January 18, 2007

• House Nears Completion of "First 100 Hours" Goal Before State of the Union Speech

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House Nears Completion of "First 100 Hours" Goal Before State of the Union Speech

"If you want anything said, ask a man. If you want something done, ask a woman."

- Margaret Thatcher

With the passage of HR 5 - The College Student Relief Act; after a sometimes contentious debate, by a presidential veto-proof vote of 356-71, the Democratic-led House of Representatives have closed in on their goal of passing legislation to:

• strengthen House ethics and budget rules;
• implement the 9/11 Commission recommendations;
• increase the federal minimum wage;
• allow Medicare to negotiate with pharmaceutical companies on drug prices;
• reduce the federal subsidized student loan interest rate for borrowers; and
• roll back tax reductions for oil companies.

As early as June 2006, Representative Nancy Pelosi (D-CA), set a goal of House passage of these, which had lingered in the House for up to several years, during the first 100 legislative hours and before the January 23rd State of the Union speech by the President. And, it appears that the goal will be met.

To become law, all, with the exception of the House rules changes in House Resolution 6, must be passed by the Senate.

The House votes on each of the first five have been largely bipartisan with between 275-350 votes in favor of each measure. The Democrats have a majority in the House of 233-202.

HR 5 proposes to temporarily reduce the borrower interest rate on new subsidized federal student loans from the current 6.8 percent to 6.12 percent this year, 5.44 percent in 2008, 4.76 percent in 2009, 4.08 percent in 2010, and 3.40 percent in 2011. The interest rate provisions included in HR 5 sunset on December 31, 2011, whereupon (unless a future Congress extends the provisions included in HR 5), current law resumes. The offsets will continue.

The bill proposes to reduce students' monthly payment on their subsidized loans by 14.5 percent. For every $1,000 borrowed, students would save $200 in interest payments over the 10 years in which the loan is repaid.

TG's Research and Analytical Services (RAS) staff has briefly reviewed the proposal. If HR 5 were in effect today, it would apply to over 133,000 Texas undergraduates who left school in academic year 2005-2006 with TG-guaranteed, subsidized Stafford loans. The median student had $5,250 in subsidized loans. Each of these students would save over $1,000 in interest payments over the next ten years for a total savings of over $133 million.

HR 5 is the opening shot of the Higher Education Act reauthorization. House and Senate leaders have stated that their goal is to consider legislation during the "First 100 Days" of this Congress which will include increasing authorized and actual appropriations for all of the federal student financial aid programs as a part of the HEA reauthorization process.

The cost of the legislation is estimated by the Congressional Budget Office (CBO) to be $7.1 billion over the five year period. HR 5, therefore, includes the necessary offsets (as required to the newly reinstated "pay-as-you-go" House budget rules under House Resolution 6) by:

• reducing the collection retention for FFELP lenders from 97 cents to 95 cents;
• repealing the "exceptional performer" program authorized under Section 428I of the Higher Education Act;
• increasing the lender loan origination fee from .5 percent to 1 percent;
• increasing the lender loan consolidation fee from 1.05 percent to 1.30 percent for lenders 90 percent or more of their portfolios composed of consolidated loans;
• reducing the special allowance paid to the FFELP lenders that hold 90 percent or more of their loan portfolio by .1 percent from 2.34 percent to 2.24 percent and 1.74 percent to 1.64 percent; and
• reduce the guarantee agency collection retention rate from 24 percent to 23 percent in 2007, 20 percent in 2008, and 18 percent in 2010, and thereafter a percentage determined by the Department of Education.

Again, these provisions will remain in effect, while the borrower interest rate provisions will expire on December 31, 2011.

These offsets were proposed by the Administration in its 2006 and 2007 budget submissions to the 109th Congress, and will be included in the 2008 submission due to be submitted by the Administration to the current Congress in February. They were also included in the initial 2005 Higher Education Reconciliation Act portion of the Deficit Reduction Act.

HR 5's companion bill in the Senate, S. 282 was introduced on January 12th. Both bills are now in the Senate Health, Education, Labor, and Pensions (HELP) Committee, chaired by Senator Edward Kennedy (D-MA). In all likelihood, the legislation will remain in the Committee until the chairman decides to take up and consider The Student Debt Relief Act — the Senate version of the HEA reauthorization bill (filed during the 109th Congress as S. 3593). While S. 282 has been filed, the preference will be to fold HR 5 into a larger omnibus senate HEA reauthorization bill and report that bill to the full Senate in late spring or early summer before the summer recesses.

Last night, the Administration (Office of Management and Budget) issued a Statement of Administration Policy on HR 5 stating that the President will veto either bill if it reaches his desk citing as a reason that the legislation benefits non-students who have left college rather than improving financial access for students who need financial assistance in paying tuition and fees.

TG's position on this bill has been (since its House passage was a foregone conclusion) that TG supports and encourages efforts to reduce the cost of student loans to borrowers as long as the primary source of student financial aid in the US and Texas — the FFELP — remains a strong and viable public/private partnership and is able to continue to meet its responsibilities in serving as the foundation of the country's student financial aid programs.

TG looks forward to continuing to provide input and participate in discussions as this legislation moves through the legislative process as a part of the HEA reauthorization.

We are working with our Texas partners and utilizing the relationships we have with the 34 member Texas Congressional Delegation. With a new Congress, Texas may have more members in key committee positions that will determine how the HEA reauthorization process unfolds.

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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