October 30, 2007

• Congressional Update
• Candidates Positions on Student Financial Aid Policy

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Congressional Update

The landscape for the HEA reauthorization is now defined by a handful of bills.

HR 2669 — The College Cost Reduction Act — signed into law in September, amends Part B of the HEA — the FFELP — in ways that achieve $21 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:

• reduce the lender Special Allowance for for-profit FFELP lenders to 1.19 percent, 1.79, and 2.09 and 1.34, 1.94, and 2.24 percent for non-profit FFELP lenders for Stafford and Consolidation loans (The reduction for PLUS and Grad PLUS loans is an additional .30 percent );
• halve student loan interest rates for undergraduate subsidized Stafford loans over five years, beginning in 2008, from 6.8 percent to 3.4 percent, with the rate returning to 6.8 percent in 2012 (HR 5);
• reduce the FFELP lender insurance to 95 percent beginning in 2012 (HR 5);
• increase the FFELP lender fee from .5 percent to 1 percent;
• repeal Exceptional Performer Program (HR 5);
• reduce the collection retention for FFELP guarantors from 23 percent to 16 percent (S 511) and reduce the payment of the Account Maintenance Fee from .10 to .06 percent;
• extend from 3 to 6 years the limit on student loans under the FFELP, FDLP, and Perkins loan programs;
• provide income-based repayment plans for hardship cases in place of the income-sensitive (FFELP) and income-contingent (FDLP) plans which cap repayments at an amount equal to 15 percent of any amount by which a borrower's gross income exceeds 150 percent of the poverty line and forgives the amount not repaid after 25 years of repayment (S 359);
• increase the annual Pell Grant to $5,440 over five years (2012), beginning with an increase to $4840 in 2008 (S 359);
• 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 FDLP student loan forgiveness for certain public service workers and professionals, and allows reconsolidation for eligible FFELP borrowers;
• establish the College Access Challenge Grant Program (S.938);
• eliminate the Pell Grant "tuition sensitivity" provision;
• establish a nationwide pilot auction program for the FFELP Parent-PLUS program with two lenders per state;
• provide increased mandatory funding for Title III and Title V institutions.

There are two HEA reauthorization bills before the congress — S 1642 — The Higher Education Amendments of 2007 — was passed by the Senate on July 24, and HR 3746 — The College Access and Opportunity Act, filed in the House by Republican members the first week of October.

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.

HR 3746 is similar in several respects to S 1642, with notable differences, including repeal of the PLUS loan auction enacted in HR 2669, alignment of the FFELP and FDLP PLUS loan interest rate at 7.9 percent, expansion of the new student loan forgiveness program enacted in HR 2669 to borrowers in the FFELP, increases in the maximum annual Pell Grant to $6,000 for 2008-2012, increases in the maximum annual authorized appropriation for the SEOG program from $675 million to $779 million.

There are two primary bills concerning relationships between lenders and schools. They are HR 890 — The Student Loan Sunshine Act and the, as yet unnumbered, Private Student Loan Transparency and Improvement Act. Elements of both this bills will likely be included in the HEA reauthorization legislation.

HR 890 — The Student Loan Sunshine Act — (which has largely been incorporated into S 1642 and HR 3746) amends Title I of the HEA to create a new part E (Lender and Institution Requirements Relating to Educational Loans), which requires each lender entering into a preferred lender arrangement with an institution (schools that provide postsecondary studies and receive federal funds) to: (1) certify annually to the Secretary of Education that all of the preferred lender arrangements in which it participates are in compliance with the requirements of this Act; (2) inform borrowers of their loan options under title IV (Student Assistance), including information on more favorable loans under such title, before extending private educational loans for attendance at such institution; and (3) be barred by such school from marketing such loans in a manner implying the institution's endorsement.

