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

May 2, 2008

Congressional/Legislative Update
State Legislative Update

Congressional Update

Recent activity has focused on the FFELP/capital markets/funding liquidity issue.

In March and April, Senator Kennedy and Representatives Hinojosa and Miller filed legislation (S 2815 — Strengthening Student Aid for All Act/HR 5715 — Ensuring Continued Access to Student Loans Act) in the congress that would address the "liquidity problem" beginning to develop within the FFELP.

On April 31st and May 1st, the House and Senate approved a compromise version of HR 5715 which included parts of both the Kennedy/Miller legislation.

The Senate amendment to H.R. 5715 ("Ensuring Continued Access to Student Loans Act of 2008"), makes the following changes to the bill as passed by the House.

Loan limits — The Senate amendment clarifies that the increased loan limits apply to loans first disbursed on or after July 1, 2008.

The House bill raises annual federal loan limit for unsubsidized Stafford loans for dependent undergraduate students, or students whose parents can't obtain federal parent loans because of poor credit, by $2,000. It also increases the aggregate amount an undergraduate dependent student may borrow under the unsubsidized Stafford loan program to $31,000. Further, the House bill increases the annual federal loan limit for unsubsidized Stafford loans for independent undergraduate first and second year students, or students whose parents can't obtain federal parent loans because of poor credit, by $2,000, from $4,000 to $6,000, and it increases the maximum annual amount for undergraduate independent students who have completed two years of study also by $2000, from $5000 to $7000. The aggregate amount of unsubsidized Stafford loans for an undergraduate independent student is increased to $57,500.

PLUS loans — The Senate amendment refines the House provision by providing that extenuating circumstances exist, and therefore an applicant does not lose PLUS loan eligibility if, during the period beginning January 1, 2007 and December 31, 2009, he or she is or was up to 180 days delinquent on mortgage loan or medical bill payments and was not more than 89 days delinquent on other debt.

The House bill also gives a parent borrower more time to begin repaying off federal PLUS loans. Currently, parent borrowers must begin repayment 60 days after disbursement of the loan; under the bill, parents would be able to defer repayment until six months after their children fails to carry at least one-half the normal full-time workload.

Lender-of-Last Resort — the Senate amendment provides that no lender-of-last-resort loans shall be made with interest rates, origination or default fees, or other terms and conditions that are more favorable to the borrower than the maximum applicable under the HEA for the type of loan involved. It also provides that (i) the authority of the Secretary to designate schools as eligible for lender-of-last resort loans, and any designation of a school, expires on June 29, 2009; (ii) each guaranty agency or lender serving as a lender of last resort is subject to the guaranty agency and lender prohibited inducement provisions contained in the HEA; and (ii) each guaranty agency and lender serving as a lender of last resort shall not advertise, market or otherwise promote lender of last resort loans (though guaranty agencies must ensure that schools have information about the availability of the lender-of-last resort program in the State).

Finally, the Secretary is directed to disseminate information on the lender-of-last-resort program, to make publicly available new or revised plans or agreements made by guaranty agencies and to provide reports on lender-of-last-resort activities.

The House bill requires the Secretary of Education, upon request of a school and in accordance with standards developed by the Secretary, to designate the school as eligible for the lender-of-last-resort program on an institution-wide basis, rather than on a student-by-student basis, and clarifies that it will cover not only subsidized Stafford loans, but also unsubsidized Stafford loans and PLUS loans as well. It specifically excludes consolidation loans. The bill also clarifies that existing law gives the Secretary the authority to advance federal funds to guaranty agencies in the event that they do not have sufficient capital to originate new loans and appropriates such sums as may be necessary for carrying out the requirements of the lender of last resort program.

