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TG's Legislative Report

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June 15, 2009

Congressional Update

The House Education and Labor Committee convened in its initial public hearings on May 20th and 21st to begin deliberating the resolution's reconciliation instruction to the Committee to develop legislation that reforms the federal student loan programs, saves $1 billion over five years, and converts the Pell Grant program into an entitlement program.

The House Appropriations Committee convened on June 3rd to begin the FY 2010 appropriations process, opening with the Department of Education and Secretary of Education Arne Duncan testifying on the Department's request for $46.7 billion in discretionary appropriations to administer the agency's programs, which also included the Administration's proposal to end the Federal Family Education Loan Program (FFELP) in 2010 in order to save tens of billions of dollars which would go to the Pell Grant program.

With respect to student loan reform legislation, the House is taking the lead with the Senate Health, Education, Labor and Pensions Committee choosing to wait for the House to pass legislation first. The House Leadership has set a "soft" deadline of July 31st for legislation to be reported from the Education and Labor Committee to the full House for a vote. However the House Speaker has stated that the "sooner the better" would be preferable, because this deadline also applies to the much larger and higher priority health insurance and energy bills as well.

This being said, there has been significant activity on the part of national, regional, and state associations and entities expressing their views on the complexity and issues involved in reforming the federal student loan programs — the largest form of student financial aid — which are critical to providing financial access to postsecondary education for millions of students, a critical component to state efforts to recruit, retain, and graduate students from historically under represented populations (but also the fastest growing segment of the nation's population), and, critical to colleges and universities' enrollment numbers, which are linked to state appropriations.

On a broader scale a recent Gallup poll also confirms that the while the Administration's general approval ratings are high, the underlying data less so. While 67 percent of voters give the Administration a favorable rating and 61 percent approve of its job performance, there are much lower ratings on specific issues.

According to a Rasmussen poll, more voters now trust Republicans more than Democrats to handle the economy, by a margin of 45-39. The poll notes that "this is the first time in over two years of polling that the Republican Party has held the advantage on this issue." Last month, the same poll had the Democrats holding a one-point lead, but they lost it in June's polling.

The Gallup poll shows the Administration getting a 55 percent approval on its handling of the economy (down from 59 percent in February) and 45 percent approval of its handling of federal spending while 46 percent approve of its treatment of the budget deficit.

If this trend continues, the congress may be less inclined to support Administration proposals that increase the annual deficits and debt, or hold potential for negative backlash from voters, thereby slowing the Administration's budget agenda.

During the May 21st Education and Labor Committee hearing on student loan reform, a panel composed of stakeholders, including the Department of Education, the Student Loan Marketing Association (Sallie Mae), student financial aid, and FFELP lenders, agreed that major reforms must be made to the federal student loan programs in order to make college more affordable and accessible.

Committee Chairman George Miller (D-CA) stated at the outset that while the Committee is open to other alternative approaches to reforming the federal student loan programs, one benchmark is that proposals must achieve significant savings (as scored by the Congressional Budget Office) in order to offset proposed appropriations increases in the Pell Grant program.

"The status quo has become impossible to defend. Students and families are not being served as well as they could be and taxpayers are spending billions of dollars annually to finance a broken system," said Chairman Miller. "Momentum is building for reforms that will deliver aid to families in a more stable and sustainable way, shielded from any ups and downs in the markets. We can either continue sending billions of dollars to banks and lenders or we can start sending it to students who need more help than ever paying for college in this economy."

The hearing focused on the duplicative nature of the federal loan programs that provide borrowers with the same federal Stafford student loans, and with the same interest rates, terms and conditions. One is the FFELP — under which private companies make loans to students and receive federal subsidies. The repayment of these loans is guaranteed by the federal government. The other is the Direct Loan program, under which the federal government originates loans directly to students using Treasury capital.

Last year, when the credit markets froze, many lenders had trouble financing their lending activity. In response, congress enacted the Ensuring Continued Access to Student Loans Act (ECASLA). This temporary program allowed the Education Department to implement a variety of programs to purchase and invest in FFELP loans made by lenders. Lenders that participate in these programs are required to use the public proceeds to originate, or purchase, new FFELP loans to students. The program is set to expire on July 1, 2010.

