TG's Legislative Report

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TG Congressional and Legislative Relations
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January 29, 2009

Congressional Update

And so it begins.

A new Administration and new Congress (111th) have convened with huge unprecedented challenges, a flurry of new policies enacted through executive orders and congressional action, and a legislative branch sending a message that it is, once again, a relevant branch of government.

All of which will impact the issues the congress considers and the timing of the consideration. Student financial aid and federal student loans will be on the agenda.

Barack Obama is the 44th President of the United States and will have a Congress overwhelmingly dominated by Members of his party for, at least, his first term.

President Obama has gotten off to a fast start. For starters, he has already signed several executive orders, including orders that:

ban any White House staff from lobbying the Obama White House in the future,
halt the prosecution of prisoners at Guantanamo Bay,
stop implementation of any regulations pursuant to "midnight" executive orders ordered by the previous administration,
begin the process of pulling troops from Iraq within the next 16 months,
increase transparency by canceling more than 2,400 Bush administration rules that prevented search engines from indexing certain material on the White House web site.

The early plan is said to include a flurry of executive orders combined with quick congressional action on high profile popular issues not enacted by previous Congresses, or vetoed by the previous administration, such as the expansion of the Childrens' Health Insurance Program, and allowing federal funding for Stem Cell research, and requiring "equal pay for equal work".

Against this background of "quick victories", the two major continuing overriding issues facing the new administration are the failing economic condition of the country and the wars in Afghanistan and Iraq. These will take up most of the administration's time. However, in addressing these issues — in particular the economic issues — which, with the cost of the wars, will cause $1 trillion + annual federal budget deficits in FY 2009 and FY 2010, both the administration and the congress will be searching for cost savings in federal programs.

The more than $1 trillion annual deficits estimated for the next two years do not include the 2008 $700 billion Troubled Asset Recovery Program (TARP) and the 2009 $925 billion American Recovery & Reinvestment Act (ARRA) legislation.

ARRA, was passed by the House on 01/28 on a strictly partisan vote of 244-188, with all 178 House Republicans voting against passage and 12 House Democrats out of 256 voting against passage.

The bill includes benefits related to financial access to higher education and FFELP liquidity.

Pell Grants: $15.6 billion to increase the maximum Pell Grant by $500, from $4,850 to $5,350. This is a temporary increase similar to that included in the 2007 College Cost Reduction Act. If the new maximum grant amount is to continue, a future congress will have to determine a new funding source.

College Work-Study: $490 million to support undergraduate and graduate students who work.

Student Loan Limit Increase: Increases limits on unsubsidized Stafford loans by $2,000.

Student Aid Administration: $50 million to help the Department of Education administer surging student aid programs while navigating the changing student loan environment.

Recovery funding: $10 million Under the FFELP, the Federal government ensures lender participation through a subsidy known as the Special Allowance Payment (SAP). The SAP is currently indexed to the Commercial Paper rate (CP), which Congress intended to serve as a measure of the rate at which lenders were able to borrow money. The recent economic crisis has left the CP rate artificially low, due to limited trading. Language is included in the bill to index the SAP to the London Interbank Offered Rate (LIBOR), which is closer to the historical CP rates prior to the economic crisis, for one quarter. Substituting LIBOR for CP will help lenders avoid significant loss resulting from differences between the two rates, provide stability in the student loan system, and help to ensure access to financial aid for college students in 2009.

The student loan provisions are not included in the Senate version of this legislation, S 1, and, along with other provisions included in both bills that are not considered "econonomic stimulus related" have drawn significant (almost unanimous) opposition from Republicans and some opposition from Democrats. The House version includes $550 billion in new spending and the Senate version, which is still pending in the Senate, includes $366 billion in new spending (all through federal borrowing), which is the crux of most of the opposition.

The administration has stated that it will submit its FY2010 budget to the congress in April. It will include proposals to reduce spending in targeted areas in order to offset increases in other priority areas, similar to the 2005 and 2007 budget reconciliation bills that included the Higher Education Reconciliation and College Cost Reduction Acts.

