TG's Legislative Report
For more information, contact:
TG Congressional and Legislative Relations
(512) 219-4503
P.O. Box 83100
Round Rock, TX 78683-3100
April 2, 2008
Congressional/Legislative Update
The second Session of the 110th Congress convened on January 15, 2008 and is about 50 percent through its final session. This is a shortened session because this is a General Election year for a new executive branch, all 435 House seats and 33 Senate seats (22 Republican).
The congressional landscape has been centered around differences on several fronts — congressional oversight and checks and balances, the war on terror, privacy issues, immigration, lobby and campaign finance reform, spending priorities (in particular, entitlements), as well as a very partisan General Election season.
And the differences do not break strictly along Democratic and Republican lines. These overarching issues will impact this Session's ability to pass any substantive legislation other than the 12 annual FY2009 appropriations bills.
Additionally, economic, financial, and regulatory issues will dominate U.S. politics and government over the next few years and the 11th and 112th Congresses.
The giant combination of banks, investment firms, insurance companies, loan companies, credit card issuers, speculators, securitization and mortgage companies has made the financial services sector of the U.S. private economy the largest sector measured as a percentage of the Gross Domestic Product (21%) — replacing manufacturing.
As a result, during the period 1987-2005 private and public debt in the U.S. increased from $10 trillion to $43 trillion. Much of this is in the form of high risk investments and investment instruments operating in a largely unregulated and "sense of entitlement" environment.
This, coupled with the record growth in the national debt and the concomitant economic problems associated with the debt, has led to today's credit crisis in the capital markets that is impacting virtually all credit programs — including private and federally insured student loans.
So, beginning next year, the 111th Congress (with anticipated larger majorities) will begin with another congressional election cycle and new administration facing the same, only larger, obstacles left by the current administration, e.g., war, budget deficits, a federal debt that will have increased from an accumulated $5.6 trillion in 2001 (the first 225 years of the country's existence) to over $10 trillion by 2009, a weak economy and dollar, and a set of domestic issues that have festered for several years.
The entitlement spending debate is a stark contrast between two camps — many in the minority and the administration blame "uncontrolled spending" on entitlement programs as the root cause of the increasing national deficits and debt, while the Democrats and a group of moderates called the Republican Main Street Partnership (8 Senators and 51 House members), who have sided with Democrats on some issues, view increased spending since 2003, tax cuts, and lack of sound planning by the administration as among the primary causes of the record debt.
Since 2001, because of record tax cuts, 9/11, slow economy, the war on terror, and natural disasters, the choice of the three Congresses that preceded the current 110th was to force the annual federal appropriations and budget process to focus on controlling the growth of entitlement programs, e.g., Social Security, Medicare, Medicaid, and several smaller programs, e.g., the FFELP and FDLP, and reducing annual spending through the appropriations process, i.e., freezing appropriations and reducing spending through across-the-board reductions in many non-defense programs funded through discretionary appropriations.
The priorities in the administration's FY2009 budget submission continue to be extending the 2001 and 2003 tax cuts beyond 2010, increasing spending and support for the military, and, controlling discretionary and mandatory (entitlement) spending not related to defense or homeland security and the return of $400+ billion annual deficits.
The $3.1 trillion budget submission proposes to increase by one percent the current budget, with larger increases for the Defense Department and Homeland Security. For non-defense, non-homeland security discretionary spending (which includes federal student financial aid and related programs), the Administration's FY2009 budget request is less than FY2008, with reductions for spending for Medicare, Medicaid, Children's Health Insurance, Food Stamps, and a handful of smaller Health and Human services programs, and termination of many programs.
The House and Senate have set aside the administration's submission and, instead, are in the process of outing the final touches on its own FY2009 budget resolution which largely ignores the administration's proposal.
With respect to student financial assistance:
The 109th and 110th Congresses made changes to the FFELP through a budget reconciliation process that resulted in about $50 billion in savings over a five year period. The first reconciliation savings in 2006 partially offset the costs of the 2001 and 2003 tax reductions. The second reconciliation savings in 2007 was applied entirely to produce record increases in the federal Pell Grant program, and other need-based student aid programs, for needy students and families.
The FFELP comprises approximately 67 percent of the direct student aid awarded annually to Texas college students.
The administration's FY2009 budget proposal to the congress includes additional cost savings proposals by repealing the Supplemental educational Grant Program, LEAP, and Perkins and level funding the other Title IV and TRIP programs.
The House and Senate Budget Committees have rejected the administration's submission and are developing a budget resolution that proposes to increase appropriations for the Pell Grant Program with smaller increases for the other Title IV programs.
However, a veto is possible. Another option being discussed by the congressional leadership is to simply push the FY2009 appropriations bill for Education, Health and Human Services, and Labor (the largest of the 12 appropriations bills) into the 111th Congress which convenes in January 2009 to avoid another veto showdown with the administration.
