TG's Legislative Report

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TG Congressional and Legislative Relations
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August 12, 2009

Congressional Update

The Congress is in recess for the month of August. Prior to heading back to their districts, the House Education and Labor Committee reported HR 3221.

The introduction and reporting of HR 3221 is the first step in the federal legislative process to change the federal student loan program, and, even though it is the first step, the final bill that is signed into law later this year will likely be very similar to HR 3221.

When Congress returns, barring unforeseen events or delays, the full House of Representatives will take-up, consider, and pass HR 3221 by mid-September, and then send the bill to the Senate. HR 3221 will be referred to the Senate Health, Education, Labor, and Pensions (HELP) Committee, which will, in all likelihood, propose a bill substantially similar to the House bill. The Senate may pass its version of a bill by early October. A House and Senate conference committee will then make adjustments for any differences between the House and Senate versions of HR 3221, which the Congress will then pass and send to the President.

In order to avoid a possible Senate filibuster (which takes 60 votes out of 100 Senators to break) the Senate leadership may choose to consider HR 3221 under the budget reconciliation process, through which it takes only 51 votes to pass legislation.

It is also important to keep in mind that the legislative process is a permanent and continuing process. It is not inconceivable that there will be amendments proposed to the student loan provisions within the Higher Education Act for years to come that seek to re-privatize the program, or, modify the program in other ways.

When the Congress reconvenes next month, in addition to HR 3221, the final two months of this initial Session of the 111th Congress will consider:

The required twelve FY 2010 appropriations bills that will fund federal agencies beginning October 1, 2009; Democrats will use the time to pass as many FY10 funding bills as possible through regular order rather than through a short-term continuing resolution and, eventually, an omnibus spending bill. The House has passed its versions of all twelve spending bills for the 2010 fiscal year. But the Senate has not, and it likely won't, complete its versions of all the bills in September.
Health care reform legislation, on which Finance Chairman Max Baucus has set a mid-September deadline for reaching a deal with committee Republicans; health care will have top billing on the House agenda.
Legislation to extend funding for unemployment insurance benefits.
Climate-change legislation, which is in line behind health care and will need a lot of help to pass the Senate. The House has already passed its version; and,
The Democratic leadership has also suggested that immigration reform might be taken up in the fall. But under an informal agreement, any such legislation will originate in the Senate.

Student Aid and Fiscal Responsibility Act of 2009 (H.R. 3221)
HR 3221 proposes to repeal the FFELP and amend the Federal Perkins Loan program and replace them with the Federal Direct Loan program and the Federal Perkins Direct loan program.

The bill uses part of the Congressional Budget Office's estimated savings of repealing the FFELP to increase the mandatory appropriations to the Pell Grant program to allow an annual maximum grant of $5,500.

Federal Pell Grants
Provides that the amount of the Federal Pell Grant available to an eligible student will be the maximum grant award specified in the last appropriation act, plus a mandatory amount of $490 for award years 2008-2009 and 2009-2010, $690 for the award year 2010-2011, and for subsequent years, an amount determined by taking the greater of $5500 or the maximum Pell Grant for the previous year, increased by a percentage equal to the estimated percentage change in the Consumer Price Index plus one percent.

College Completion and Innovation Fund

Appropriates $600 million for each fiscal year during the period of 2010 through 2014 for a College Completion and Innovation Fund.
Of this amount, 25 per cent shall be allocated to the College Access Grant Challenge Program previously authorized, 50 per cent shall be allocated to State Innovation Completion Grants, 24 per cent shall be allocated to innovation in college access and completion national activities' and one per cent for evaluation.
The $300 million for "State Innovative Completion Grants" is to be allocated toward carrying out state innovation and completion grants awarded by the Secretary to states on a competitive basis to promote college persistence and completion.
Federal share will amount to two thirds of the cost of activities and services carried out under the grant.
Non-federal share will be equal to one third of the cost of activities and services carried out under the grants.
States must submit an application for each fiscal year for which they want to receive a grant.
A state agency with jurisdiction over higher education or another agency designated by the Governor or Chief Executive of the state will administer the grant program and submit an application to the Secretary. Application should include a description of the state's plan for using the grant, particularly how the state will make special efforts to provide benefits to students in the state who are from underrepresented groups.
States receiving grants shall use the funds for (1) financial literacy, education and counseling to enrolled students; (2) programs to assist students with reducing the amount of loan debt; (3) making LEAP grants; and (4) making SLEAP grants.
Funds cannot be used to promote any lender's services.
Activities must supplement and not supplant state and private resources that would otherwise be expended.
A state receiving a grant may elect to make a sub-grant to one or more nonprofit organizations, including guaranty agencies in place on the date of enactment, or a partnership of such organizations, provided the sub grantee was providing services related to promotion of persistence on the date of enactment.
In awarding grants, the Secretary shall give priority to states that partner with philanthropic organizations and guaranty agencies in existence on the date of enactment.

Historically Black Colleges and Universities and Community Colleges

Provide an additional $2.55 billion in Historically Black Colleges and Universities and Minority-Serving Institutions to provide students with the support they need to stay in school and graduate.
Provide $12 billion to the states to encourage partnerships between community colleges, states, businesses, job training and adult education programs. The bill creates a new competitive grant program for community colleges to improve instruction, work with local employers, improve their student support services, and implement other innovative reforms that will lead to a college degree, certificate, or industry recognized credential to help fulfill local workforce needs.

