September 2, 2008

• Reauthorization of the Higher Education Act
• Positions on College Costs and Student Financial Aid of Candidates for President
• State Legislative Update

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The 110th Congress returns for its final stretch run on September 4th, with final adjournment scheduled to be on September 26, 2008.

Upon its return, some in the FFELP community will begin advocating for the congress to pass legislation to extend for an additional year portions with changes of PL 110-227-The Ensuring Continued Access to Student Loans Act-passed earlier this year to inject liquidity for lenders for one year participating in the FFELP and strengthen the lender-of-last resort program.

The 111th Congress will convene on January 13, 2009 with as many as 50 new Members of the House of Representatives and 10 new members of the Senate, and a new Administration and Executive Branch (cabinet secretaries and lesser political appointees to administer federal agencies and programs).

Earlier this summer, the Congress passed and the President signed into law The Higher Education Opportunity Act (HEOA) of 2008 (Public Law 110-315), which reauthorizes the 1965 federal Higher Education Act (HEA) for five years.

Coupled with this good news, is the continuing concerning news that the source of the increased appropriations for the record funding for the Pell Grant (maximum annual grant increased from $4,050 to $4,900) has been savings resulting from the passage of the Higher Education Reconciliation Act of 2005 (PL 109-171), which made significant reductions in congressional and administration support for the largest Title IV program-the Federal Family Education Loan Program. In order to continue to fund these Pell increases in this way, the congress will be required to continue to offset future increases (beginning in 2014) from other programs. These reductions, along with the continuing issues associated with the collapse of the capital markets, has resulted in over 120 lenders either withdrawing from, suspending lending activity in, or selectively participating in the FFELP based on the profitability of the loans, i.e., originating FFELP loans to borrowers attending only those institutions that are "profitable", primarily large 4-year and non-profit private 4-year universities.

PL 110-227 has only been partially successful and is not a permanent fix to the liquidity problems. For example, the nonprofit secondary markets which purchase FFELP loans from originating lenders and, thereby, ensure a continuing flow of liquidity for originating new loans, are not helped by this new law. And, because this new law charges the Education Department with a new responsibility to be a national secondary market, the Department has taken an inordinate amount of time in implementing the statute's provisions.

Two additional bills which would provide a more permanent solution to this problem may be taken up by the 111th Congress. These are HR 5723/S 2847 — The Emergency Student Loan Market Liquidity Act and HR 5914 — The Student Loan Access Act. These bills propose to allow the 12 Federal Home Loan Banks and the Federal Financing Bank to assist student loan lenders by enabling the Banks to:

• temporarily (for two years) invest in student loan-related securities with their surplus funds;
• accept student loans and student loan-related securities as collateral;
• 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;
• 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.

So, while the reauthorization process is done, that does not mean that congress will not seek to amend the HEA outside of the next reauthorization. Examples of major changes being made to the FFELP between reauthorizations of the HEA are 2005's Higher Education Reconciliation Act (HERA), 2007's College Cost Reduction and Access Act, and this year's Ensuring Continued Access to Student Loans Act. Next year, the new 111th Congress will undoubtedly take up a technical amendments bill to correct any mistakes or oversights in HR 4137. Such a bill may be used as a vehicle for Members to propose substantive amendments to the Act.

The 111th Congress and new Administration which assumes office in January of 2009 will have their own set of priorities which may differ dramatically from the previous four Congresses' and Administration's. However, the same basic issues will drive their agendas-the $500 billion projected budget deficit for FY2009, almost $10 trillion national debt (up from $5.1 trillion in 2001), spending and taxes, and the continuing problems with the economy. All of these will impact domestic spending on education, energy, transportation, health and human services, etc., and may very well require the congress to address spending issues through a budget reconciliation bill as was done in 2005 and 2007.

A major budget reconciliation bill introduced in early 2009 could produce significant spending reductions in selected entitlement programs the savings from which would then be used to offset spending increases in other programs, or to offset projected budget deficits as was done in 2005 and 2007. The priorities for reductions and increases will largely depend on who occupies the White House and the size of the majorities in the 111th Congress.

Moving forward, the next Congress will have to address the still existing liquidity problem within the FFELP and begin considering some serious policy decisions about the preferred structure and delivery system for federally subsidized and federally funded and originated student loans within the larger context of the economy, lender behavior, and decision-making within the capital markets which contributed to the liquidity problem in the FFELP.