The bill proposes to:

• direct the Secretary to report to the congress on the adequacy of educational loan information provided to borrowers, to include a model disclosure form for lender use in providing annual loan information to the Secretary and institutions with which they have a preferred lender arrangement, and requires such lenders to disclose, in addition to specified loan information, any philanthropic contributions made to such institutions, and to provide the Secretary, prospective borrowers, and the public with the disclosure form information as well as a detailed explanation of why such loans are beneficial to borrowers;
• require institutions to disclose on their websites and in their informational materials: (1) that they cannot limit students to recommended lenders and must process the loan documents of any eligible lender; (2) the information provided on the model disclosure form with regard to recommended lenders; (3) the maximum federal grant and loan aid available; and (4) the cost of attendance;
• require covered institutions that provide prospective borrowers with private educational loan information to: (1) include information on their title IV assistance eligibility; and (2) compare and distinguish private loans from title IV loans;
• require institutions to develop, publicize, and enforce codes of conduct for their officers, employees, and agents prohibiting actual or apparent conflicts of interest with their financial aid duties, including, at a minimum, compliance with the following requirements of this section, and prohibits an institution's officers, employees and agents that have financial aid duties from accepting certain financial benefits or fees from, or participating on the advisory councils of, student loan providers or their affiliates;
• bar lenders, guarantors, or servicers of educational loans from offering gifts to officers, employees, or agents of institutions. Directs the Inspector General of the Department of Education to investigate and report annually to Congress on gift ban violations, and bans institutions from: (1) entering into educational loan arrangements that involve lender payments for recommended lender status; (2) requesting or accepting lender assistance with call center or financial aid office staffing; or (3) requesting, accepting, or considering any lender's offer of funds for private educational student loans in exchange for concessions or promises;
• condition the receipt of federal funds and assistance by schools and lenders on their compliance with part E, and establishes penalties for noncompliant schools and lenders, including: (1) a ban from participating in title VI programs; and (2) a $25,000 civil penalty (which may also be imposed on lenders not participating in such programs);
• require an institution with a preferred lender list to: (1) fully disclose on such list the reason for each lender's inclusion and students' right to choose other lenders; (2) include at least three unaffiliated lenders; and (3) establish and disclose a process to ensure that lenders are listed on the basis of the benefits they provide borrowers;
• amend the Truth in Lending Act to require private educational loan providers to inform consumers, in applications and solicitations for such loans, that they may qualify for federal educational assistance, that federal student loans may have more beneficial terms than private loans, and that they may obtain additional information concerning such assistance from their institutions and the Department of Education's website;
• require such lenders to: (1) obtain written confirmation that a consumer understands such information and any other information the Board of Governors of the Federal Reserve System may require them to disclose; (2) make its model disclosure form information available; and (3) notify the relevant school of the proposed loan if the loan equals or exceeds $1,000;
• direct the Secretary to display a link to the Department's federal student financial aid website in a prominent place on the homepage of the Department's website. Authorizes the Secretary to use administrative funds available for the Department's operations and expenses to promote the availability of the financial aid website.
• requires the Secretary to collect and provide parents and students with easy access via the federal student financial aid website to detailed information concerning student financial aid options provided by other federal departments and agencies.
• require such other departments and agencies to respond promptly to the Secretary's requests for student financial aid information.

The Private Student Loan Transparency and Improvement Act proposes to extend similar provisions as proposed in HR 890 to all private student loans.

The bill proposes to:

• prohibit lenders from engaging in revenue-sharing and loan co-branding arrangements that use the name or logo of an institution;
• prohibit lenders from offering inducements, or any item of value, in exchange for preferential consideration of their private loan products or services;
• prohibit lenders from using any data in their underwriting that may have disparate impact on the loan products, terms, or conditions available to student borrowers based on race, age, and other personal factors, or the institution they attend;
• require all private student loan solicitations to include a disclosure box that includes the loan's APR, other information regarding the terms and conditions of the loan, whether the rate is introductory or promotional, and if so, its duration;
• require lenders to provide a clear and concise disclosure of the rate, terms and conditions of a private loan that has been approved for a student borrower prior to their signing the promissory note; and provides borrowers with a "cooling off" period;
• require lenders to provide prominent disclosure to applicants of their eligibility for lower-cost federal loans through the federal financial aid program and requires the borrower, and co-signor, to certify that they have received, and read, the disclosure;
• apply Truth in Lending Act provisions to all private student loans;
• authorize the Federal Reserve to implement rules requiring private lenders to collect and report data regarding their student loan applications, originations and denials, including the terms and conditions of the loans they make, aggregated by the race, gender, and age of the borrower as well as by type of institution;
• authorize federal banking regulators to give financial institutions credit under the Community Reinvestment Act (CRA) for making "low-cost" private loans (i.e. loans with costs and fees similar to federally guaranteed loans) to low-income student borrowers.

