fee option for borrowers who have graduated;
• establishes a government watch list for institutions that increase tuition and fees by more than twice the CPI for three consecutive years and require those that do to submit a detailed report to ED explaining the reasons for the increases and how costs to the student will be lowered;
• establishes a College Access Initiative whereby FFELP guarantors will coordinate data collection activities within their states to provide information concerning postsecondary education to students and families.

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 commission 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 aid administrative funding — $124.8 million discretionary appropriations ($5 million increase).

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 aid administrative funding — $120 million discretionary appropriations.

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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For more information, contact:

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