Senate Approves Higher Education Access Act

The U.S. Senate has approved a budget-reconciliation bill that would transfer billions of dollars in funding for student-loan providers to support enhanced benefits to student-loan borrowers and increase Pell-Grant funding. On a 78-18 vote, the Senate approved the Higher Education Access Act, which saves a net $15.6 billion from the student-loan program through the following cuts to private lenders and student-loan guarantors:

• Reduction in lender special allowance of 0.5 percent for for-profit lenders and 0.35 percent for nonprofit lenders.
• Increase in lender-paid origination fees to 1 percent from the current 0.5 percent.
• Elimination of the exceptional-performer status, which entitles lenders to a 99-percent insurance rate.
• Reduction in the percentage guarantors may retain on direct collections of defaulted loans to 16 percent from 23 percent.
• Change in the payment of the account-maintenance fee from a percentage of the outstanding principal balance to a per-loan fee.
• Provisions for an auction of rights to make parent PLUS loans beginning in 2009.

The Senate rejected on a vote of 35-62 an amendment that would have moderated the special-allowance reduction to for-profit lenders to the same level as proposed for nonprofit lenders.

The approved measure would provide the following benefits to borrowers:

• Extend the maximum period for economic-hardship deferment and revise eligibility for the deferment.
• Extend the maximum period for military deferment and provide an additional 180 days of deferment eligibility for members of the military following demobilization.
• Establish an income-based payment option that would limit monthly payments to 15 percent of discretionary income, with outstanding amounts forgiven after 25 years.
• Provide loan forgiveness for certain public-service jobs, but only on direct loans.

In addition, the legislation would provide a major increase in Pell-Grant funding and establish additional grant programs, as follows:

• Establish a new $30-billion entitlement program over the next 10 years to supplement Pell-Grant funding. The provision would have the effect of boosting the maximum Pell Grant to $5,400 by 2012.
• Change need-analysis provisions, including raising the income level for automatic-zero Expected Family Contribution, expanding the professional-judgment discretion of financial-aid administrators and the definition of independent students, and increasing the income-protection allowance.
• Establish a College Access Partnership Program to provide payments to states to support early awareness and college-access programs.
• Establish a Financial Literacy Program, which would provide grants to organizations to enhance the financial literacy of college students.
• Establish a Secondary School Graduation and College Enrollment Program, which would provide grants to consortia of nonprofit organizations, postsecondary institutions and local education agencies to promote high-school graduation and enrollment in college.

The legislation also would contribute a little less than $1 billion to federal deficit reduction during the next five years.

The measure next goes to a joint House-Senate conference committee, which will need to square differences between the Senate bill and a reconciliation bill that passed the House on July 11. The Bush administration has expressed opposition to both versions of the legislation.