Reauthorization Bill Tackles College-Cost Increases, Lender-School Relations

Legislation sponsored by U.S. House Democrats to reauthorize the Higher Education Act includes provisions that seek to restrain college-cost increases and put in place new guidelines governing relations between education lenders and postsecondary institutions. The House Committee on Education and Labor is scheduled to act Wednesday on the College Opportunity and Affordability Act of 2007.

The bill takes a carrot-and-stick approach to curbing college-cost increases. It calls on the U.S. Department of Education to post online information about college-cost trends for individual colleges, universities and private career colleges. Postsecondary institutions whose tuition and fee increases exceed an average higher-education-cost index would be placed on a price-increase “watch list.”

Schools on the watch list would be required to establish quality-efficiency task forces to review operations and analyze costs. Those schools also would be required to submit reports to the Education Department on their cost-control efforts.

On the other hand, postsecondary institutions that restrain their tuition and fee increases below the higher-education-cost index would qualify for competitive grants for additional funding to Pell-Grant-eligible students. Institutions that guarantee future tuition at levels at or less than the average cost increase would be eligible for bonus funding for those students.

The legislation also seeks to force states to maintain funding levels for higher education. States that fail to maintain postsecondary-education appropriations at the average level for the five previous academic years could be penalized by the withholding of special federal Leveraging Education Assistance Partnership funds.

The reauthorization bill also incorporates provisions of the Student Loan Sunshine Act, placing new restrictions on relations between education lenders and postsecondary institutions. Among the requirements:

• Lenders would be required to advise students of their options for federal education loans before offering private loans to the students.
• Co-branding of loan products with school identifiers, revenue-sharing agreements and opportunity pools would be outlawed.
• Lenders and schools would be required to report basic federal- and private-loan terms on a form prescribed by the Education Department.
• Schools that maintain preferred-lender lists would be required to include at least three unaffiliated lenders of federal student loans and at least two unaffiliated lenders of private student loans. The legislation specifies no minimum number of guarantors.
• Schools would be required to enact codes of conduct in relation to education loans and provide staff with annual training on the code of conduct.
• Campus staff would be prohibited from soliciting or accepting any gifts of more than nominal value, including travel reimbursement, from education lenders, guarantors or loan-servicers. The measure would permit loan-service providers to offer food, refreshments or information provided as part of training for campus staff. Borrower benefits or other favorable loan terms to students would be allowed. Loan providers could participate in borrower exit counseling, as long as the counseling session is controlled by school staff and doesn’t promote lender products or services. The legislation also would permit philanthropic contributions to institutions unrelated to loans, as long as the contributions are disclosed.
• Paid consulting arrangements between loan providers and financial-aid staff would be prohibited.
• Lenders would be prohibited from staffing school call centers or the financial-aid offices, except for providing professional-development training to financial-aid administrators and delivering counseling, debt-management and financial-literacy materials. 
• Financial-aid staff would be prohibited from serving on lender advisory councils, although the advice of campus customers could be sought by lenders through other means.

The 747-page bill contains a host of other provisions affecting federal student-aid programs, including the following:

Federal Family Education Loan Program. The measure provides loan forgiveness of up to $10,000 for service in areas of national need, including certain early childhood educators; nurses; foreign-language specialists; librarians; highly qualified teachers serving students with limited English skills in low-income areas; child-welfare workers; speech-language pathologists; school counselors; certain public-service workers, including police, firefighters, emergency medical services personnel, prosecutors and public defenders; dieticians serving federal nutrition programs for low-income families; certain specialists serving in graduate medical training or fellowship programs; and mental-health professionals. The measure would require sharing of loan data requested by schools or third-party servicers for the purposes of default-prevention work. Consolidation-loan disclosures would have to include the loss of interest-subsidy and loan-cancellation benefits by consolidating Perkins loans.

Pell Grants. Year-round Pell Grants would be authorized beginning July 2009.

Perkins Loans. Annual loan limits would increase to $5,500 from $4,000 for undergraduates and to $8,000 from $6,000 for graduate and professional students. Aggregate loan limits also would increase.

Need Analysis. The reauthorization bill would provide a demonstration project to permit dependent students to get an estimate of financial-aid awards during their junior year in high school. It also would permit families to estimate their Expected Family Contribution in years prior to enrollment in college and would provide a streamlined EZ-FAFSA form.

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