August 4, 2005

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

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Congressional Update

College Access Initiative 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 proposing to establish a new federal program to promote access to postsecondary education, that should be of particular interest to Texas because of its Closing the Gaps initiative.

Section 487 of the bill — College Access Initiative — proposes to amend Part G of the HEA by adding a new Section 485D. This proposed new Section directs each FFELP guaranty agency to collect and provide to the Education Department postsecondary education information necessary for the Department to develop web links for students and families to be able to access a comprehensive listing of postsecondary education information, opportunities, programs, publications, web sites, and other services available in the States composing each guarantor's area of service.

Additionally, under the proposed provision, each guarantor will be required to develop a plan to collect the required data, make it available to the public and the Department, undertake activities that promote access to postsecondary education through the provision of information on college planning, paying for college, and career preparation, publicize the information, and coordinate activities with other entities that are engaged in the same activities.

Each guarantor will fund this new responsibility from its operating account established under Section 422B and earnings on its account established under Section $22(h)(4).

HR 609 Proposed Studies and new Programs of Interest
Among the studies and new programs proposed in the House HEA reauthorization bill are:

Section 403 — TRIO Reform, proposes to add an extensive and detailed provision to the HEA concerning the establishment of performance measures for the TRIO program that will establish expected program outcomes and measures to assess the quality, effectiveness, and impact of the TRIO programs, including required guidelines for awarding new grants to existing recipients, and a required biennial report and recommendations to the Congress.

Section 486A — College Affordability Demonstration Program, which proposes to establish a program for up to 100 institutions selected by the Education Department to establish affordability programs that reduce costs to the student and institution through innovative strategies, including accelerated degree program completion, use of distance education, and collaboration with other institutions in delivering programs. In exchange, the Department will waive any requirements of the HEA or regulations necessary for the institution to fulfill the objectives of its plan.

Section 496 — Report To Congress On Prevention Of Fraud And Abuse In Student Financial Aid Programs, proposes a new Section 499 to the HEA that directs the Secretary of Education to appoint a nonpartisan comprehensive study on the prevention of fraud and abuse in Title IV programs and to report the findings and recommendations to Congress by December 31, 2007. The report will cover the impact of fraud and abuse in the programs, the effectiveness of existing protections, additional information needed to improve protections, and existing State protections and their effectiveness.

Section 634 — Recruiter Access To Students And Student Recruiting Information, which proposes to require institutions to allow the same access to students to recruiters from the U.S. government as is provided to other prospective employers.

Section 926 — Study Of Student Learning Outcomes And Public Accountability, proposes to direct the secretary of Education to provide for a study on the best practices of States in assessing undergraduate postsecondary student learning and accountability systems. The Department of Education will contract with an association or organization with knowledge and expertise in this area that has access to state officials to conduct the study. The study will include the current status in the states of assessing postsecondary education outcomes, the relationship between educators and accrediting agencies on learning standards, the reliability of existing assessment instruments, the role, types, and effectiveness of accountability standards, transition from high school to college. The study's report is due to the Congress no later than two years after HR 609 is enacted.

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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 the requirement to pass the appropriations bills, the remaining weeks left in the current session will be occupied with approving presidential nominations, passing (and considering a vote to override a veto) a stem cell research bill, and several reauthorization bills, including intelligence, defense, welfare, Head Start, 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) and welfare (S. 617) reauthorizations, estate tax repeal (HR 8), and border-security legislation (HR 1817). The second group of 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 Administration wants its nominee in place before the Supreme Court convenes on October 3, 2005. So, this will 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 time Congress reconvenes in September.

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;
• moves all Stafford loans to a variable interest rate capped at 8.25 percent;
• 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 percent for the FFELP and FDLP by 2010 and mandates its collection;
• reduces loan reinsurance for lenders from 98 percent to 96 percent (exceptional performer — 98 percent) and creating 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 (3 month T-Bill + 2.3 percent) vs. fixed rate (3 month T-Bill + 3.3 percent) with a .5 percent origination fee option for borrowers who have graduated;
• adds restrictions to Section 435(d), Schools as Lenders, that requires institutions to offer FFELP loans only to undergraduate students enrolled in that school, issue contracts only through competitive bidding, charge loan fees less than regular FFELP or FDLP, have a cohort default rate less than 10 percent, and use any proceeds to supplement need based federal grants;
• 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; and
• 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 & 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 apart 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. At this time, the Committee staffs (Republican and Democrat) reportedly have agreed to changes to almost all HEA Titles, except Title IV, and to budget reconciliation savings to be achieved through its bill that are substantially less than that included in HR 609.

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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). This amount is in addition to proposed amounts in HR 609 authorized under Section 458(a)(1), $820 million, $833 million, $847 million, $862 million, $878 million, & $894 million for years 2006-2011, and the proposed authorized amounts in HR 609 for the account maintenance fee under Section 458(c)(1), $220 million, $233 million, $247 million, $262 million, $278 million, and $294 million for the years 2006 - 2011.

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. This amount is also in addition to the authorized amounts in HR 609 for Sections 458(a)(1) and 458(c)(1).

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