As a result of the need for the ECASLA, today both the FFELP (which comprises about 70 percent of the national student loan volume) and the FDLP are significantly subsidized by the federal government through borrowing from the U.S., Treasury.

"Reliable access to student loans is important not just for our students and their families, but also for our entire economy," said Robert Shireman, the U.S. Deputy Under Secretary of Education. "We have seen the guaranteed Federal student loan system, known as the Federal Family Education Loan (FFEL) Program, come close to collapse this past year. Instead of maintaining this elaborate web of programs designed to prop up the FFEL program, we should originate 100 percent of new loans through the less costly Direct Loan program."

Jack Remondi, the Vice Chairman and Chief Financial Officer of Sallie Mae, agreed that whatever policy is pursued, vast changes are needed to stabilize the student loan programs. "Sallie Mae fully supports the Administration's objectives of assuring stable funding of the federal student loan program while generating tens of billions of dollars in taxpayer savings that can be used to increase need-based grant aid for students, specifically to put the Pell Grant program on stable footing," he said.

Pennsylvania State University, formerly a FFELP school, switched to Direct Loans last March in the midst the credit crunch.

"Direct Loans offered a logical alternative to the FFEL Program in light of our circumstances," said Anna Griswald, the university's Assistant Vice President for Undergraduate Education. "It is testimony to the streamlined nature of the direct loan process and the single point of contact model it represents, that we were able to convert fairly quickly. It should be noted that Penn State is not the average institution and had the resources to enlist contractors to assist in the transition.

Campuses in the California State University System have found it easier for schools to administer, simpler for students and parents, and faster at originating and disbursing loans than FFELP, reported Charles Reed, the Chancellor of the system.

"Stability and reliability in a campus's student loan program is tremendously important to our students and institutions," he said. "Given this situation, coupled with the ready availability of a proven alternative in Direct Lending, beginning last year I strongly encouraged all of our remaining FFEL campuses to make the switch to Direct Lending."

The Administration's student loan reform proposal proposes to maintain a role for the private sector by allowing companies to compete for contracts to service these loans.

Chairman Miller closed the hearing by restating the Committee may, or may not, hold additional hearings during the summer, but will continue to closely examine proposals to determine the best policy for students, families and taxpayers and plans for the Committee to have a proposal and legislation before the August recess. So, interested parties should continue to submit proposals now to the Committee and follow-up with Committee staff. However all should consider the cost and savings implications as set forth by Chairman Miller.

On the FY 2010 appropriations front, The House Appropriations Committee has begun holding hearings and marking up the 12 FY 2010 appropriations bills.

One of the first hearings was on the Department of Education's FY 2010 request. Questions were raised by Committee members from both sides of the aisle on the Administration's proposal to move the Pell Grant program from discretionary to mandatory appropriations, making it yet one more entitlement program. Chairman David Obey (D-WI) is included in this group whose Committee stands to lose oversight of $18 billion in annual appropriations under the proposal.

The Administration's FY 2010 budget proposes increasing the Pell Grant program and other forms of college aid for low- and middle-income students by almost $100 billion over ten years (as estimated by the Congressional Budget Office). The projected cost would be financed through the projected savings generated through originating all new federal student loans through the Direct Loan program starting on July 1, 2010.

Included in the Secretary's opening statement was the following:

Helping More Kids Go To College

We announced most of our 2010 proposals for postsecondary education in February as part of the 2010 President's Budget Overview, so I will just summarize them briefly here. I do think we have an extraordinary story to tell about the Federal student aid programs.

Under the President's request, the Department of Education would administer over $129 billion in new grants, loans, and work-study assistance in 2010 — a 32 percent increase over the amount available in 2008 — to help more than 14 million students and their families pay for college. Our proposals to make Pell Grants a mandatory, appropriated entitlement, raise the maximum Pell award from $5,350 to $5,550, and index the maximum award to inflation plus 1 percentage point, would result in a $10.4 billion or 57 percent increase in Pell Grant assistance from the 2008-09 school year to the 2010-11 school year. And the number of Pell Grant recipients would rise nearly 1.5 million, or 24 percent, over the same period.