The Senate amendment provides that the authority of the Secretary to purchase, and to enter into forward purchase commitments to purchase, FFELP loans (other than consolidation loans) applies to loans made on or after October 1, 2003 and before July 1, 2009. It also provides that, rather than issuing emergency regulations pertaining to such purchases, the Secretary together with the Secretary of the Treasury and the Director of OMB shall publish a Federal Register notice that establishes the terms of such purchases, an outline of the factors to be used in evaluating the price of such purchases, and a description of how the price meets the requirement that the purchase does not result in a net cost to the federal Government.

The House bill establishes this temporary authority in the event that the Secretary determines there is inadequate availability of loan capital. The Secretary, in consultation with Treasury and OMB, must determine that the terms of the purchase are in the best interest of the United States and that any purchase cannot result in a net cost to the Federal Government. The bill provides that the Secretary shall require that the funds paid by the Secretary shall be used to ensure continued participation by the lender in the FFELP and to originate new FFELP loans to students. The Secretary is authorized to contract with the lender for continued servicing, provided that the cost of such servicing cannot exceed the cost the Federal Government would otherwise incur and that continued servicing is in the best interest of borrowers.

The Senate amendment makes a number of changes to the ACG and SMART grant programs which in essence spend the savings otherwise generated by the House bill.

The House bill also contains, and the Senate amendment does not change, a sense of Congress statement that the Federal financial institutions, such as the Federal Financing Bank and the Federal Reserve, and the federally chartered entities such as the Federal Home Loan Banks, use their available authorities, if needed, to assist in ensuring that students and families have access to student loans for academic year 2008-2009, and the subsequent academic year if needed.

In addition, Congressman Paul Kanjorski and Senator John Kerry have filed legislation (HR 5723/S 2847 — The Emergency Student Loan Market Liquidity Act proposing to allow the 12 Federal Home Loan Banks to assist student loan lenders by enabling the Banks to:

temporarily (for 2 years) invest in student loan-related securities with their surplus funds;
accept student loans and student loan-related securities as collateral; and,
provide secured advances of funds to its members (savings and loan associations, cooperative banks, and mortgage lenders) to originate student loans or finance student loan-related securities.

The same two members have also filed HR 5914 The Student Loan Access Act — that provides the Treasury Department's Federal Financing Bank with the explicit authority to:

purchase loans guaranteed under Part B of the Higher Education Act;
make advances to eligible FFELP lenders for the purposes of originating or purchasing Federal loans; and,
invest in securities collateralized with student loans originated under part B of the Higher Education Act.

These provisions would exist only for the 2008-2009 academic year, but could be extended year to year.

State Legislative Update

The Feasibility Study for Restructuring Texas Student Financial Aid Programs released its preliminary findings and recommendations.

Among the recommendations are to:

maintain the TEXAS Grant Program as the state's primary postsecondary education grant;
begin to phase in a merging of the TEG and TEOG into the TEXAS Grant Program, but maintain the separate revenue streams for each program until the merger;
align the eligibility and allocation formulas for the three programs;
focus the programs to the lowest income population groups;
maintain the TPEG Program as a campus-based program and the B-On-Time programs as a secondary incentive program for full-time students;
add a further merit component to the TEXAS Grant Program (1300 SAT, or rank in the upper 40 percent of one's high school graduating class, or complete the high school Distinguished Curriculum);
develop an eligibility pathway for low income nontraditional and independent students for a TEXAS Grant by earning an associate degree, or complete 12 hours of transferable general education courses with a 3.0 GPA, or complete 24 hours of transferable general education and/or major-specific courses;
use the federal Pell Grant and institutional definition of Satisfactory Academic Progress for renewal TEXAS Grants;
maintain a decentralized administration of student financial aid programs with some new standardization of formulas and FAFSA priority dates;
merge smaller programs into a workforce shortage program and a college readiness program;
improve monitoring and accountability of the success of the state's programs.

The final report will be submitted to the Texas higher Education Coordinating Board in July and the legislature in the fall. The 81st Regular Session of the Texas Legislature will take up and consider legislation in 2009.