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TG's Legislative Report

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September 18, 2009

Congressional Update

The most significant changes to the federal student loan, Pell Grant, and higher education assistance programs since, possibly 1965, continued to proceed through the legislative process with the House of Representatives' passage of HR 3221 — the Student Aid and Fiscal Responsibility Act of 2009 on September 17th by a vote of 253 - 171.

While the measure proposes a record increase to the Pell Grant program and, for the first time, provides for automatic annual increases, it proposes nothing, and the House rejected amendments, to curb college costs, which rise much faster than Pell Grants do.

Barring unforeseen events or delays, HR 3221 will be referred to the Senate Health, Education, Labor, and Pensions (HELP) Committee next week. This Committee will probably report a bill to the full Senate that is similar to the House bill by the end of the month. 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 50 votes (plus the Vice President's vote to break a tie) to pass legislation. If this option is used it must be triggered by October 15th.

It is 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 modify the program in any number of ways.

In addition to HR 3221, the Congress will have the following issues to consider during the final two months of this initial Session of the 111th Congress:

  • 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.

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Student Aid and Fiscal Responsibility Act of 2009 (H.R. 3221), Major Provisions — As Passed by the House of Representatives

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, 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.

For subsequent years, part-time students will be eligible to receive year-round Pell Grants.

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 1 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 would be required to describe and demonstrate their attempts to address any disparity by geographic area (urban and rural) of available high-quality early learning programs for low-income children and the steps the State will take to decrease such disparity, if applicable.

States receiving grants shall use the funds for:

  • financial literacy, education and counseling to enrolled students;
  • programs to assist students with reducing the amount of loan debt;
  • making LEAP grants;
  • making SLEAP grants, and
  • increase postsecondary education enrollment and completion among dislocated workers.

Requires the campus Veterans Resource Officer to act as a link between student veterans and mental health care providers at the Department of Veterans Affairs in order to help improve college completion rates for veterans. Gives priority for State Innovation Completion grants to entities that promote activities to increase degree or certificate completion for students who are veterans. Also, the bill allows servicemen and women to transfer academic credits earned while in the armed services between institutions of higher education.

Makes minor language adjustments to strengthen and make more specific the financial literacy provisions of the State Innovation Completion Grants, Innovation in College Access and Completion National Activities, and contracting requirements related to private student loan servicers.

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, nonprofit student loan servicers, 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
Provides 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.

Through the new American Graduation Initiative, provides $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.

Directs the Secretary of Education to prioritize community colleges located in areas with high unemployment rates when awarding grants for community college reform.

Student Loan Reform
No new FFEL loans will be made after June 30, 2010.

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. Exceptions to this are in cases in which the holder is legally prohibited from making a switch and in which the value of the obligation would be downgraded.

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 one-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 and guaranty agencies, 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.

Clarifies that borrower services, including delinquency prevention, default aversion, default collections, financial aid counseling, career and education counseling, financial literacy, guidance counselor and financial aid officer training services, and outreach services are allowed uses of grant funds. The bill also explicitly authorizes the Department of Education to contract directly with guaranty agencies for funded 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 (guaranty 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 shall set such rate so that the rate is commercially reasonable in relation to the volume of loans being serviced and the servicers can reasonably provide additional support services. Contracts awarded under this paragraph shall be subject to the same requirements for quality, performance and accountability as contracts 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 five 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.

Requires the Secretary of Education to conduct outreach activities to educate students and their families about the transition to Federal Direct Lending.

$50 million in entitlement funding is made available in FY 2010 to assist schools in transitioning to the FDLP. Discretionary spending for the same purpose is authorized for 2011-2014.

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 ½ of funds to the adjusted self-help need amount of the institution; ¼ to the low tuition incentive amount of the institution; and, ¼ 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.

The bill requires that all savings in the bill not otherwise allocated be applied to deficit reduction.

The bill prohibits that none of the new spending authorized by HR 3221 be subject to congressional earmarks.

The bill prohibits federal funds from going to certain indicated organizations.

The closing months of this Session of the congress promises to be very active and contentious with the majority party and Administration needing a "win" prior to adjournment on those issues the party successfully campaigned on, whether it be student loan reform and increased mandatory funding for the need-based Pell Grant program, health insurance reform, financial services regulatory reform, or movement toward increasing environmental protection.

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State Update

Earlier this month, Governor Rick Perry issued an executive order directing the Texas Higher Education Coordinating Board (THECB) to work with Texas institutions of higher education to undertake a comprehensive review of system-wide opportunities for achieving cost efficiencies.

The order includes a charge to review of state funding based on student course completion, restructuring the state's financial aid programs, consolidation or elimination of low-producing academic programs, faculty workload, transfer agreements between two and four year institutions, cost of instructional materials, and alternatives to creating new campuses through practices such as distance learning.

The executive order also directs the THECB to review higher education cost-saving measures implemented in other states and countries. The THECB report and cost cutting recommendations will be submitted to the governor, Legislature and public institutions of higher education by Nov. 1, 2010.

BY THE GOVERNOR OF THE STATE OF TEXAS

Executive Department

Austin, Texas September 9, 2009

Relating to a comprehensive review of higher education cost efficiencies.

WHEREAS, students, parents and taxpayers must be assured of the greatest value for the investment they make in higher education; and

WHEREAS, Texas has made great progress in expanding higher education opportunities to more young Texans; and

WHEREAS, Texas' higher education funding system must continue to improve to keep pace with changes in the global economy and the modern marketplace; and

WHEREAS, the State of Texas is entrusted by the taxpayers to ensure that public institutions of higher education are operating efficiently; and

WHEREAS, while Texas public institutions of higher education are giving attention to containing costs, the state would benefit from a systematic and comprehensive effort to save taxpayer dollars while sustaining and improving quality; and

WHEREAS, the state budget for higher education has increased by $9.3 billion in the past decade, and institutions of higher education currently consume 12.4 percent of the state's budget;

NOW THEREFORE, I, RICK PERRY, Governor of the State of Texas, by virtue of the power and authority vested in me by the Constitution and the laws of the State of Texas, do hereby order the following:

The Texas Higher Education Coordinating Board, in cooperation with Texas public institutions of higher education, shall undertake a broad and comprehensive review of system-wide opportunities for achieving cost efficiencies, including, but not limited to:

  • state funding based on student course completion;
  • restructuring the state's financial aid programs to improve administrative efficiencies and to provide financial aid to students who work hard to academically prepare for college;
  • academic program consolidation and elimination of programs that produce relatively few graduates;
  • faculty workload;
  • articulation agreements between two-year and four-year institutions
  • distance learning;
  • alternatives to creating new campuses;
  • course redesign to improve quality and reduce instructional costs for more courses;
  • cooperative, cross-system contracting and purchasing
  • space utilization;
  • energy use; and
  • cost of instructional materials.

In addition, the Texas Higher Education Coordinating Board shall conduct a review of higher education cost efficiencies implemented in other states and other countries. Based on the findings of this review, the Texas Higher Education Coordinating Board shall develop practices, policies and recommendations for cost-containment among public institutions of higher education in Texas and submit these practices and policies to the governor, the legislature and public institutions of higher education by November 1, 2010.

This executive order supersedes all previous orders in conflict or inconsistent with its terms and shall remain in effect and in full force until modified, amended, rescinded, or superseded by me or by a succeeding Governor.

Given under my hand this the 9th day of September, 2009.

RICK PERRY (Signature)

Governor

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