We would be able to provide these dramatic increases in student aid in part because our proposal to use Federal capital to, over time, make all new loans through the Direct Loan program, along with our proposed restructuring of the Perkins Loans program, would save an estimated $24.3 billion over the next five years. This is an extraordinary opportunity to reform obsolete programs; increase aid available to students; and simplify the administration of student loans for students, families, schools, and the Department. In short, it is an opportunity that should not be missed.

Finally, our 2010 request would launch a five year $2.5 billion Access and Completion Incentive Fund that would support innovative State efforts to improve college completion rates for low-income students. This Federal-State partnership builds on ideas Congress included in the Higher Education Opportunity Act, such as the State Grants for Access and Persistence program designed to complement LEAP. A key goal of this program is to learn more about what works, and what doesn't work, in improving student persistence to degree. The Administration also intends to reach out to the philanthropic community as potential partners, and expects to make use of the Experimental Sites authority that we already have, to issue regulatory waivers for the purpose of research on programs to improve persistence.

The "over time" qualification in the Secretary's statement was a change in tone from previous pronouncements from the Department.

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State Legislative Update

The 81st Regular Session of the Texas Legislature adjourned on June 1st. The following are summaries of three items of interest: the student financial aid appropriations, Senate Bill 194, and a few spending riders included in the 2010-2011 appropriations bill.

State lawmakers increased spending on financial aid for college students for 2010-2011 by about 35 percent, to $1 billion.

This amount is $400 million short of what the Texas Higher Education Coordinating Board had recommended to fully fund the state's programs.

The state's grant and loan programs received increases totaling $259 million.

Most of that increase, $186 million, would go to the Texas Grant program, raising the appropriations for this program 45 percent to $615 million.

The increased funding still leaves the Texas Grant program unable to provide aid to one-third of eligible low-income students, the fastest-growing segment of the college-age population and a group that includes many blacks and Hispanics.

Currently, about 83,000 students receive a Texas Grant, which can be as much as $6,080 per year. The budget increases the number of recipients to 104,000, 62 percent of the pool of eligible students, according to the THECB.

Appropriations for the Texas Educational Opportunity Program for community college students were also increased by 71 percent to $24 million for the biennium.

Appropriations for the B-on-Time loan program — students do not have to repay the zero-interest loan if they graduate on time with at least a B average — were increased by 82 percent to $140 million.

Appropriations for the Tuition Equalization Grant program, a partial tuition offset program for students attending Texas' private nonprofit colleges and universities, was level funded at about $212 million for the next two years.

The state's work-study program was also funded at the current level of $15 million.

Senate Bill 194 amends the Education Code to prohibit a person employed by an institution of higher education or career school in the institution's financial aid office from owning stock or holding another ownership interest in a student loan lender, other than through ownership of shares in a publicly traded mutual fund or similar investment vehicle in which the person does not exercise any discretion regarding the investment of the assets of the fund or other investment vehicle or from soliciting or accepting any gift from a student loan lender. The bill makes a person who violates this prohibition subject to dismissal or other disciplinary action.

The bill prohibits a career school or college from knowingly employing a person who violates the prohibition. The bill requires a career school or college, if it discovers that its employee is in violation of the prohibition, to promptly take action to cure the violation, including appropriate disciplinary action, based on the severity of the violation and whether the violation was inadvertent.

Rider 55 (TEXAS HIGHER EDUCATION COORDINATING BOARD).
Dual Credit.

The Texas Higher Education Coordinating Board shall use the funds appropriated in this Act to work together with the Texas Education Agency to provide integrated data on certain topics relating to dual credit in the manner requested by the Legislative Budget Board. At a minimum, the data should include the following:

  1. The number of contact hours generated by dual credit courses taken on a high school campus and on a community college campus;
  2. the number of districts charging tuition for dual credit courses, and the amount of the tuition; and
  3. the number of high schools and community colleges who have entered into agreements to offer dual credit courses.

Rider 60 (TEXAS HIGHER EDUCATION COORDINATING BOARD).
Statistical Analysis of Predictors of College Success.

