November 21, 2007

• Congressional Update
• State Legislative Update
• Candidates Positions on Student Financial Aid Policy

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Congressional Update

The 110th Congress (House of Representatives) is in recess until December 4, 2008. The Senate will continue to convene in "proforma" sessions until December 4th, but will conduct no business.

After six years of level funding, one of the first items passed by the First Session of the 110th Congress early this year and signed into law by the president was legislation to increase the maximum annual Pell Grant from $4,050 to $4,310. The last significant increase in this program had been enacted under the previous Administration and the 106th Congress in 2000 when the maximum grant was increased from $3,750 to $4,000. The FY 2008 appropriations bill for Labor-HHS-Education passed by the congress on November 9th further proposes to increase the maximum annual Pell Grant to $4,925.

As the year, and first Session of the 110th Congress, draw to a close, the congress and administration are engaged in procedural and philosophical deadlocks over the amount of funding included in the FY 2008 appropriations bills and how to proceed with considering and enacting this year's (which began on 10/01/2007) appropriations bills. The administration is vowing to veto the remaining 11 funding bills (defense was signed into law earlier this month) because they include funding over the amount requested by the administration for health, education, and human service programs and the congressional majority arguing that the overage is not significant, is needed and justified, and fully paid for with current revenues — as opposed to the administration's request for another $200 billion, on top of the $400 billion already appropriated since 2003, for the Iraq/Afghanistan operations which is all borrowed funding.

However, the good news is that throughout this legislative process, one of the constants has been that this Congress has included further proposed increases in the federal student financial aid programs in all legislation concerning the Higher Education Act (HEA) reauthorization for FY 2008 appropriations for education, despite the veto threat, which will probably survive the political battles.

Coupled with this good news, unfortunately, is the continuing concerning news that the source of the increased appropriations for the record funding for the Pell Grant has been significant reductions in congressional and administration support for the largest Title IV program — the Federal Family Education Loan Program (FFELP), which may result in reductions in FFELP borrower benefits and a broader emphasis on private alternative educational loans. Unfortunately, today, more than ever, federal domestic policy is being developed through, and driven by, budget considerations rather than policy as a result of the continuing increasing costs associated with the "war on terror" and the lack of current revenues to pay the bill estimated by the congressional joint committee on taxation to exceed $1.5 trillion.

TG continues to work with our colleagues and congressional staff on a select few issues of specific interest to TG, FFELP guarantors, and the FFELP. The challenges facing the FFELP will continue throughout this decade as federal domestic education and social policy continues to be dictated by budget considerations, with the control of the congress and White House impacting only, at most, the degree to which this will occur.

Voluntary Flexible Agreement (VFA) — The continuation of the current VFAs and reauthorization of Section 428A of the HEA continue to be TG's principle priority. TG is working diligently with ED staff and congressional staff in our continuing efforts to renegotiate our VFA to achieve and maintain cost neutrality and performance.

Student Loan Information (Section 423 of HR 4137) — TG, in concert with the student financial aid community, is working to education congressional staff on the unnecessary inclusion of this provision in the House HEA reauthorization bill and the potential threat to student loan borrower information it poses. This section, added to the bill as an amendment just prior to House passage, proposes to require (not withstanding any other law) FFELP providers to release any borrower information to any third party servicer working under a contract with a postsecondary educational institution for default prevention upon request. Enactment of this provision would, in effect, circumvent existing statutory protections in place that protect the privacy of borrower information held by lenders, servicers, and guarantors.

The future of the federal student loan program — TG will continue to monitor proposed changes to the student loan program, as "entitlement reform" continues to be a priority of the congress and administration for years to come. We anticipate that the FFELP will continue to change and proposals ranging from outright repeal to increased market-based competition to simply a continuation of cost cutting measures will be on the congressional menu for some time to come. In addition to monitoring these events, TG will continue to work with our colleagues, as well as draw on our own experienced staff, to develop proposals that will permit TG and the FFELP to meet the needs of students and families.

FY 2008 Appropriations and HEA Reauthorization
With respect to FY 2008 appropriations for student financial aid, the congressionally passed Labor-HHS-Education appropriations bill includes:

• Pell Grants — annual maximum increased from $4,310 to $4,925.
• 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

The bill also includes a provision that directs the Secretary of Education to enter into negotiations with FFELP guarantors that are operating under Voluntary Flexible Agreements under Section 428A of the HEA to be concluded by March 31, 2008 with new VFAs that are cost neutral.

