Senate Panel Approves Bipartisan Bill to Reauthorize the Higher Education Act

The U.S. Senate Committee on Health, Education, Labor, and Pensions unanimously approved legislation to reauthorize the Higher Education Act and meet required budget-savings targets. One of the most-significant differences between the Senate bill and reauthorization legislation that cleared a U.S. House committee earlier this summer is that the Senate version has bipartisan support. HELP Committee Chairman Michael Enzi, R-Wyo., and the panel’s ranking Democrat, Sen. Edward Kennedy, D-Mass., jointly introduced the legislation.

Key student-aid provisions in the Senate bill include the following items:

Federal Family Education Loan Program

• Interest rates. The Senate bill preserves a scheduled July 1, 2006, change to fixed interest rates on Stafford and PLUS loans. The Stafford-loan rate would be set at 6.8 percent, while the PLUS rate would be increased to 8.5 percent from the 7.9 rate originally scheduled to take effect next July. The House version proposes maintaining the current variable interest-rate formula on Stafford and PLUS loans.
• Consolidation loans. The Senate bill maintains the current fixed interest rates on consolidation loans. In contrast, the House version would offer borrowers a choice of either fixed or variable interest rates on consolidation loans. Like the House bill, the Senate version proposes elimination of a provision requiring borrowers whose loans are held by a single holder to request loan consolidation from that entity. The Senate version also requires disclosure to borrowers consolidating Perkins loans of the potential loss of interest-subsidy and loan-forgiveness benefits.
• Loan fees. Unlike the House bill, the Senate measure makes no change in the origination fee of up to 3 percent that may be assessed borrowers of FFELP loans. The House proposes a phaseout of the origination fee by July 2010. The Senate bill would require collection of “a guaranty agency origination fee” of 1 percent of each disbursement to be deposited in the guarantor’s Federal Fund. The House version mandates collection of a 1-percent “federal default fee.”
• Loan limits. Similar to the House bill, the Senate version proposes increases in annual Stafford-loan limits to $3,500 for first-year students and to $4,500 for second-year students and increases the annual unsubsidized loan limit for graduate and professional students to $12,000.
• PLUS loans. The measure would permit graduate and professional students to borrow PLUS loans.
• Lender impacts. The Senate bill includes several provisions that would reduce lender earnings and increase lender costs on student loans. The measure would increase to 1 percent from the current 0.5 percent the origination fee lenders must pay on consolidation loans. The measure also provides for capture by the federal government of interest in excess of special allowance and makes permanent the elimination of special allowance rates of 9.5 percent on certain loans financed by tax-exempt securities, although the current “recycling” provisions are retained. The Senate bill would reduce lender insurance in the event of default to 97 percent from the current rate of 98 percent. The House bill proposes reducing lender insurance to 96 percent.
• School as lender. The Senate bill places a moratorium on new schools serving as FFELP lenders effective as of the end of last month. It also prohibits schools from selling loans prior to borrowers’ entering their grace periods and requires the proceeds of loan sales to be allocated to need-based aid.
• Exceptional performers. The Senate bill repeals provisions that permit designation of lenders, servicers and guarantors as “exceptional performers” and provides those designated lenders higher rates of loan insurance.
• Deferment provisions. The Senate bill provides for deferment of loan payments for up to three years for active-duty members of the Armed Services and the National Guard during a war, other military operation or national emergency. A similar deferment option is proposed for Perkins-loan borrowers.
• Loan defaults. Similar to the House bill, the Senate measure would permit defaulted borrowers to rehabilitate their loans by making only nine on-time voluntary payments during a 10-month period rather than the current 12 consecutive monthly payments.
• Loan forgiveness. Like the House version, the Senate bill makes permanent provisions in the Taxpayer-Teacher Protection Act of 2004 that offer loan forgiveness of as much as $17,500 to certain teachers.
• Multiple and delayed disbursement. The Senate bill waives for low-default-rate schools requirements for multiple loan disbursements and delayed disbursement for first-year students.

Grants

The bill raises the maximum authorized Pell Grant to $6,300 for the 2010-2011 academic year. The actual maximum is subject to annual appropriations and is significantly less than this figure.

Using projected savings from the student-loan provisions of the bill, the measure proposes two new student-aid grant programs:

• Provisional Grant Assistant Program, or ProGAP, would provide grants in amounts determined by the Secretary of Education targeted to the neediest students to meet their costs of attendance.
• The National Science and Mathematics Access to Retain Talent Grant or National SMART Grant Program would provide grants of up to $1,500 to Pell-Grant recipients who are in their third or fourth years of postsecondary study and majoring in math, science, technology, engineering, or a foreign language deemed critical to the national security of the United States.

Need Analysis

The measure extends the automatic-zero Expected Family Contribution to students from households with adjusted gross incomes of $20,000 or less and increases the income-protection allowance to $3,000.

College Costs

The Senate legislation requires reporting by the Secretary of Education about college costs, as well as the establishment of a college-cost index. Unlike the House version, however, the Senate measure provides for no sanctions or additional oversight of postsecondary institutions whose cost increases exceed that index.

Both reauthorization bills face additional action before their respective chambers. A joint House-Senate conference committee then would have to square differences between the two versions before final congressional action.