July 24, 2007

• Congressional Overview — First Session of the 110th Congress

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Congressional Overview — First Session of the 110th Congress

The merging of the FY 2008 budget reconciliation process, the Higher Education Act (HEA) reauthorization process, and the various "ad hoc" HEA reauthorization bills that have been filed (and refiled since 2002) is beginning to develop in a very organized way, with the House of Representatives taking the lead.

Last week, the House of Representatives passed its budget reconciliation bill, HR 2669 — The College Cost Reduction Act — with changes to Part B, the FFELP; that propose to achieve $19 billion in savings, with $750 million earmarked for deficit reduction and the remainder earmarked for increasing funding for Title IV, Title III, and Title V HEA programs, as well as funding for new programs. The bill includes most of HR 5 — The College Student Relief Act, HR 472 — The College Affordability and Transparency Act, HR 1608/S 939 — The College Aid made EZ Act and The Financial Aid Form Simplification and Access Act, S 359 — The Student Debt Relief Act, and S 938 — The Accessing College through Comprehensive early Outreach and State Partnerships (ACCESS).

Specifically, the legislation proposes to:

• Reduce the lender Special Allowance to 1.19 percent, 1.79, and 2.09;
• Halve interest rates over five years from 6.8 percent to 3.4 percent, with the rate returning to 6.8 percent in 2013 (HR 5);
• Reduce lender reinsurance to 95 percent (100 percent for lender of last resort loans) (HR 5);
• Increase lender fee from .5 percent to 1 percent, except for small lenders (HR 5) and non-profit lenders not associated with for profit entities;
• Repeal Exceptional Performer program (HR 5);
• Reduce the collection retention for FFELP guarantors from 23 percent to 16 percent (S 511), adjusts the guarantor funding model, and reduce the payment of the Account Maintenance Fee from a loan volume to "per loan" basis;
• Increase annual student loan maximums for third year and beyond students from $5,500 to $7,500 and aggregates from $23,000 to $30,500 for undergraduates and $65,500 to $73,000 for graduate students;
• Provide income-based repayment plans for hardship and poverty cases (S 359);
• Increase the annual Pell Grant to $5,200 over five years and expand eligibility for year-round grants to part-time students(S 359);
• Add $100,000,000 annually for five years to the Perkins Loan program;
• Restore funding to certain Upward Bound programs;
• Provide new tuition assistance for students who become teachers in public schools located in high-poverty areas;
• Provide and expand student loan forgiveness for certain public service workers and professionals;
• Establish incentives for institutions and states to control tuition and includes requirements for the provision of consumer information, transparency, and accountability (HR 472);
• Establish a new challenge grant program to encourage partnerships among the federal and state governments and the private and philanthropic sectors to increase postsecondary education participation by underrepresented populations and first generation students (S 938);
• Require the Department of Education and the United States Treasury to conduct a pilot program on using a market-based auction system for determining lender interest rates and using the Internal Revenue Service to collect income contingent loans.

On the Senate side, the Senate passed its budget reconciliation bill S 1672 — The Higher Education Access Act (HEAA) — on July 20.

The HEAA bears similarity to HR 2669. The HEAA proposes to:

• Reduce the lender Special Allowance by .50 percent (.80 percent for non-auction PLUS loans) for for-profit lenders and .35 percent for non-profits and small lenders (.65 percent for non-auction PLUS loans);
• Maintain lender reinsurance at 97 percent;
• Repeal the FFELP Exceptional Performer program;
• Increase the lender fee to one percent.
• Reduce FFELP guarantor collections retention 23 percent to 16 percent and the Account Maintenance Fee is proposed to be paid on a "per loan" basis;
• Repeal the income contingent and income sensitive repayment options and replace them with a single "income-based" repayment option for both the FFELP and FDLP;
• Increase the length of student loan deferments from three to six years and expands the program;
• Provide and expand FDLP student loan forgiveness for certain public service workers and professionals;
• Establish the College Access Partnership Grant Program (S.938);
• Eliminate the Pell Grant "tuition sensitivity" provision;
• Include aspects of S.301 — The Nontraditional Student Success Act;
• Establish a nationwide pilot auction program for the FFELP PLUS program with two lenders per state;
• Create a new supplemental Pell Grant called the Promise Grant for Pell recipients with greatest need and repeals the tuition sensitivity provisions.

The Office of Management and Budget (OMB) has issued a veto threat for both of these bills because the lender reductions are nor steep enough, not enough of the savings are directed to Pell Grants, and the auction proposals are unworkable.