Because the bill exceeds the Administration's original budget submission for Labor, HHS and Education by $11 billion, and provides $8 billion more than FY 2007 spending, the president vetoed the bill on November 13th. The House of Representatives failed to over ride the veto on November 15th by two votes. The Democratic leadership has decided to role the bill into an omnibus appropriations bill with the other ten outstanding appropriations bills, reduce the overall spending by approximately $10 billion, meeting half way the administration demand for $20 billion, and send him the bill next month. This move may result in reductions in Title IV student financial aid funding.

With respect to the landscape for the HEA reauthorization, there are now only a handful of bills.

HR 669 — The College Cost Reduction Act (CCRA) — a budget reconciliation bill signed into law in September, includes most HEA reauthorization funding provisions and amends the HEA 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 $4,840 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 three HEA reauthorization bills before the congress — S 1642 — The Higher Education Amendments of 2007 — was passed by the Senate on July 24, HR 3746 — The College Access and Opportunity Act, filed in the House by Republican members the first week of October, and HR 4137 — The College Opportunity and Affordability Act, filed in the House by Democratic members on November 9th and reported from the Education and Workforce Committee unanimously on November 15th. Since the CCRA addressed funding provisions for the Title IV programs, these bills are mostly policy bills that are cost-neutral.

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.

HR 4137 includes S 1642's provisions with added provisions that increase the annual maximum Pell Grant to $9,000 minus EFC, provide financial incentives to institutions and states that control costs and increase student financial aid (including a higher education price index and price increase watch list), creates a 2-page EZ FAFSA for low income applicants, reduce the FAFSA data elements by 50 percent, direct ED to work with the IRS to obtain income information, add transparency in the setting of tuition and fees and total costs for consumers, include HR 890 — The Student Loan Sunshine Act — and the as yet unnumbered Private Student Loan Transparency and Improvement Act, adopts S 1642 loan forgiveness provisions for FFELP and FDLP borrowers employed in areas of national need and for FDLP borrowers employed in public service jobs, require audits of the FDLP similar to those required of the FFELP, limit Pell eligibility to 18 semesters or 27 quarters, lengthen the cohort default rate calculation to the third fiscal year (instead of the current second fiscal year) following the fiscal year in which students entered repayment, require FFELP providers to provide borrower information to third party servicers engaged with institutions on default prevention activities which may share the information only with the school or borrowers, require FFELP guarantors to develop programs to prevent student loan delinquencies and defaults, and promote financial literacy, establish a new grant program for community colleges. There are also several "sense of the House" and study provisions concerning institutional environmental standards ("go green"), improving academic achievement, standardized testing, and student loans.

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

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State Legislative Update

The Texas Steering Committee on Student Financial Aid, operating under the auspices of the Texas Higher Education Coordinating Board (THECB), has been activated to assist the THECB in conducting a legislatively mandated study on "the feasibility of restructuring financial aid programs in Texas". TG is a member of this 23 member committee. The study will focus on six topics:

• converting the TEXAS Grant into a direct grant to students and converting the campus-based TPEG programs into a revenue source for the TEXAS Grant program;
• using "room and board" as an index for setting requiring completion of the FAFSA for entry into a state public institution of higher education;
• the amount the TEXAS Grant rather than "tuition and fees";
• converting the TEXAS Grant to a stipend-based award in order to leverage access to federal higher education tax credits, and
• using a debit card as a vehicle for delivering state student financial aid.

The THECB has retained the services of Higher Education Insight Associates in Springfield, Illinois to conduct the study in consultation with THECB staff, the Steering Committee, Legislative Budget Board, and Governor's Office.

TG will act, principally, as a policy and analysis resource through our congressional/legislative and research and analytical services subprocesses.

This study is in addition to interim studies the state legislature will undertake beginning early next year.

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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. 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 four-year colleges or universities.

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 — Create 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 proposes to make postsecondary education more affordable by increasing the annual maximum Pell Grant, offering a $4,000 refundable tax credit, eliminate the FAFSA, and establish a new community college partnership program (included in the House HEA reauthorization bill) to be paid for through further reductions in the FFELP.

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.

Senator Joe Biden proposes to replace the existing higher education tax credits with a $3,000 per student refundable tax credit, increase the maximum annual Pell Grant to $6,300 by 2011, and establish a Pell Grant pilot program in four states for low income eighth grade students who commit to graduate from high school and enter higher education.

Senator Chris Dodd proposes to increase funding for the Pell Grant program and require FFELP lenders to compete for lending rights through an auction.

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 vying for the Democratic Party nomination. And, of course, the congress will be the ultimate determiner of 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