With respect to FY 2008 appropriations for student financial aid, the House passed its version of the FY 2008 appropriations act for Labor, Health and Human Services, and Education in July with increases for most Title IV, III, and V programs. The Senate passed 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 by $11 billion and $9 billion, respectfully, and therefore, have generated a veto threat from the White House. The Secretary has issued a warning of a veto on S 1642 as well.

As the congressional calendar continues to wind down and FY2008 appropriations dictate more and more of the agenda, members in both chambers will be struggling to reconcile their differences on these 12 must-pass bills, all the while paying attention to other substantive legislation for which passage is not an absolute requirement during the current session relating to children's health care, higher education reauthorization, defense authorization, among other issues. For weeks, Democrats have been contrasting guns versus butter when it comes to President Bush's demands for more war funds and less domestic spending. Now, it appears Democrats are about to take the debate to another level by sending Bush money for guns and butter at the same time. The Democratic leadership are planning to send the president an omnibus FY2008 appropriations bill that includes FY2008 Defense, Labor-HHS-Education, and Military Construction-VA appropriations bills, which represent about 70 percent of the total $955 billion discretionary budget for the fiscal year, possibly with some additional appropriations for the Afghanistan/Iraq operations. Doing this, in their view, will make it politically dangerous for the president and congressional Republicans to veto the combined bill over an extra $10 billion for health, education and social welfare programs that Democrats want.

Democratic leaders had been planning to send Bush the Labor-HHS-Education bill on its own to highlight their differences on budget priorities, thinking they have the high ground on domestic issues after the children's health insurance debate. At the same time, they have been getting hammered by Bush and the Republicans for holding back the Pentagon and veterans' bills, as well as for failure to complete any of the 12 FY2008 bills this late in the year. The above strategy diffuses this charge by sending him the majority of the overall budget, including war funding, the Defense Department budget, and veterans' programs, in one bill.

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 of those present and voting(291 in the House and 67 in the Senate, if all are present) are needed to override a presidential veto. The target adjournment date for this 1st session of the 110th Congress is November 16th, but most observers see the congress staying in Session into December to complete their must-pass work legislative work.

Copies of bills and background information can be accessed at thomas.loc.gov.

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Candidates Positions on Student Financial Aid Policy

While none of the candidates for the Republican presidential nomination have issued proposals for postsecondary education or student financial aid, four of the candidates for the Democratic presidential nomination have, including the frontrunners and likely nominee.

It is very early in the process with only one candidate to be nominated by the party next summer after a primary season that will stretch from January through May 2008 (even though the nominee will probably be known after the rash of primaries scheduled in January and February when most of the delegates will be chosen).

The election, of course, is not until November 2008. So, we have a long way to go. And proposals have a way of evolving as a campaign unfolds and, afterward, as a new administration works with a new 535 member congress to pass legislation.

Senator Hillary Clinton has, so far, the most detailed proposal of the candidates to make postsecondary education more affordable by:

Creating a New $3,500 College Tax Credit. This doubles the HOPE tax credit, raising the maximum amount of benefits that students and their families can receive from $1,650 to $3,500. This new credit will cover more than 50 percent of the typical tuition of public colleges and universities and more than the full cost of tuition for community colleges. Taxpayers will be able to claim 100 percent of the first $1,000 of college expenses and 50 percent of the next $5,000 under this new credit. This new credit will also be partially refundable in order to increase its value to low-income individuals. It will phase out in a manner similar to the current HOPE credit and will also be "advanceable" to allow families to receive the tax credit when their tuition bills are due instead of 16 months later.

