Background and Summary
A college education is becoming more and more important to success in our economy. At a time when higher education is becoming crucial to economic success, it is becoming less and less affordable. The cost of college has more than tripled over the last twenty years. As a result, students are sinking deeper and deeper into student loan debt. And while students struggle to pay off their loans, the lenders who offer the loans are making huge sums of money. The federal government still pays large subsidies to lenders who participate in federal student loan program — a relic from the program’s inception forty years ago when incentives were needed to encourage lenders to take part in the program.
On June 20, 2007, the Committee on Health, Education, Labor, and Pensions (HELP Committee) approved S.1762, the Higher Education Access Act of 2007. The legislation would provide $17.3 billion in new financial aid to students, paid for through reforms to the student loan industry. Specifically, S.1762 would:
· Increase the maximum award to Pell Grant Recipients to $5100 in 2008, and to $5400 by 2011;
· Increase the income level at which a student is automatically eligible for the maximum Pell Grant, thereby simplifying the financial aid process for low-income students;
· Cap monthly student loan payments at 15 percent of discretionary income, allowing graduates to manage their payments more easily;
· Provide loan forgiveness for borrowers who spend ten years in a public service occupation, encouraging people to commit to public service;
· Increase the amount of student income that is excluded from the financial aid calculation process, reducing the existing penalty on students who work;
· Reduce excessive lender subsidies and redirecting federal aid to students; and
· Establish a pilot program to encourage market competition among loan programs, to prevent lenders from being overcompensated for the services they provide to students.
The Fiscal Year 2008 Budget Resolution includes a reconciliation instruction that applies to this bill, requiring $750 million in deficit reduction while enhancing student benefits.
TITLE I – GRANTS TO STUDENTS IN ATTENDANCE AT INSTITUTIONS OF HIGHER EDUCATION
Section 101: Tuition Sensitivity.
Section 101 would eliminate the Pell grant “tuition sensitivity” provision that can negatively affect award amounts for students attending low-cost institutions, such as community colleges. For Fiscal Year 2008, $5 million would be authorized to be appropriated and appropriated to carry out this section.
Section 102: Promise Grants.
Section 102 would create a new grant program for low-income Pell-eligible students to be established in addition to the Pell grant program. These “Promise” grants would be awarded in the same way Pell grants are awarded, except that they would only be awarded to students who are already eligible for Pell grants. Grants would be awarded to those students with the greatest need, as determined under the existing program. Grants awarded under this subsection would be used to supplement and not supplant other federal, state and institutional grant funds.
The following amountswould be authorized and appropriated to carry out the Promise grant program: $2,620,000,000 in Fiscal Year 2008; $3,040,000,000 for Fiscal Year 2009; $3,460,000,000 for Fiscal Year 2010; $3,900,000,000 for Fiscal Year 2011; $4,020,000,000 for Fiscal Year 2012, $10,000,000 for Fiscal Year 2013; and $3,200,000,000 for each of Fiscal Years 2014 through 2017.
TITLE II – STUDENT LOAN BENEFITS, TERMS AND CONDITIONS
Section 201: Deferments.
Section 201 would extend the amount of time under which a borrower can receive a deferment for economic hardship under certain circumstances from three to six years. This extension would apply to borrowers who take out their first loan prior to October 1, 2012.
Section 202: Student Loan Deferments for Certain Members of the Armed Forces.
Section 202 would eliminate the three-year limitation on the period for which certain members of the armed forces may receive deferments on the interest on their student loans. It would also extend this deferment period to cover 180 days after a member of the armed forces is demobilized. As in current law, members of the armed forces who qualify for this deferment would be limited to those who are serving on active duty or performing qualifying National Guard duty during a war or other military operation in a national emergency.
Section 203: Income-Based Repayment Plans.
