September 4, 2007

• Congressional Update
• Legislative Update

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Congressional Update

The Congress reconvened on September 4 to complete the initial session of the 110th Congress. With the target adjournment date of October 6, the Congress must, at a minimum, complete work on the eleven FY 2007-2008 appropriations bills and the budget reconciliation legislation before October 1, or pass continuing resolutions to maintain current year funding to keep federal agencies operating. However, staff are indicating final passage before September 10th.

On the subject of student financial aid, after several years of inaction during the 108th and 109th Congresses, the HEA reauthorization is finally nearing completion with a record increase in authorized and appropriated funding for the Pell Grant Program, after being level funding at 2001 levels until a $300 increase in the maximum annual grant enacted by the current Congress earlier this year.

The conference committee report on the budget reconciliation bills will be passed by the House and Senate this month. The report may include items not included in either the House-passed or Senate-passed bills before the committee. For example, it may include all or parts of related legislation like S 1642 — The Higher Education Amendments of 2007, The Private Student Loan Transparency and Improvement Act, or the Federal Supplemental Student Loan Act. Both the bills achieve approximately $18 billion in savings through amendments to the Federal Family Education Loan Program (FFELP). The House bill uses these savings to reduce interest rates on student loans, while the Senate bill uses the savings to increase funding for need-based grants.

The topic of private postsecondary educational loans will be a primary focus of the Congress next year since this is the fastest growing segment of student loans, the least regulated, and the genesis of the recent school/lender/guaranty agency relationship-related problems within the student loan programs.

A conference committee report (bill) cannot be amended after it is reported from the conference committee to the House and Senate. The vote is only on the adoption of the report (bill).

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).

Major provisions include proposals 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), adjust 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 — The Higher Education Access Act (HEAA) — on July 20.

The HEAA bears similarity to HR 2669. The HEAA's major provisions propose 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.

Major differences between the two bills that will be conferenced include a change in the FFELP guarantor funding model in the House bill; expansion of student loan forgiveness for public sector employees in the FFELP and FDLP in the House bill and FDLP borrowers in the Senate bill; relief for small lenders and non-profits from the increased lender fee in the House bill and a smaller special allowance reduction for small lenders and non-profits in the Senate bill; different versions of a market-based lender auction system for the right to originate federal student loans; and different levels of funding for the Pell Grant program, albeit both bills increase funding for the program by record levels; the exceptional performer program is repealed in both bills, however, the Senate bill grandfathers current exceptional performers.

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, 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 sometime late this summer or in the early 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.

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Legislative Update

The 81st Regular Session of the Texas Legislature will not convene until January 13, 2009. However, the 55 House and Senate committees will shortly receive their "interim charges" from the House Speaker and Lieutenant Governor to conduct interim studies on selected topics. The House Higher Education Committee and Senate Subcommittee on Higher Education Committee will undoubtedly have included among their charges studies concerning student financial aid and, possibly, student loans, as a follow-up to failed legislation introduced during the closing days of the 80th Regular Session that proposed to impose state oversight over the federal and private student loan programs in Texas.

Additionally, the Texas Higher Education Coordinating Board was directed to conduct several studies concerning the restructuring of the state's student financial aid programs, e.g., use of debit cards for financial aid, merging some state programs, requiring completion of the FAFSA for admission to a state institutions of higher education, indexing the amount of a TEXAS Grant to the cost of education rather than tuition and fees.

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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