Senate Panel Submits Reconciliation Recommendations, Links Reauthorization

The U.S. Senate Committee on Health, Education, Labor and Pensions has approved recommendations for meeting required spending reductions in federal entitlement programs. The committee proposed that $7 billion in spending reductions in the federal student-loan program be targeted to deficit reduction.

The savings come largely from cuts to and additional fees from private lenders in the Federal Family Education Loan Program, including:

• An increase in origination fees that lenders must pay on consolidation loans.
• Capture by the federal government of interest in excess of special allowance.
• Permanently eliminating special-allowance rates of 9.5 percent on certain loans financed by tax-exempt securities.
• Reduction in lender insurance in the event of default to 97 percent from the current 98 percent.

The 2006 budget resolution adopted by the Senate calls for reductions of nearly $35 billion in mandatory spending over the next five year through a process known as reconciliation. The HELP committee’s proposals produce additional savings that will be targeted to Hurricane Katrina relief and to enhance the following two proposed new federal grant programs:

• Provisional Grant Assistance Program, or ProGAP, would provide grants, in amounts determined by the U.S. 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.

Along with the reconciliation recommendations, the committee incorporated provisions for the reauthorization of the Higher Education Act that the panel approved in September. Linking the reauthorization proposal to the reconciliation process may speed consideration of reauthorization in the Senate.

Also incorporated are measures to assist students affected by Hurricane Katrina. Among the provisions is forgiveness of loan amounts disbursed to residents of the Hurricane Katrina disaster area to attend postsecondary institutions in the disaster area for the current academic year.