Section 203 would establish that an income-based repayment plan, available for loans made under both Part B and Part D of Title IV of the Higher Education Act (except for parent PLUS loans), would limit a borrower’s monthly payments to 15 percent of the amount by which a borrower’s adjusted gross income exceeds 150 percent of the poverty line, divided by 12. This section provides that borrowers repaying loans according to income-contingent repayment or income-sensitive repayment plans prior to enactment of this Act would have the option of continuing to repay under the terms and conditions of those programs as they existed prior to enactment of this Act or may elect to use the income-based repayment plan created by this section.
Section 203 also would establish that the Secretary would be required to forgive outstanding loan balances for borrowers of loans made under both Part B and Part D of Title IV after 25 years, except that parent PLUS loans would not be eligible for such loan forgiveness. The changes made under this section would be available to borrowers who take out their first loan prior to October 1, 2012.
TITLE III – FEDERAL FAMILY EDUCATION LOAN PROGRAM
Section 301: Reduction of Lender Insurance Percentage.
Section 301 would maintain the level of insurance paid by the federal government on defaulted loans guaranteed under Title IV of the Higher Education Act, currently set at 97 percent of the unpaid principal of such loans.
Section 302: Guaranty Agency Collection Retention.
Section 302 would reduce the percentage which guaranty agencies are allowed to retain from payments made through collections on defaulted loans from 23 percent to 16 percent.
Section 303: Elimination of Exceptional Performer Status for Lenders.
Section 303 would eliminate provisions that allow lenders designated as “exceptional performers” to receive 99 percent insurance on defaulted loans. This change would be effective October 1, 2007, except that lenders designated as exceptional performers as of that date would be allowed to continue such designation for the remainder of the year for which the designation was made.
Section 304: Definitions.
Section 304 would change part of the definition of “economic hardship.” Currently a borrower can qualify for economic hardship if he is working full-time and making less than 100 percent of the poverty level for a family of two. This section provides that a borrower working full time would be eligible if he is making less than 150 percent of the poverty level for his family size. It would make no change to the other eligibility categories for economic hardship. This change would apply to borrowers who take out their first loan prior to October 1, 2012.
Section 304 would also establish a definition of “eligible not-for-profit holder”, as that term is used in Section 305. Eligible not-for-profit holder would be defined as an eligible lender that is a state, political subdivision thereof, or an authority, agency or other instrumentality thereof, or an entity with not-for-profit status under the tax code, or a trustee acting as an eligible lender on behalf of one of these entities. The section would establish that no eligible not-for-profit holder may be owned or controlled, in whole or in part, by a for-profit entity, and that if an eligible not-for-profit holder sells loans on which the Secretary is paying the higher special allowance payment designated for eligible not-for-profit holders to a for-profit entity or an entity that is not an eligible not-for-profit holder, such loans shall from that date instead receive the special allowance payment designated for other such lenders. The section would require that the Secretary promulgate regulations implementing this provision no later than one year after the date of enactment.
Section 305: Special Allowances.
Section 305 would reduce the special allowance payment rate for lenders, which is currently set for student loans at the Commercial Paper (CP) lending rate plus 1.74 percent while borrowers are in school or grace period and CP plus 2.34 percent while borrowers are in repayment. This current special allowance payment rate for PLUS loans is set at CP plus 2.64 percent, and for consolidation loans at CP plus 2.64 percent (less the 1.05 percent annual rebate fee). For loans held by for-profit lenders, rates would be changed to CP plus 1.24 percent for in-school loans, to CP plus 1.84 percent for student loans in repayment and for PLUS loans (except those affected by Section 801), and to CP plus 2.14 percent for consolidation loans (less the 1.05 percent annual rebate fee). For loans held by not-for-profit lenders, rates would be changed to CP plus 1.39 percent for in-school loans, to CP plus 1.99 percent for student loans in repayment and for PLUS loans (except those affected by Section 801 of this Act), and to CP plus 2.29 for consolidation loans (less the 1.05 percent annual rebate fee).