The Senate's version of the reauthorization of the Higher Education Act — S. 1642 — The Higher Education Amendments of 2007 — was passed by the Senate on July 24. This bill has also drawn a presidential veto threat.

S. 1642 includes provisions from HR 5/S 282 — College Student Relief Act, S 359 — The Student Debt Relief Act (Pell Grant increase to $5,400 in 2008), HR 990/S 707 — Pell Grant Equity Act of 2007 expands eligibility for the ACG and SMART programs to less than full-time students, establishes the Promise Grant Program, prohibits the creation of a national student academic records database, eases the "90 percent-10 percent rule" impacting primarily proprietary schools, increases the lender fee on consolidation loans from .5 percent to one percent, repeals the FFELP Exceptional Performer program, repeals the "school as lender" program, provides increases in the authorized levels for all Title IV student aid programs, GEAR UP LEAP, S 938 — The Accessing College through Comprehensive Early Outreach and State Partnership ACCESS Act, HR 1608/S 939 — College Aid Made EZ Act and the Financial Aid Form Simplification and Access Act, HR 472 — College Affordability and Transparency Act of 2007, HR 1994 — Financial Aid Accountability and Transparency Act of 2007, S 486/HR 890 — Student Loan Sunshine Act, S 1262 — Student Information means a positive Loan Experience (SIMPLE) Act, S 1401 — Student Financial Aid Data Privacy Protection Act, S 1561 — Discharge in Bankruptcy for Certain Educational Loans.

The bill also establishes a national student loan (federal and private) information clearinghouse, funding for MSIs to advanced technology education, increases the authorized annual Pell Grant to $6,300 in 2008, expands student loan forgiveness programs, and establishes the Higher Education Cost Watch List.

If the congress can remain on schedule, these bills will continue to progress through the legislative process in tandem and be approved by the congress later this summer or early in fall. If the reauthorization legislation fails, only changes made to the HEA in the budget reconciliation bill will be enacted. Any work not completed this year will be picked up during the second session of the 110th Congress next year at the point where the work is left at the end of this year.

With respect to FY 2008 appropriations for student financial aid, the House has passed its version of the FY 2008 appropriations act for Labor, Health and Human Services, and Education with increases for most Title IV, III, and V programs. The Senate is about to pass its version this month.

House

• Pell Grants — annual maximum increased from $4,310 to $4,700.
• SEOG — level funded at $770,933,000
• College Work-Study — increased from $980,354,000 to $980,492,000
• LEAP — level funded at $64,987,000
• TRIO — increased from $828,178,000 to $868,178,000
• GEAR UP — increased from $303,423,000 to $323,423,000
• HSIs — increased from $94,914,000 to $99,500,000
• HBCUs — increased from $238,095,000 to $249,500,000

Senate

• Pell Grants — same as current law
• SEOG — same as current law
• College Work-Study — same as current law
• LEAP — same as current law
• TRIO — $858,178,000
• GEAR UP — $313,423,000
• HSIs — same as current law
• HBCUs — same as current law

Both the House and Senate appropriations bills exceed the Administration's proposed budget submission for Labor, HHS and Education and therefore, as with the House and Senate budget reconciliation bills, have generated a veto threat from the White House.

House/Senate conference committees will be required to adjust the differences between these bills before being sent to the president for his veto. Two-thirds (291 in the House and 67 in the Senate) are needed to override a presidential veto and with about 30 days left in this session of the congress (target adjournment is October 6), it will be close if any of these bills are to pass.

To date the following major Higher Education Act reauthorization bills have been introduced.

HR 5/S 282 — College Student Relief Act — reduces interest rates for subsidized federal loans by 50 percent. The HR also reduces FFELP subsidies and reinsurance to offset the cost of the interest rate reductions.

HR 451/S 565 — Next Generation Hispanic-Serving Institutions Act — establishes a program of competitive grants to eligible HSIs that offer graduate degrees and authorizes appropriations to both the existing Title V program for four-year and two-year programs, and the proposed new program.

HR 472 — College Affordability and Transparency Act of 2007 — Directs the Commissioner of Education Statistics to redesign the College Opportunity On-Line (COOL) website to include postsecondary education data of greatest interest to students and families, and requires schools to control the increase of student cost to no more than twice the CPI.

HR 990/S 707 — Pell Grant Equity Act of 2007 — repeals Section 401(b) (3) of the HEA requiring tuition sensitivity in the awarding of Pell Grants to students for 2007-2008. The cost is offset by a reduction in the FFELP guarantor collection rate to 23 percent and 22 percent.

