March 8, 2006

• Congressional Update Senate Budget Committee Unveils FY 2007 Budget Resolution
• The Administration's FY 2007 Budget Proposals for Student Financial Aid

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Congressional Update Senate Budget Committee Unveils FY 2007 Budget Resolution

Senator Judd Greg (R-NH), Chairman of the Senate Budget Committee has unveiled the Senate's initial shot at a FY 2007 budget resolution. The resolution will be ready for consideration by the full Senate next week.

The resolution rejects virtually all of the Administration's proposed $65 billion in cuts in entitlement programs and making the 2001 and 2003 tax reductions permanent. Senator Gregg characterized the resolution as a "vanilla exercise" that drops most of the Administration's proposals as nonstarters in a tough election year during which most observers are now assuming pick ups in both chambers for the Democrats. He also stated that the consensus of the majority in the Senate is to move required legislation like the budget resolution and FY 2007 appropriation bills as smoothly as possible during this session and adjourn. The Chairman's hope is that the unsettled political landscape that is centered around several flashpoints — the war on terror, immigration, lobby and campaign finance reform, spending priorities (in particular, entitlements), and the 2006 mid term elections can be ameliorated if another round of budget reconciliation can be avoided.

Three Administration backed items that are included in the resolution are limiting discretionary appropriations to $871 billion in FY 2007 (a one percent reduction from the current year), an increase in the national debt limit to 8.8 trillion, and opening the Arctic National Wildlife Refuge to oil drilling. All of these may be political stumbling blocks with members of both parties.

The House leadership indicated that its budget resolution is still under discussion and will include legislation to "reform" the congressional practice of earmarking appropriations for specific Member priorities and a new "line item veto" authority for the president.

The House and Senate Budget Committees are scheduled to report a budget resolution by April 15th. The resolutions will be used as a guide by the Appropriations Committees to craft the 11 appropriations bills.

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The Administration's FY 2007 Budget Proposals for Student Financial Aid

For programs designed to promote and provide access to postsecondary education, the Administration's FY 2007 budget proposal:

• States that during 2006, the Administration will develop a "comprehensive national strategy for postsecondary education that addresses the Nation's economic and workforce needs". The Commission on the Future of Higher Education will serve as the Administration's "blueprint" for identifying and recommending ways to improve postsecondary education — including access.
• Continues all of the changes made to the federal student loan programs in the recently passed Higher Education Reconciliation Act of 2005.
• Continues the Academic Competitiveness Grant program established as a part of the Higher Education Reconciliation Act of 2005. The program is now a part of the Administration's proposed American Competitiveness Initiative.
• States that, according to the Office of Management and Budget's Program Assessment Rating Tool (PART), the effectiveness of all Title IV programs (except the FFELP, FDLP, and Pell Grants), Title III and Title V programs are either "Ineffective" or "Not Demonstrated". Therefore, the budget submission continues to effectively freeze funding for all Title IV, Title III, and Title V at current levels and terminates the Perkins, GEAR UP, TALENT SEARCH, LEAP, Upward Bound, and all federal K - 16 vocational education programs.

The Deficit Reduction Act of 2005 (Public Law 109-171)
Among the changes to the HEA included in the 2005 Higher Education Reconciliation Act portion of the Deficit Reduction Act of 2005, which are proposed by the Administration to continue are:

• Two new supplemental Pell Grant programs (Academic Competitiveness Grant and National Science and Mathematics Access to Retain Talent (SMART) Grant programs) for certain Pell recipients with 3.0 GPAs. The programs are repealed in 2011. (Cost — $3.7 billion over five years)
• A 6.8 percent fixed interest rate (8.5 percent for PLUS loans in the FFELP and 8.25 percent in the FDLP) for all Stafford student loans. Lenders' return is still variable with any excess interest above the amount guaranteed by the government to be rebated to the Treasury. (Savings — $15 billion over five years)
• A student loan annual maximum increase to $3,500 and $4,500 for first year and second year borrowers, respectively, and allowing graduate students to receive PLUS loans. (Cost — $1.5 billion over five years)
• A reduction in Stafford loan fees to one per cent for the FFELP and FDLP, with the 3 percent origination fee phased down to zero by 2010, and mandates its collection from borrower loan proceeds or from non federal funds. (Cost — $2.5 billion over five years)
• A reduction in loan reinsurance for lenders from 98 per cent to 96 per cent; exceptional performer — 99 per cent. (Savings — $.5 billion over 5 years)
• A reduction in the collection retention rate on consolidation loans for FFELP guarantors from 18.5 per cent to 10 per cent.
• Reduction in the requirement for a defaulted loan to be rehabilitated to nine consecutive monthly payments.
• Repeal of Section 438(b)(2)(B) concerning recycling and refinancing by certain FFELP secondary markets of pre-1993 "9.5 percent" interest loans. (Savings — $1.8 billion over 5 years)
• Make administrative funding (except the account maintenance fee) for the FFELP and FDLP under Section 458 of the HEA discretionary. (Savings — $2.2 billion over five years)
• Increase percentage of wages subject to wage garnishment for borrowers in default of federal student loans from 10 percent to 15 percent of income.
• A requirement that FFELP guarantors operating under a Voluntary Flexible Agreement to collect the one percent federal default fee mandated under Section 428(B)(1)(H) and deposit it the Federal Fund.
• A requirement that a school lender of student loans to use the FFELP criteria for eligibility and excess funds to supplement existing need based grant programs.
• A new College Access Initiative which directs each guaranty agency to coordinate with state agencies and ED to collect information necessary to develop internet web links on postsecondary education information.

Other provisions in the bill include limiting eligibility for Pell Grants to 18 semesters/27 quarters, a simplified needs test and automatic zero improvements recommended by the Federal Advisory Committee on Student Financial Assistance, reinstating the student loan disbursement provisions for low default rate schools, and repeal of the "50 percent" rule for distance education courses.

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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