Reportedly, staffs from the Congressional Leadership and Committees are working with Senator Obama's staff on legislative proposals, including a budget bill, to enact on an expedited basis several of the Senator's campaign proposals early in the next congressional cycle: "The Low Hanging Fruit"; as characterized by Speaker Pelosi.

The 111th Congress and new Administration will have a full two years (Congress) and four years (Administration) to accomplish their objectives. Therefore, if both branches can work together, which may very well be the case; much can be accomplished in a short amount of time, especially if the expedited annual budget process is used as a vehicle to pass legislation.

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Reauthorization of the Higher Education Act
The Higher Education Opportunity Act

Key provisions: adapted from a summary produced by the American Council on Education

College Costs and Student Financial Aid

College affordability and transparency lists: Beginning July 1, 2011, ED will publish national lists naming the top five percent of institutions with (1) the highest tuition and fees; (2) the highest "net price;" (3) the largest percentage increase in tuition and fees; and (4) the largest percentage increase in net price. Institutions with large percentage increases in either tuition and fees or in net price will be required to submit a report to ED providing the reasons for the increase and the steps that will be taken to reduce costs. ED will issue an annual report on those institutions and post their reports on the College Navigator web site.

State higher education spending chart: ED will annually publish state-by-state information concerning trends in state higher education spending and tuition, fees and financial aid for students at state institutions.

Net price calculator: Within one year after enactment, ED will consult higher education institutions and other experts to develop a "net price calculator," a tool intended to provide a student and his or her family with a more individualized estimate of the net price of particular higher education institutions. Within two years after ED makes the net price calculator available to institutions, each institution must post a net price calculator on its own web site. Institutions may choose to use ED's calculator or may develop their own, provided it contains the same data elements as ED's calculator.

Consumer information: Within one year after enactment, ED will post on the College Navigator web site 27 categories of information about each institution that participates in Title IV programs. The information is to include: institutional mission; statistics on applications, admission, enrollment, SAT or ACT scores, transfer students, male and female students, in-state and out-of-state students, racial and ethnic groups, disabled students, degrees awarded, time to completion of degrees, faculty, cost of attendance and financial aid; alternative tuition plans, and campus safety information.

Multi-year tuition calculator: Within one year after enactment, ED will consult higher education institutions, financial planners and other experts to develop a "multi-year tuition calculator," a tool intended to help students and their families estimate the amount of tuition they may pay to attend particular institutions in future years, as well as to compare estimates for multiple institutions. ED will make the multi-year tuition calculator available on the College Navigator web site, along with a disclaimer noting that the estimate is not binding and is subject to change.

State commitment of affordable college education: The act adopts a so-called "maintenance of effort" requirement for states. For academic years beginning on and after July 1, 2008, each state must maintain a level of expenditure equal to: (1) for public colleges and universities the average amount provided for non-capital and non-research and development expenses in the five most recent academic years and (2) for private colleges and universities the average amount provided for student financial aid in the five most recent academic years. ED may waive these requirements in limited circumstances. If a state violates this provision, ED will withhold the amount of any federal grant to the state under the College Access Challenge Grant program until the state has tried to correct the violation.

Pell Grant Program: In addition to increasing the annual authorized maximum award levels ($6,000 in 2009 to $8,000 in 2014), the act makes eligibility year-round, sets the minimum award at ten percent of the actual annual maximum award, limits eligibility to 18 semesters or the equivalent, and students who lose a parent to combat in Iraq or Afghanistan are eligible for a maximum Pell Grant.

Veterans: The act directs ED to create a searchable web site containing information on financial aid and other benefits and services for military members and veterans. In addition, the act also provides a right to readmission for veterans in certain circumstances and modifies the treatment of veteran's benefits in calculating need.

PLUS Loan deferment: The act allows graduate students to receive an in-school deferment on their PLUS loans. Parent borrowers were given this authority in the College Cost Reduction and Access Act.

Financial aid application process: The act directs ED to develop a Free Application for Federal Student Aid (FAFSA) with fewer questions, requires ED to develop a model format for institutional financial aid offer forms that institutions provide to applicants, and directs ED to develop a system through which students can receive early estimates of the amount of aid they might be eligible to receive.

