January 20, 2006

• Outlook for the Second Session of the 109th Congress

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Outlook for the Second Session of the 109th Congress

The second Session of the 109th Session of the Senate convened on January 18, 2006. The House will convene on January 31, 2006, and not really get down to business until the next day.

The major priorities for this abbreviated Session will include:

• Completion of a contentious budget reconciliation process which includes a spending reduction bill (S 1932) and a tax reduction bill (HR 4297). The spending bill is awaiting House action on a Senate-passed and amended bill. The tax bill still must be conferenced.
• Reauthorization of the Patriot Act (S 3199/HR 1389). Portions of the current Act expire on February 3, 2006.
• High profile hearings on domestic spying; separation of powers, congressional ethics, bribery, and reform of the federal laws governing lobbying (S 2128 - Lobbying Transparency and Accountability Act), costs of the war on terror, Supreme Court nomination.
• FY 2007 appropriations.
• Immigration, campaign finance and lobby reform, entitlement, and income tax reform.

Because this is an election year, there is a strong possibility that very little will get done this Session, with the majority leadership in both the House and Senate wanting to pass the appropriations bills and, possibly, lobby reform legislation and spend the bulk of the year campaigning in their districts. With public opinion polls registering 20 percent and less approval of this Congress, members are more sensitive than usual about how their constituents perceive their performance.

However, it can be expected that the majority leadership in both the House and Senate will continue to advocate measures to control entitlement and discretionary spending, e.g., Medicare, Medicaid, Food Stamps, Social Security, student loans, and reduce the annual federal budget deficits. Health, human services, and education programs will continue to be the primary targets for spending reductions through the appropriations, reauthorization, and budget processes.

The Administration's FY 2007 budget request to be submitted to the congress next month is expected to include significant proposed spending reductions for all domestic programs and further changes to entitlement programs to achieve savings. Another budget reconciliation bill is very much a possibility, as is another across-the-board spending reduction, since it is expected that the Office of Management and Budget and Congressional Budget Office will revise their FY 2006 budget deficit projections from $295 billion to just under $400 billion. But, again the members may simply not want to take up anything that may further harm their chances of re-election.

The HEA reauthorization, if it is considered, will, once again, be intertwined with efforts by the majority to increase budgetary savings from targeted programs.

The majority will continue to try to use the savings from the spending reductions in domestic programs to increase spending on defense, homeland security, and the war on terror.

This is an election Session — the beginning of the 2008 presidential campaign, 435 House, 33 Senate, and 36 gubernatorial offices are up for grabs in 2006. All of the above will be fodder for political campaigns.

This final Session of this Congress promises to be characterized by electioneering, intense partisanship, maneuvering to gain political advantage on politically high profile, hot button issues. In particular, abuses of the campaign finance and election laws with respect to lobbying and money laundering will receive a great deal of attention and be a major distraction.

The 2005 budget reconciliation bill (S 1932) that is pending in the House is not a "slam dunk". The Speaker of the House has announced that consideration of S 1932 will be the first order of business following the Republican leadership elections. The eventual vote on passage will be close. This bill will be a campaign issue for both sides.

The HEA is extended until March 31, 2006. The House and Senate HEA reauthorization bills — HR 609 and S 1614 — have been reported out of committee and are eligible to be considered by the full House and Senate. These will continue to be the legislative vehicles for the HEA reauthorization. Any of the student loan program issues included in S 1932 may be reopened as a part of the HEA reauthorization discussions, as may provisions that were originally included in either the House or Senate passed versions of S 1932, but dropped by the conference committee. But, for now, the student loan programs are reauthorized in S 1932, as well as, in HR 6509 and S 1614.

If the HEA reauthorization process gets bogged down as it has since 2003, the Congress may, once again, extend the current HEA and allow the Secretary of Education's Commission on the Future of Higher Education to take the lead next year. This newly created group has as its primary charge to issue a report to Congress by August 1, 2006 that will act as the nation's "strategy for postsecondary education" and "blueprint for a 21st century higher education system" in terms of ensuring affordability and accessibility and preparation of graduates to "compete in a global economy".

For the FFELP (assuming S 1932 is enacted):

• The FFELP and FDLP are reauthorized for five years.
• July 1, 2006 is the effective date for most higher education amendments.
• The continued demand for student loans will persist and the increased annual loan limits will contribute to increased volume.
• The new guarantee fee policy should require ED or Congressional clarification during reauthorization, or be a negotiated rule making topic to clarify Congressional intent and the definition of "non federal funds".
• The eligibility requirements for loan consolidation are slightly tightened which may reduce volume.
• The exceptional performer program was barely touched and should be a reauthorization issue.
• 458 payments are discretionary (subject to the annual appropriations process) with the exception that AMF payments remain mandatory not to exceed 10 percent of the amount of the original principal amount of outstanding loans. This will likely be another issue to reconsider during the reauthorization process because of the mandatory AMF coming from a discretionary fund.
• Wage garnishment is increase from 10 percent of disposable income to 15 percent.
• One part of the NCHELP guarantor financing model that made it into S 1932 is the reduction in collections retention on defaulted consolidation loans from 18.5 percent to 10 percent beginning on October 1, 2006, with the 8.5 percent difference remitted to ED. Beginning three years later, guarantors shall not retain any collection fees on these loans that exceed 45 percent of the guarantor's total default collections.
• Loan rehabilitation is reduced from 12 consecutive monthly payments to 9 payments made within 20 days of the due date during 10 consecutive months.
• The federal default fee is required for VFA guarantors, as is a prohibition on inducements.
• School as lender is limited to graduate students, must be less expensive than FFELP loans, contracts are required to be competitively bid, and all proceeds other than those used to offset administrative expenses, must supplement need based aid.
• The College Access Initiative requires guarantors to provide ED information necessary to establish web links to comprehensive listing of postsecondary educational opportunities within the guarantor's area of service and for guarantors to coordinate outreach and awareness activities to promote postsecondary education opportunities within their areas of service to be funded from guarantor's operating account.

These are the major parts of S 1932 which impact TG and the FFELP. Again, these are final pending passage of the legislation by the House in February without further amendment. And, of course, assuming no changes are made during the HEA reauthorization.

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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