HR 1608/S 939 — College Aid Made EZ Act and the Financial Aid Form Simplification and Access Act — proposes to implement the federal Advisory Committee on Student Financial Assistance's recommendations to simplify the FAFSA by establishing a FAFSA-EZ form that reduces the FASFA by 50 percent; establish a "pre-FAFSA" to allow students and parents to apply for financial aid early; encourages ED to coordinate with the IRS and SSA to supplement the new FAFSA with tax information; and, improve on-line access to the FAFSA.

HR 1994 — Financial Aid Accountability and Transparency Act of 2007 — mirrors S 486/HR 890 in requiring increased disclosures by schools of their relationships with student loan providers and includes a code of ethics for schools to follow.

HR 2458/S 1501 — Universal Higher Education and Lifetime Learning Act — consolidates the Hope and Lifetime Learning tax credits and the tuition tax deduction into a single credit; expands the credit to more years of college and more expenses; increases the amount of the credit and expands it to higher income levels and is refundable for low income earners.

S 301 — Nontraditional Student Success Act — increases annual maximum Pell Grant award; allows for two Grants per award year; excludes EITC from need analysis; authorizes a Nontraditional Students Demonstration Program to test the effectiveness of providing expanded financial aid to less than half-time students; increases appropriations for TRIO and title V; reauthorizes and expands the Early Intervention and College Awareness program; increases the percentage of Lifetime learning income tax credit for higher education expenses and makes a portion refundable.

S 359 — Student Debt Relief Act — includes S 282; increases annual maximum Pell Grant program to $5,100 this year to $6,300 in 2011; establishes the Fair Payment Assurance Program which caps loan repayment at 15 percent of a borrower's income for low income borrowers; allows reconsolidation of loans; reduces FDLP origination fee to zero; extends tuition tax credit.

S 486/HR 890 — Student Loan Sunshine Act — establishes "transparency" in the student loan lending and marketing arena; requires reporting of any special arrangements between schools and lenders; requires reporting, and banning of certain, gifts more than $10, including travel, entertainment, and in-kind services; requires reporting and written policies concerning preferred lender lists; encourages borrowers to make full use of the federal student loan programs before taking out private alternative loans.

S 511 — Student Loan Bill of Rights — requires lenders to report loan information to credit bureaus; caps monthly payments to an amount based on a borrower's income and status; requires ED to conduct a study on interest rates and fees charged on private loans; caps the collection fees on defaulted loans to 7.5 percent for consolidated loans, 13.5 percent for rehabilitated loans, and 18 percent for other loans; requires ED to set a cap on the total amount that can be charged to a borrower of a federal student loan, as a percentage of the original loan balance.

S 572/HR 1010 — Student Aid Reward Act — proposes to establish a program whereby institutions will be encouraged to participate in the federal student loan program (FFELP or FDLP) that is most cost-effective for taxpayers; proposes to share the savings generated by the choice of the most cost-effective program between the institution and federal government on a 50-50 basis; the institution's share would be required to be used to supplement need-based grants; includes methodology to be used to assess the cost of the FFELP and FDLP.

S 938 — The Accessing College through Comprehensive Early Outreach and State Partnerships Act (ACCESS) — which propose to implement the federal Advisory Committee on Student Financial Assistance's recommendations to create a national public-private federal-state partnership to increase access and persistence through early assurances of student financial grant aid and academic support for low income students; create a comprehensive system of early information about financial aid eligibility; and, increasing access to need-based financial aid.

S 945 — College Textbook Affordability Act of 2007 — proposes to make several changes to the way college textbooks and materials are marketed and sold to institutions and students.

S 1262 — Student Loan Accountability and Disclosure Reform Act — includes much of the disclosure requirements included in S 486/HR 890 and HR 1194 and expands prohibitions to guaranty agencies. Also includes a code of conduct for institutions and a prohibition against "preferred lender lists".

S 1400 — Student Information Means a Positive Loan Experience (SIMPLE) Act — extends the availability of extended student loan repayment plans to borrowers with $20,000 in debt; allows borrowers to pay only the interest on their debt for two years; requires lenders to provide repayment information on the impact of postponed payments; specifies details to be included in exit counseling.

S 1401 — Student Financial Aid Data Privacy Protection Act — strengthens the limitations on accessing the national Student Loan Data System and requires lenders and the Department of Education to better educate and inform borrowers about the sensitivity and use of their data.

S 1561 — Discharge in Bankruptcy for Certain Educational Loans — allows borrowers of private student loans to discharge their debt through the federal bankruptcy process.

Private Student Loan Transparency and Improvement Act — Applies similar provisions to HR 890/S 511 for private student loans.

Copies of bills before the Congress can be accessed at thomas.loc.gov.

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P.O. Box 83100
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