Textbook cost containment: Effective July 1, 2010, institutions will be required to disclose in their course schedules, "to the maximum extent practicable," the International Standard Book Number (ISBN) of every required and recommended textbook and supplemental material and retail price information. Lacking accurate information about the ISBN number at the time the course schedules are set, the institution is permitted to indicate that this information is "to be determined." Publishers are required to provide faculty with information on price, copyright dates of the three previous editions, any substantial revisions between a new edition and prior iterations, whether the textbook is available in any other format and at what price and to supply textbooks in bundled and unbundled formats.

Preferred lender arrangements: An institution that enters into a preferred lender arrangement for education loans must make certain disclosures regarding FFELP loans and the institution's obligation to process FFELP loans irrespective of the lender that the student chooses. ED, in coordination with the Board of Governors of the Federal Reserve, will determine minimum required disclosures regarding FFELP loans offered under preferred lender arrangements and develop a model form for such disclosures.

Disclosures regarding direct loans: The act requires ED to provide a model disclosure form to institutions that participate in the Direct Loan Program. Such institutions must make certain disclosures regarding the program to students attending or planning to attend the institution and must provide such information concurrently with any private loan information that the institution offers to a prospective borrower.

Disclosures to FFELP borrowers: The act requires FFELP lenders to make certain disclosures regarding loan terms and conditions to borrowers at specified times, including prior to the time of disbursement.

Guaranty agencies: The act further limits items guaranty agencies may offer a higher education institution, a lender or their employees. In addition, guaranty agencies must collaborate with higher education institutions to develop and disseminate financial literacy programs and materials for student and families.

Provisions Applicable to Private Student Loans

Prohibited conduct: The act forbids lenders that make private education loans to engage in certain practices with respect to their relationships with institutions. For example, the act bans gifts from private lenders in connection with the lender's private educational loan activities, revenue-sharing and co-branding of loans by institutions and private lenders. Financial aid office employees and other institutional employees with duties related to private education loans or other financial aid may not receive compensation, but may receive reimbursement for reasonable expenses, for service on a private educational lender's advisory board. Institutions that participate in federal student aid programs are required to report to ED annually certain detailed information regarding advisory board expense reimbursement by private lenders.

Preferred lender arrangements: Private student lenders that have a preferred lender arrangement with an institution are required to submit to the institution each year, and the institution is required to disclose, certain information regarding each type of private education loan that the lender intends to offer the institution's students or families for the subsequent award year. The institution must be sure to include the name of the private lender with which it has a preferred lender arrangement in all information and documentation that relates to the lender's private educational loans.

Disclosures to borrowers: Lenders of private education loans must make certain disclosures to borrowers in any application (or any solicitation that does not require an application), as well as at the time of loan approval and loan consummation. The disclosures must include information regarding the terms of the private loans as well as federal student financial aid.

Self-certification: Before consummating a private education loan, the lender must obtain from the borrower (not the institution) a signed certification form, which is to be developed by ED in consultation with the Federal Reserve System's Board of Governors and will contain disclosures concerning private loans and federal student financial aid specified in the act. The form will include a place for, among other data, the applicant's cost of attendance as determined by the institution and will explain that information required to be provided by the applicant is available from the institution's financial aid office. By asking students to self-certify their cost of attendance rather than having the institution certify the amount, the act creates the possibility that students could take out private loans that exceed the amount of their actual need.

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Positions on College Costs and Student Financial Aid of Candidates for President

While it is the legislative branch that initiates legislation and, ultimately, makes laws, the positions of the executive branch on issues can sometimes influence legislation, in particular when the same party controls both branches. The following are the published positions of the two major candidates for the presidency on college costs and student financial aid. It is anticipated that the positions of the next president will be more detailed by next year and, along with reports by the College Board and National Association of Student Financial Aid Administrators (NASFAA) on restructuring the federal student financial aid programs and members of Congress own proposals, will guide congressional discussions on the role of the Title IV programs in the future. Of course, the budget and the challenges mentioned above will also drive the debate on entitlement and discretionary spending as well.