Student Loan Reform

No new FFEL loans will be made after June 30, 2010.
Beginning July 1, 2010, a FFEL consolidation borrower who does not have a Direct Consolidation Loan may obtain a subsequent Direct Consolidation Loan.
A revised special allowance formula becomes effective for special allowance payments for the calendar quarter ending December 31, 2009. Under this change, the special allowance for all loans disbursed after enactment of the bill (and before July 1, 2010) shall be computed using one-month LIBOR instead of the three-month commercial paper (financial) rate, beginning with the special allowance payment for calendar quarter ending December 31, 2009.
Beginning with the special allowance payment for the calendar quarter ending December 31, 2009, lenders also have the option of being paid using this revised index on all loans disbursed on or after January 1, 2000 and before the date of enactment of the bill if lender waives all rights under the current formula. Such waiver would apply to future payments on all loans disbursed in this time period that are held by any lender identification number associated with the lender and applies to future payments on loans subsequently acquired by the lender.
Beginning January 1, 2010, the Secretary's participant yield under the ECASLA loan participation program shall be determined by using 1-month LIBOR in substitution for the index in the participation agreement.
Direct Loans for students and parents attending institutions located outside of the United States will be disbursed by a financial institution designated by the Secretary to serve as an agent of such institutions.
The Secretary shall, if practicable, award multiple contracts through competitive bidding to entities, including not-for-profit servicers, to service Direct Loans. The bidding process shall take into account price, servicing capacity, and capability, and may also take into account the capacity and capability to provide default aversion services.
In any contract awarded for servicing of loans, the Secretary shall provide a job incentive payment, in an amount determined by the Secretary, if the servicer agrees to give priority in hiring for positions created by the contract to those geographical locations at which the entity performed loan origination and servicing activities under the FFELP on the date of enactment. Also, in determining allocation of loans to be serviced by entities awarded contracts, the Secretary shall consider the retention of highly qualified employees as a positive factor.
Not-for-profit servicers are specifically listed as entities with which the Secretary may contract for services, along with guaranty agencies with which the Secretary has agreements under sections 428(b) and (c) on the date of enactment, provided such servicers and agencies meet qualifications determined by the Secretary. The legislation directs the Secretary, to the extent practicable, to give special consideration to State agencies and not-for-profit servicers with a history of high quality performance and demonstrated integrity. Guaranty agencies and not-for-profit servicers can enter into consortium agreement for such agreements with the Secretary.
In each State where one or more eligible not-for-profit servicer has its principal place of business, the Secretary shall contract with each such servicer to service loans originated under this part on behalf of borrowers attending institutions located within such State, provided that the servicer demonstrates that it meets the standards for servicing Federal assets and agrees to service the loans at a competitive market rate, as determined by the Secretary. In determining such a competitive market rate, the Secretary may take into account the volume of loans serviced by the servicer. Contracts awarded under this paragraph shall be subject to the same requirements for quality, performance and accountability as contacts awarded to other entities for similar activities.
In each State, the Secretary shall allocate to such not-for-profit servicers, on an annual basis, a minimum of the lesser of the loans for 100,000 borrowers or the loans of all borrowers who attended institutions located in the State involved. If there is more than one eligible not-for-profit servicer in a State, each gets an equal share of the servicing to the extent there are not enough borrower accounts to give each 100,000 accounts.
The Secretary may allocate additional servicing rights to not-for-profit servicers based on performance, including performance in customer service and default aversion.
Notwithstanding these allocation rules, the Secretary may transfer loans among servicers to ensure that the loans of a single borrower remain with a single servicer.
Not later than three years after enactment, the Secretary shall prepare a report evaluating the performance of not-for-profit servicers.
An eligible not-for-profit servicer is a not-for-profit holder defined in section 439(p) of the HEA (this is used for the purpose of determining eligibility for the higher special allowance), or an affiliated not-for-profit entity.
The interest rate on Stafford loans made on or after July 1, 2012 is a variable annual rate equal to the 91-day Treasury bill rate determined at the last T-Bill auction in May plus 2.5 percent, capped at 6.8 percent.

Perkins Loan Program

Section 455A added to Part D to create a new program called Federal Direct Perkins Loans.
Unless otherwise specified, terms and conditions of Federal Direct Unsubsidized Stafford Loans apply to the new Federal Direct Perkins Loans.
Eligible borrowers include graduate and professional students attending eligible institutions.
Annual and aggregate loans limits are unchanged and aggregate limits include loans made under the current Perkins Loan Program.
A new section 462A is added, entitled Federal Direct Perkins Allocations, to allocate funds going forward. This section: Authorizes loan authority not to exceed $6 billion annually, from funds made available under part D, for Federal Direct Perkins Loans.
Directs the Secretary to allocate not more than 50 per cent of funds to the adjusted self-help need amount of the institution; 25 per cent to the low tuition incentive amount of the institution; and, 25 per cent of the amount based on the calculation of the Federal Pell Grant and degree recipient amount of the institution. No amounts are made available to "non-participating institutions".
Defines average cost of attendance to include tuition and fees, standard living expenses and books and supplies, all of which are defined in this new section.
Section 463 is amended to modify the allocation of recoveries of defaulted loans that have been assigned to the Secretary and allocation of payments on non-defaulted accounts voluntarily assigned to the Secretary.
Section 463 is amended to set a new administrative expense of 0.50 percent of the outstanding principal and interest balance of Perkins Loans made prior to July 1, 2010, that are being serviced by an institution as of September 30 of each fiscal year.
The authority of institutions to compromise on the repayment of defaulted loans is repealed in its entirety.
Section 465 is amended to modify how an institution is reimbursed for cancellations based on public service.
Section 466, Distribution of Assets from Student Loan Funds, is rewritten to establish the amount the Secretary is paid in quarterly capital distributions. A provision is included to accommodate institutions that have made short-term, interest free loans to the institution's student loan fund prior to enactment of the Student Aid and Fiscal Responsibility Act.