Increasing the Maximum Pell Grant. This proposal would maintain the increases included in the College Cost Reduction Act.

Strengthening Community Colleges. This proposal would provide $500 million in incentive grants for investments by community colleges to ensure that students complete their degrees, and in partnerships between community colleges and four-year colleges to increase graduation rates at community colleges and promote smooth transfers from community colleges to a four-year college or university.

Creating a Graduation Fund to Increase Graduation Rates. This proposed $250 million Graduation Fund will set out to close the diploma gap with incentive grants that challenge four-year colleges to launch performance-based efforts to improve their graduation rates, especially among low-income and minority students.

Supporting Apprenticeships and Workforce Training Initiatives. This proposed $250 million would support innovative on-the-job training and apprenticeship programs that are aligned to the needs of the local economy.

Doubling funding for AmeriCorps. This proposal would double the education award to $10,000 to cover a larger portion of the cost of going to college for people who devote a year or two of full-time public service to our country.

Simplifying the application process for student aid. This proposal eliminates the FAFSA and uses the 1040 income tax form to allow people to apply for financial aid by checking a box on their income tax return. Upon checking that box, they would receive a letter from the Department of Education with a coupon showing the amount of federal aid - grants and loans - to which they are entitled. They would then include their eligibility information on their college applications, and the schools will reach out directly to the Department of Education to collect the funds.

Holding College Costs Down and Colleges Accountable for Results. Students and their families should be able to make educated decisions about where to spend their money through:

A new online Higher Education Cost Calculator. This calculator will provide an estimate of the amount of aid (from all sources — federal, state, local and the institution), a student is likely to receive. Under this proposal, colleges and universities will submit information about a typical range of low to high income students and their financial aid in their freshman and sophomore years to the Department of Education. The Department of Education will use it to develop a cost calculator, which students and families would be able to access online to find out roughly how much they should expect to owe out of pocket in their first and second years, if they chose to attend that institution.

A College Graduation and Employment Rate Index. The Department of Education will make available information about the outcomes produced by all colleges and universities, including the four- year and six-year graduation rates and the percent of the senior class that is employed upon graduation or enrolled in further education, including information on earnings and field of employment.

Truth in Tuition Disclosure. As a condition of federal financial aid eligibility, state and local institutions of higher education will be required to set multi-year tuition and fee levels for each cohort of students at the beginning of each student's freshman year, so students and families will have a sense of how much their costs will be in the coming years.

These proposals build on her pending legislation in the Senate:

A Public Service Academy. Creates The United States Public Service Academy to tap into the renewed sense of patriotism and civic obligation among our young people. This academy will be like the West Point of public service, cultivating future leaders in the fields of education, government, public health, environmental conservation, and more by instilling in them leadership skills for the public sector.

A New GI Bill. A new GI Bill of Rights for the 21st Century. This bill would provide the full cost of tuition and fees, and a living allowance for 36 months of schooling for those who enlist for four years of active duty military service. Right now, the Montgomery GI Bill (MGIB) pays less than two-thirds of the average cost of attending a four-year public college. This legislation would also increase the basic benefit for those currently in the MGIB or who serve less than four years to $1,300 per month, and eliminate the current reduction in their basic pay to get the educational benefits.

A Student Borrower's Bill of Rights. Legislation to make it easier for students to repay loans and give them a basic set of enforceable rights. It would give student borrowers the right to fair monthly payments that do not exceed a percentage of their incomes, as well as access to fair interest rates and fees. The bill would also give students the right to shop in a free marketplace for their lender and to borrow without exploitation. Finally, the bill will give students access to better information about their loans to provide students with better options during repayment.