Senator Barack Obama

Simplify the Application Process for Financial Aid The current Free Application for Federal Student Aid (FAFSA) is five pages and 127 questions — making it longer and more involved than many federal tax returns. Not surprisingly, over 1.5 million high school students failed to apply for aid in 2004, despite being eligible for a Pell Grant. Instead, aid would be based on a much simpler yet equally accurate formula, so that students can predict their eligibility well in advance. The aid process will be streamlined by enabling families to apply simply by checking a box on their tax form, authorizing their tax information to be used and eliminating the need for a separate application.

American Opportunity Tax Credit
Create a new American Opportunity Tax Credit. This universal and fully refundable credit will ensure that the first $4,000 of a college education is completely free for most Americans, and will cover two-thirds the cost of tuition at the average public college or university.

Help Students Become Aware of College Readiness
This new program will provide $25 million annually in matching funds for states to develop Early Assessment Programs. These funds will also promote state efforts to raise awareness about the availability of federal and state financial aid programs.

Expand Pell Grants for Low-Income Students
Two decades ago, the maximum Pell Grant covered 55 percent of costs at a public four-year college, compared with only 32 percent today. The maximum Pell Grant award should be increased for low-income students, and keep pace with the rising cost of college inflation.

Community College Partnership Program
Create a Community College Partnership Program to strengthen community colleges by providing grants to (a) conduct more thorough analysis of the types of skills and technical education that are in high demand from students and local industry; (b) implement new associate of arts degree programs that cater to emerging industry and technical career demands; and (c) reward those institutions that graduate more students and also increase their numbers of transfer students to four-year institutions. These efforts will ensure that community college students are able to directly use their skills in the workforce following graduation, and be prepared to continue their higher education. And the grants will support programs that facilitate transfers from two-year institutions to four-year institutions.

Eliminate Costly Bank Subsidies
Currently, there are two basic college loan programs: the Direct Loan system, funded publicly, and the Federal Family Education Loan Program, funded privately by banks and lenders who receive subsidies and guarantees from the government. Privately funded loans cost more per loan than the Direct Loan program and provide no greater benefits. Billions of dollars are proposed to be saved by eliminating the more expensive private loan program, and directing that money into aid for students.

Senator John McCain

Prepare for the 21st Century in Higher Education
Encourage the government to support innovative approaches to education, removing regulatory barriers that prevent us from moving forward with new ideas.

Improve Information for Parents
Make more information available to families in a clear and concise manner will help more students make more informed choices about higher education.

Simplify Higher Education Tax Benefits
The existing tax benefits are too complicated, and many eligible families don't claim them. By simplifying the existing benefits, a greater number of families have a lower tax burden when they are helping to send their children to college.

Simplify Federal Financial Aid
Too many programs and a complicated application process deter many eligible students from seeking student aid. The number of programs also makes it more difficult for financial aid officers to help students navigate the process. Consolidating programs will help simplify the administration of these programs, and help more students have a better understanding of their eligibility for aid.

Improve Research by Eliminating Earmarks
Earmarking is destroying the integrity of federally funded research. Billions of dollars are spent on pork barrel projects every year; significant amounts come from research budgets. Eliminating earmarks would immediately and significantly improve the federal government's support for university research.

Fix the Student Lending Programs
We have seen significant turmoil in student lending. Expand the lender-of-last resort capability of the federal student loan system and demand the highest standard of integrity for participating private lenders. Effective reforms and leveraging the private sector will ensure the necessary funding of higher education aspirations, and create a simpler and more effective program in the process.

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State Legislative Update

The Feasibility Study for Restructuring Texas Student Financial Aid Programs mandated by the 80th Regular session of the Texas Legislature 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; and
• improve monitoring and accountability of the success of the state's programs.

The final report was transmitted, without comment, to the state legislature after consideration by the THECB on July 24, 2008. The CB is attempting to gather additional information that it will consider, along with additional recommendations submitted by CB staff, during its next meeting in October. This additional information will then be forwarded to the legislature as well. The additional recommendations include dropping the "12 hours of transferable general education courses" requirement, allow the CB to determine a satisfactory SAT/ACT score, substitute "top 30 percent" for "top 40 percent" of a high school graduating class, add a high school GPA requirement of 3.0 using a statewide standard GPA calculation (when or if available), and maintain the current state definition of Satisfactory Academic Progress.

It is also expected that student financial aid-related recommendations will be submitted to the legislature by the Governor.

The 81st Regular Session of the Texas Legislature will take up and consider legislation in 2009.

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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