This section would also increase the fee the Secretary collects from lenders under Section 438(d) of title IV on each loan disbursed from 0.50 percent to 1 percent.
TITLE IV – WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
Section 401: Loan Forgiveness for Public Service Employees.
Section 401 would create a new loan forgiveness plan through the Direct Loan program for public service employees. The section provides that the Secretary would forgive the remaining loan balance on a loan under Part D of Title IV for a borrower who has been employed in a public sector job and making payments on such loan for a period of ten years (which need not be consecutive). Such borrowers would be eligible to have 1/10 of the remaining loan balance forgiven for each of the ten years in which the borrower earned less than or equal to $65,000. In this section, the term “public sector job” means a full-time job in emergency management, government, public safety, public law enforcement, public health, public education, public early childhood education, public child care, social work in a public service agency, public services for individuals with disabilities, public services for the elderly, public interest legal services (including prosecution or public defense), public library sciences, public school library sciences, other public school-based service providers, and teaching as a full-time faculty member at a Tribal College or University.
Section 402: Unit Cost Calculation for Guaranty Agency Account Maintenance Fees.
Section 402 would change the method by which account maintenance fees are calculated on loans from a calculation based on the total amount of loan principal to a per-loan basis.
TITLE V – FEDERAL PERKINS LOANS
Section 501: Distribution of Late Collections.
Section 501 would delay the date on which institutions must return to the Secretary late collections on Perkins loans to September 30, 2012.
TITLE VI – NEEDS ANALYSIS
Section 601: Support for Working Students.
Section 601 would increase the amount of the income protection allowance protected in the calculation of a students’ expected contribution in the following ways: 1) for dependent students, it would increase the amount of the income protection allowance to $3,750 for the 2009-2010 academic year; $4,500 for the 2010-2011 academic year; $5,250 for the 2011-2012 academic year; and $6,000 for the 2012-2013 academic year; and 2) for independent students without dependents other than a spouse, who are single, separated, or married with both spouses enrolled, it would increase the amount of the income protection allowance to $7,000 for the 2009-2010 academic year; $7,780 for the 2010-2011 academic year; $8,550 for the 2011-2012 academic year; and $9,330 for the 2012-2013 academic year.
For independent students without dependents other than a spouse, who are married and whose spouse is not enrolled, it would increase the amount of the income protection allowance to $11,220 for the 2009-2010 academic year; $12,460 for the 2010-2011 academic year; $13,710 for the 2011-2012 academic year; and $14,690 for the 2012-2013 academic year. For independent students with dependents other than a spouse, it would increase the amount of the income protection allowance as specified by the tables contained in this section, for a total increase of 50 percent over four years. Under this Section, for all students, the income protection allowance would revert to current law after the 2012-2013 academic year.
Section 602: Automatic Zero Improvements.
Section 602 would increase the family income level under which a student is automatically eligible for the maximum Pell grant from $20,000 to $30,000.
Section 603: Discretion of Student Financial Aid Administrators.
Section 603 would clarify and expand the conditions under which financial aid administrators may use discretion in calculating the expected student or family contribution to include an independent student’s loss of employment or a change in a student’s housing status that results in homelessness.
Section 604: Definitions.
Section 604 would expand the definition of “independent student” to include individuals in foster care or those who were in foster care until the age of 18; emancipated minors or individuals in legal guardianships as determined by an appropriate court in such an individual’s state of legal residence; and individuals who have been adequately verified as an unaccompanied youth who is a homeless child or youth, as defined in the McKinney-Vento Homeless Assistance Act. It would also clarify that financial aid administrators may make determinations regarding a student’s independent status based on a documented determination of independence by another financial aid administrator in the same year.
This section would clarify that a qualified education benefit would be considered the asset of the student, if the student is independent, or of the parent, if the student is dependent. This section would also establish that special combat pay would not be included in a student’s calculation of need for federal student financial assistance, and would not treated as financial assistance. Special combat pay is defined as pay received by a member of the Armed Forces because of exposure to a hazardous situation.