Non-Traditional Student Success Act. This bill is aimed at expanding access to college for working adults, those who go back to school later in life, and first generation college students. This legislation increases the maximum Pell Grant. It also creates a pilot program to allow students attending college less than half-time to receive federal student aid. It increases the income protection allowance to allow working students to keep more of their income without losing crucial student aid. And it expands the Lifetime Learning Credit from 20 to 50 percent and allows students to receive the money in advance - when they need it to pay tuition.

The new college tax credit and other initiatives in this agenda will cost approximately $8 billion per year. These costs will be financed without increasing the deficit by eliminating the guaranteed student loan program and allocating a portion of the savings from freezing the estate tax at $7 million per couple rather than allowing it to be completely repealed. Freezing the estate tax at $7 million per couple will have no effect on 99.7 percent of estates. It will mean instead that the 10,000 wealthiest estates in the U.S. do not receive a further tax cut.

Senator Barack Obama's proposals to make postsecondary education more affordable are, so far, limited to random sound bites in speeches that propose increasing the annual maximum Pell Grant, paid for through reducing the cost of student loans by "cutting out the middleman and giving loans and grants directly to students".

John Edwards proposes to make postsecondary education more affordable by nationalizing the College for Everyone program in place in Greene County Central high School which he helped start.

The College for Everyone pilot program at Greene Central High School in Snow Hill, North Carolina was launched by the Center for Promise and Opportunity Foundation, a North Carolina nonprofit organization. Located in rural, eastern North Carolina, Greene County's income and education attainment are lower than North Carolina averages. Its school system has an above-average percentage of students who are economically disadvantaged.

The College for Everyone program is based on a proposal that Edwards first talked about in his 2004 presidential campaign. It helps pay for the first year of tuition, fees and books for college students who agree to work part-time. Students must also complete coursework that prepares them for further education, stay out of trouble, and enroll in a participating public university or community college. The program works with College Summit and North Carolina's universities and community colleges. Last year the program announced that more than $300,000 in scholarship funding was available, and 72 students just completed their first year of college. More than 125 students from this year's graduating class are expected to attend college in the fall with the help of College for Everyone. The projected college-going rate for Greene Central seniors has increased from 54 percent before the program started to 74 percent today.

John Edwards College Opportunity Agenda includes:

Creating a National "College for Everyone" Initiative to pay one year of public-college tuition, fees, and books for more than 2 million students. In return, students will be required to work part-time in college, take a college-prep curriculum in high school, and stay out of trouble.

Lower Costs: College for Everyone's universal eligibility for qualifying students would bypass the current student aid system and go directly to the student and family that qualified students can afford college.

Strong Preparation: College for Everyone students will be required to complete a college-prep curriculum in high school. Edwards will also work with school districts to strengthen high school curricula.

Overhauling the Student Loan Program: Students will borrow directly from the FDLP. By eliminating bank subsidies on student loans, approximately $6 billion a year is transferred to programs to make college more affordable.

Simplifying Financial Aid: The application process is simplified by using information the federal government already has, eliminating two-thirds of the questions.

Giving Students the Tools They Need to Apply for College and Aid: Funding will be made available to help every low-income high school eligible for Title I hire a new college counselor, helping students choose college-track courses and navigate the admissions and financial aid process.

Governor Bill Richardson's plan for improving access to postsecondary education includes:

Increasing graduation rates by investing $1 billion a year in states' dropout prevention programs to encourage the one million students who drop out each year to stay in school.

Eliminating the FAFSA, expanding access to student aid, and increasing college affordability by simplifying and consolidating the federal government's loans, grants, and scholarship programs, and providing financial incentives for schools to keep their tuition costs under control.

Increasing aid to those who need it most by expanding LEAP and GEAR UP and need-based federal programs that assist students from low-income families and eliminate the enormous subsidies to banks and private lenders and redirect that money to students who need it.

As stated up front, none of the Republican candidates have unveiled postsecondary education proposals. These are initial proposals from candidates from which only one Democrat and one Republican will eventually be selected to campaign against one another in November of 2008, and the congress will be the ultimate determiner in the shape, type, and role of the federal student loan program.

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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