The Texas Higher Education Coordinating Board shall provide data to the Legislative Budget Board as requested sufficient to conduct a statistical study of the predictors of access and success in higher education. These student-level, cohort data shall include:

  • longitudinal measurements of: success in first-college-level-course;
  • persistence and transfer;
  • college-level grade point average;
  • degree completion and time to degree
  • federal financial aid calculations; impact of total academic costs on different family income groups;
  • amounts of financial support via federal, state, or other aid/remissions;
  • parental education level; previous academic achievement;
  • scores on national college entrance examinations;
  • attainment of college readiness standards (in high school or through developmental education);
  • part-time/full-time status;
  • student demographics; and
  • other relevant factors and information as determined to be necessary by the Legislative Budget Board.

With the assistance of the Texas Education Agency as required, these data shall also include: scores on state assessment examinations; highest level of high school mathematics class successfully completed; high school graduation plan; high school class rank; size of high school graduation class; other demographic data collected in secondary education; and dual credit or college credit completed while in high school.

The Texas Higher Education Coordinating Board shall assist the Legislative Budget Board in the analysis and interpretation of these data. Data shall be made available to the Legislative Budget Board as soon as is practical following the conclusion of each academic year. These data shall be provided in compliance with all relevant privacy laws. A report based on an analysis of these data shall be presented to the legislature no later than October 1, 2010.

Rider 50 (SPECIAL PROVISIONS RELATED TO HIGHER EDUCATION).
Report Concerning Designated Tuition.

  1. Not later than January 1, 2010, the governing board of each public institution of higher education that charges students designated tuition under § 54.0513, Education Code, shall use the appropriations in the Act to report to the legislature, for the 2008-2009 and 2009-2010 academic years:
    1. the amount the institution has collected in designated tuition;
    2. the purposes for which the institution spent the money derived from designated tuition and the amount of that money spent for each of those purposes; and
    3. the amount set aside from designated tuition for resident undergraduate and graduate student assistance under §§ 56.011 and 56.012, Education Code and how these amounts are allocated under the following categories. (a) grants (b) scholarships, (c) work-study programs, (d) students loans, (e) and student loan repayment assistance.
  2. In addition to the information reported under Subsection (a), not later than January 1, 2010, the governing board of each institution of higher education shall report to the legislature the total academic cost for resident undergraduates enrolled for 15 semester credit hours. The information reported shall be derived from actual fee bills for the 2008 fall semester and the 2007 spring and fall semesters and must reflect the actual charges, before any adjustments or discounts are applied for waivers, exemptions, or other discounts, in the following categories: (1) statutory tuition; (2) designated tuition; (3) mandatory fees; and (4) average college and course fees, which must include all academic related fees and charges not reported under (1), (2), or (3), such as fees for laboratories, field trips, multimedia, equipment replacement, and instructional technology, but should not include charges for voluntary services ("optional fees").
  3. Reports required by this section shall be delivered to the Lieutenant Governor, the Speaker of the House, the chair of the Senate Finance Committee, the chair of the House Appropriations Committee, and the members of the Legislative Oversight Committee on Higher Education.

Rider 55 (SPECIAL PROVISIONS RELATED TO HIGHER EDUCATION).
Community College Transfer Student Reporting Requirement.

All General Academic Institutions shall use their respective Education and General funds appropriated in this Act to develop and submit an annual report to the Texas Higher Education Coordinating Board (THECB) that details the institution's goals to increase the number, success, and persistence of community college transfer students as measured by THECB.

The report shall assess each institution's existing academic and technical transfer pathways, identify each institution's barriers to transfer, and define emerging issues. The report shall detail institution actions to serve current and future transfer students through local and regional articulation agreements with faculty collaboration, community college program enhancements, student outreach and advising, website information development, targeted financial aid, university student success programs, and degree program alignment.

The THECB shall provide performance data by institution (application rates, admission rates, financial aid awarded, time-to-degree, and baccalaureate graduation rates) of transfer and native students by program completion at community colleges and universities during the preceding fiscal year.

The THECB shall conduct a comparative analysis of the institutional reports and the performance data. The THECB shall submit an annual report to the Legislature that evaluates actions to increase the number, success, and persistence of community college transfer students and make recommendations to meet state goals.

The report shall be delivered to the House Appropriations Committee, the Senate Finance Committee, the Legislative Budget Board and the Governor by November 1 of each year.

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