The Department of Education terminated the existing voluntary flexible agreements on January 1, 2008 and, even though the congress directed the Department to negotiate new agreements with the five guarantors by March 31, 2008 that address the reason (cost neutrality) that was cited by the Department for the terminations, no new agreements were renegotiated. This program is scheduled to be reauthorized and there are efforts to reinstate the existing VFA agreements.
Controversy over school and lender relationships, the growth (some would characterize as uncontrolled and unregulated growth) of the high cost private educational student loan market, and the declining fortunes of the largest player in the FFELP-the Student Loan Marketing Association (Sallie Mae)-are still on the congress' radar and will continue to attract the congress' and state legislatures' scrutiny.
While the Congress is poised to finally complete the reauthorization of the HEA process, the above mentioned issues may impact the timing of final passage of a reauthorization bill. In any event, the issues will cause continuing debate about the nature and size of the federal role in the provision of student loans.
In addition to the successes to date under this Congress, e.g., implementation of the 911 Commission recommendations, increase in federal minimum wage, temporary decreased student loan interest rates for a few years coupled with record increases in need-based student aid, both parties are still pushing for something large like Medicare and Medicaid reform, limited Social security reform, CHIP reform, or an economic stimulus package of tax cuts and spending measures to shore up the dollar and create jobs.
Any of these could be a part of a budget reconciliation bill that can be acted upon in a shorter time than traditional legislation. A budget reconciliation bill may also provide a vehicle for other legislation (HEA reauthorization for example) to be passed in an expedited manner.
Elections
The trend since 2003 has been to allow budget considerations to drive policy. The Republican presidential candidate has no position on these programs or higher education in general. Domestic education and health and human services are not traditional Republican issues. The Democratic candidates have issued higher education proposals and they propose to increase need-based program funding partially through savings taken from changes in the FFELP.
Essentially under a Republican administration and/or congress, a continuation of the 2001-2006 can be expected-level funding of the Title IV programs with continued annual proposals to squeeze additional funding from the FFELP (under the guise of "controlling entitlement spending) to offset increased spending on other priorities.
Under a Democratic administration and/or congress, 2007 serves as an example of what may be in store. Priorities will shift to domestic education, health and human services, and jobs. Increased funding will come first from offsets to existing programs and tax reform. For the FFELP, further reductions in support to provide increases to Title IV student aid programs will continue, coupled with legislation to improve the administration and oversight of the program and instill increased competition between the FFELP and FDLP.
Much of the student financial aid-related activity will focus on student loans and the FFELP. This includes:
- The inability for some segments of the FFELP lending community to access capital to originate and buy FFELP loans;
- Increasing cohort default rates;
- Increasing scrutiny, regulations, and reporting requirements relating to school and lender relationships for schools participating in the FFELP;
- Reduction of lender participation and lender and guarantor-offered borrower benefits in the FFELP;
- The leveling of the playing field between the FFELP and FDLP in the areas of oversight, school administrative burden, and borrower benefits available in the FDLP;
- The increased marketing and reliance on expensive private educational student loans.
All of these points will contribute to institutions being more selective of the guarantor they use (cohort default rate) and/or which program they use (lenders withdrawing from the FFELP, administrative burden, additional regulations-FFELP codes of conduct, additional state and federal oversight, and borrower benefits available in one program but not the other).
The increasing use of private educational student loans will provide a basis for continued congressional study and reform in the federal student loan program.
These are the challenges facing the FFELP.
In summary, the congressional environment, and the direction this, and future, congresses may go, is uncertain, impacted by a volatile political election year and highly sensitive and emotional issues. While the Title IV student financial aid programs will continue, congressional support in the form of appropriations will depend on the economy, the war, administration and congressional priorities, which, in part, depends on the type and size of congressional majorities, and the general state and condition of the FFELP, its partners ability to promote and advocate for a healthy FFELP, and its perception by the public and congress. The FFELP will continue to be a target for "reform" and budget savings if another round of budget reconciliation is attempted this year.
Legislative Update
The 81st Regular Session of the Texas Legislature will convene on 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 include charges to study student financial aid and tuition.
The Senate Subcommittee on Higher Education and Subcommittee on Higher Education Finance are jointly charged to study the role of the state's public non-profit student loan secondary markets and the current student lending credit problem.
Additionally, as a result of the failed proposal to restructure the state's student financial programs, the Texas Higher Education Coordinating Board was directed by the legislature to conduct a study concerning the same topic that includes the use of debit cards for financial aid, merging some state programs, requiring completion of the FAFSA for admission to a state institution of higher education, indexing the amount of a TEXAS Grant to the cost of education rather than tuition and fees. This study is being conduced by the 21 member Texas Student Financial Aid Steering Committee (on which TG serves), the Governor's Office, Legislative Budget Board, and Higher Education Insight Associates.
