September 9, 2005

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

---

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 word is that it will remain in session until the end of the year with short recesses in October, November, and, possibly, December. 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 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 (HR1817). The second tier 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 Supreme Court nominees. The Administration wants its nominees 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.

In July, the House Committee on Education and the Workforce reported HR 609, its version of the HEA 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 & 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 did not meet its targeted reconciliation savings of $11 billion over the next five years. The Congressional Budget Office (CBO) has scored the savings at $8.5 billion. So, the Committee has the choice of making further changes to the bill to achieve an additional $3 billion in savings, or send the bill, as is, to the House Budget Committee. Any further savings would probably come from the FFELP.

Among proposed changes to the HEA, HR 609:

• achieves approximately $8.5 billion in savings over five years, which does not meet the Committee's reconciliation target;
• 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%;
• 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 loan fees to 1% for the FFELP and FDLP by 2010 and mandates its collection;
• reduces loan reinsurance for lenders from 98% to 96% (exceptional performer — 98%) and creating a new annual "loan holder" fee of .25% applied to each holder's outstanding balance of non-consolidated loans and to increase the consolidation loan fee from .50% to 1% ;
• reduces the collection retention rate on consolidation loans for FFELP guarantors from 18.5% to 10%;
• reduces the FFELP guaranty agency reinsurance rate from 95% to 93% (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%) vs. fixed rate (3 month T Bill + 3.3%) with a .5% origination fee option for borrowers who have graduated;
• adds restrictions to Section 435(d), Schools as Lenders, that require 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%, 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;
• 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 in the Committee or 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) should pass this year as apart of the FY 2006 appropriations process, unless, because of the impact of Hurricane Katrina on families and students, the reconciliation savings for education, health, and human services are reconsidered. S 1614, the Senate Health, Education, Labor, and Human Services (HELP) Committee's reauthorization bill is ready for consideration by the full Senate. Unlike the House bill, S. 1614 is a bipartisan bill, developed by the Committees' Republicans and Democrats, sponsored by the Committee Chair, Michael Enzi (R-WY) and the Ranking Member, Senator Ted Kennedy (D-MA).

Among proposed changes to the HEA, S. 1614:

• achieves approximately $13 billion in savings over five years, which meets the Committee's reconciliation target;
• increases the authorized annual Pell Grant to $5,100 in 2006, and 6,300 over five years and makes it a 12 month program;
• establishes two new Pell Grant supplementary programs at a cost of $6.5 billion using some of the reconciliation savings;
• makes permanent the July 2006 scheduled interest rate change for Stafford loans to a fixed rate of 6.8% and increases the PLUS interest rate to 8.5%;
• increases student loan annual maximums to $3,500 and $4,500 for first year and second year borrowers;
• maintains the 3% origination fee in the FFELP and mandates a 1% fee to be collected and deposited in the federal reserve fund;
• permits the Education Department to set an origination fee from 1% to 3% to be collected from FDLP borrowers;
• reduces loan reinsurance for lenders from 98% to 97% and increases the consolidation loan fee from .50% to 1% ;
• repeals the Exceptional Performer provisions;
• reduces the collection retention rate on consolidation loans for FFELP guarantors from 18.5% to 10%;
• repeals the single holder rule;
• expands FDLP loan forgiveness to public service employees;
• places a moratorium on Section 435(d), Schools as Lenders, that require institutions to offer FFELP loans only to undergraduate students enrolled in that school, and use any proceeds to supplement need based federal grants;
• 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, reinstating the student loan disbursement provisions for low default rate schools, making permanent Section 438(b)(2)(B), expanding the income cutoff for full Pell eligibility to students and families with annual incomes below $20,000, increasing wage garnishment for student loan defaulters from 10% to 15%, allowing families who qualify for welfare benefits to apply for financial aid using the "EZ FAFSA", continuing the experimental site program authorized under Section 492 of the HEA.

The likelihood is that the Senate will allow HR 609 to remain in the HELP Committee after the House passes it. The Senate will then pass S. 1614 and send it to the House, where it will probably not be acted upon. A House/Senate conference committee will then be appointed to adjust the differences between the two bills.

Back to Top

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 $8.5 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, and $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.

On a related topic, the House passed HR 3169 — The Pell Grant Hurricane and Disaster Relief Act and HR 3668 — The Student Grant Hurricane and Disaster Relief Act; to exempt Title IV federal student financial aid recipients displaced by recent Hurricanes from having to repay the funds to the federal government.

Additional information about HEA reauthorization and appropriation bills can be accessed at thomas.loc.gov, appropriations.house.gov, and www.appropriations.senate.gov.

Back to Top

For more information, contact:

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