However, while it is clear that the administration is working with congressional leadership and vetting its legislative and budget proposals with the Speaker, Majority Leader, and committee chairs, it is also clear that the congress is ready to take back its oversight role ceded to the Executive branch by the 107th-109th Congresses. After eight years of working for the diminished branch of government, Members of Congress have let it be known that they aren't rolling over-or, for that matter, sitting still.

After a recent meeting with members, senior administration adviser David Axelrod stated "These folks are not potted plants. They're elected officials doing their jobs."

Unlike his predecessor, Joe Biden has been told by his colleagues that when he finally leaves the Senate, he won't be welcome at Senate meetings as vice president.

Senate Majority Leader Harry Reid (D-Nev.) wants everyone to know he doesn't work for Obama, but with him.

And when House Speaker Nancy Pelosi (D-Calif.) describes how congressional Democrats have actually been working on an economic stimulus package for more than a year, long before Obama drew up his plan, you can see the line she is quietly drawing in the sand.

Within 48 hours of Obama backing off a 9/11-type commission to investigate the Bush administration, the House Judiciary Committee's Democratic staff released a report recommending he launch one.

All of this being said, while legislative proposals will be submitted by the administration to the congress for its consideration, it is clear that it will not be "rubber stamped".

For example, the new administration's higher education proposal is limited to:

an American Opportunity Tax Credit: which proposes to make college affordable for all Americans by creating a new refundable American Opportunity Tax Credit of $4,000 in exchange for 100 hours of community service, and
simplifying the Application Process for Financial Aid: which proposes to streamline the financial aid process by eliminating the current federal financial aid application and 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.

However, it will be up to the 535 Members of the 111th Congress to determine whether any action is taken on these proposals, the timing, the type of legislative vehicle, and how the proposal will be implemented and paid for.

For the federal student loan programs, proposals to restructure the programs are being submitted to the congress by several higher education and student financial aid associations, along with a set of recommendations by the previous Secretary of Education. These will be considered, possibly as a part of the administration's proposals, or possibly as free standing legislation, or, possibly as a part of a budget bill bypassing the normal legislative process, possibly, during the current Congress.

The American Recovery & Reinvestment Act and Higher Education

	House	Senate
Aid for Students
Pell Grants	$15.6 billion to increase maximum grant by $500 and eliminate shortfall	$13.9 billion to increase maximum grant and close shortfall
College Work Study	$490 million	N/A
Loan Limits	Increase limit on unsubsidized loans by $2,000	N/A
Higher Education Tax Credit	Temporarily replace Hope tax credit with $2,500 credit available for four years of college. Credit phases out for individuals with income of $80,000, $160,000 for couples. Credit is 40 percent refundable. Cost: $12.5 billion over 10 years	Temporarily replace Hope tax credit with $2,500 credit available for four years of college. Credit phases out for individuals with income of $80,000, $160,000 for couples. Credit is 30 percent refundable. Cost: $12.9 billion over 10 years
529 savings plans	N/A	Allow computers to count as qualified expenses under 529 savings plans
Education Aid for States	$39 billion for school districts and public colleges, distributed through existing formulas	$39 billion for school districts and public colleges, distributed through existing formulas
	$25 billion to states for "high priority" needs, "which may include education"	$25 billion to states for "high priority" needs, "which may include education"
Infrastructure
College/School Facilities	$6 billion for "higher education modernization, renovation, repair"; $1.5 billion for grants and loans to colleges, schools, and local governments for energy efficiency	$3.5 billion to improve energy efficiency and technology infrastructure of higher education facilities
Other
Student Aid Administration	$50 million to help Education Department administer student aid in changing student loan environment	N/A
Temporary retroactive change in SAP index from CP to LIBOR for last quarter of FY 2008	$10 million rebate for FFELP lenders	N/A