Section 605: Authorization and Appropriations.
There would be authorized to be appropriated and appropriated $10 million for Fiscal Year 2008 to pay for the estimated increased cost in the Pell program for award year 2007-2008 resulting from the amendments made by sections 603 and 604.
TITLE VII – GENERAL PROVISIONS RELATING TO STUDENT ASSISTANCE
Section 701: Student Eligibility.
Section 701 would eliminate the question on the FAFSA asking applicants whether they have been convicted of drug possession while receiving federal student assistance. The section would not eliminate the penalty rendering such students ineligible, but would prohibit this question from being asked on the FAFSA. There would be authorized to be appropriated and appropriated to carry out this section $5 million for Fiscal Year 2008 to pay the estimated increase in costs in the Pell Grant program for award year 2007-2008.
TITLE VIII – MISCELLANEOUS
Section 801: Competitive loan auction pilot program.
Section 801 would establish a new competitive loan auction pilot program. The Secretary would be directed to carry out a pilot program to establish a mechanism for the auction of all eligible PLUS loans. (EligiblePLUS loans are loans made to parents of dependent students.) The Secretary would administer one auction for each state, in which eligible lenders would compete to originate all eligible PLUS loans at institutions of higher education within the state. The Secretary would establish a prequalification process for lenders who wish to participate in an auction, which would set forth the borrower benefits and servicing requirements each eligible lender would be required to meet in order to participate in an auction.
Section 801 auctions would take place in each state every two years; and each auction would have two winning eligible lenders. These two winners in each state would be the only lenders eligible to originate federal parent PLUS loans at all institutions in such state for those two years; such winners would be legally obligated to originate loans to the parent of any eligible student attending an institution of higher education in the state that wishes to take out a Federal PLUS loan. The winners would have the right to continue to make loans to the two cohorts of new borrowers during the auction period and for each such cohort until the students on behalf of whom loans are made graduate from or leave an institution in the state. The Secretary would guarantee all loans made through this pilot program against losses resulting from default in an amount equal to 99 percent of the unpaid principal and interest due on the loan.
This section would also establish a College Access Partnership grant program, to make payments to states to assist them in carrying out specified activities relating to increasing college access for low-income students in the state. The federal share of the matching grant would be 2/3 and the state share would 1/3. Activities would be permitted to be carried out under this grant by state agencies or not-for-profit organizations that the state designates, including not-for-profit lenders, and must be made available to all qualifying students in the state, with a priority given to students and families living below the poverty line. This section authorizes and appropriates $25 million for each of Fiscal Years 2008 and 2009 for the purposes of carrying out this section.
S.1762, the Higher Education Access Act, was reported out of the HELP Committee on June 20, 2007, by a vote of 17-3. At the same time it approved S.1762, the HELP Committee also reported out the Higher Education Amendments of 2007, legislation which would reauthorize all of the programs and funding in the Higher Education Act of 1965 and make improvements to them. It is possible that the Senate will consider the Higher Education Amendments following disposition of the Higher Education Access Act, but as of the time of publication, the timing for consideration of this bill is not definite. For procedural reasons, the Senate is considering the House Bill, H.R.2669, but the text of S.1762 will substitute for the content of the House bill.
As mentioned above, the Fiscal Year 2008 Budget Resolution includes a reconciliation instruction for higher education that requires $750 million in deficit reduction while enhancing student benefits. Reconciliation is a privileged floor procedure in the Senate because there are time limits on debate (20 hours) and amendments must be germane. Amendments cannot reduce outlays by less than the amount instructed, or cause increased revenues. Amendments must also meet strict PAYGO and Byrd Rule tests.
The DPC will publish information on amendments when it becomes available.
As of the time of publication, the Bush Administration has not issued a formal Statement of Administration Policy regarding this bill.