President Bush signed H.R. 5715 into law on May 7 (Public Law: 110-227). The law seeks to stave off potential student loan access problems created by recent disruptions in the credit markets. It also creates significant changes to the ACG and SMART Grant programs and increases annual and aggregate Stafford Loan Limits.

Text of H.R. 5715 is available online.

Increase Annual and Aggregate Stafford Loan Limits (Updated 05/08/08)

The amendments made by this section shall be effective for loans first disbursed on or after July 1, 2008. For students enrolled as regular students in eligible programs:

• The bill introduces an additional unsubsidized Stafford annual limit of $2,000 for undergraduate dependent students.

• The bill increases the additional unsubsidized Stafford annual limits by $2,000 for dependent students whose parents are unable to borrow a PLUS loan. (Previously 1st and 2nd year students would qualify for an additional $4,000, but now will qualify for $6,000. For students who have successfully completed their first two years, the limits will increase from $5,000 to $7,000.)

• The bill increases the additional unsubsidized Stafford annual limits by $2,000 for independent undergraduate students. (Previously 1st and 2nd year students would qualify for an additional $4,000, but now will qualify for $6,000. For students who have successfully completed their first two years, the limits will increase from $5,000 to $7,000.)

• The amendatory language has designated a separate category for graduate and professional students; these students will not see any annual limit increases. Their additional unsubsidized Stafford annual limit remains $12,000. (Previously the Senate sought to increase annual limits for graduate students, but that provision did not make it into the final bill).

• The bill increases aggregate unsubsidized loan amounts for undergraduate dependent students from $23,000 to $31,000 (minus subsidized borrowing)

• The bill increases aggregate unsubsidized loan amounts for undergraduate independent students from $46,000 to $57,500 (minus subsidized borrowing)

There has been some confusion about dependent students and dependent student whose parents are unable to borrow a PLUS loan. The bill divides those students into separate categories and gives each of them a $2,000 additional unsubsidized Stafford annual loan limit increase. It does not offer a dependent student a $2,000 increase, and then another $2,000 increase if their parents are denied a PLUS loan.

Stafford Loan Limits for Students Enrolled in Preparatory Coursework and Teacher Certification (Updated 05/08/08)

Previously, the law distinguished between preparation for entry into an undergraduate program versus preparation for entry into a graduate program only in terms of the level of the program into which acceptance was sought. Previously the law also required that a student taking preparatory coursework for acceptance into a graduate program must already have a baccalaureate in order to qualify for a loan for the preparatory coursework, up to $7,000. A student who was not actually accepted into a graduate program would not have been considered to be on a graduate level - rather such a student was considered to be in preparation for entry into a graduate program and subject to the preparatory loan limits.

But, the amendatory language appears to define separate loan limit categories according to the student's status as an undergraduate versus a graduate student, rather than in terms of the level of the program into which acceptance is sought. For graduate or professional students enrolled in preparatory coursework or teacher certification, the additional unsubsidized Stafford annual limit is $7,000. It remains unclear, however, which students would meet the definition of graduate or professional student enrolled in preparatory coursework or teacher certification.

H.R. 5715 does not mention or address annual loan increases for dependent students enrolled in preparatory coursework or teacher certification. It is unclear how the Department will define the maximum annual loan limits for dependent students in that situation.

Undergraduate independent students (or dependent students whose parents are unable to borrow a PLUS loan) enrolled in preparatory coursework will receive an additional unsubsidized Stafford annual limit increase from $4,000 to $6,000.

It also remains unclear whether the Department will consider undergraduate independent students who are seeking entry into a graduate program as graduate or professional students, allowing them access to the additional $7,000.

Changes to ACG & SMART Grants

(Effective Jan. 1, 2009)

• Directs all savings generated by the bill into the ACG and SMART Grant programs

• Adds a fifth year to SMART Grant eligibility for programs that require five years

• Allows students attending at least half time to qualify for ACG and SMART Grants and requires proration based on Pell Grant methodology for less than full-time attendance

• Allows eligible non-citizens (e.g. permanent residents) to qualify for ACG and SMART Grants

• Changes "academic year" to simply "year" for purposes of progression through grant levels, but did not include companion amendment recommended by NASFAA that would have allowed students who are classified as second year based solely on AP or IB coursework to be considered to have met the second year 3.0 GPA requirement

• Allows students who are enrolled in an institution that offers a single baccalaureate-level liberal arts curriculum that permits no subject area major, but who are taking coursework in an area equivalent to a SMART-eligible major at other bachelor degree-granting institutions, to qualify for SMART Grant eligibility

• Extends first-year ACG eligibility to students enrolled in at least a one-year certificate program and extends second-year ACG to students enrolled in at least a two-year certificate program. In both cases the certificate must be offered by a degree-granting institution

• Appears to remove some of the Secretary's authority to define "rigorous secondary school program of study," permitting only states to designate such programs. This amendment may further restrict what is currently considered a rigorous program

Grace Period and Deferment For Parent PLUS Borrowers

Beginning July 1, 2008, the bill would allow parents to choose to defer payments on a PLUS loan until six months after the date the student ceases to be enrolled at least half time. Accruing interest could either be paid by the parent borrower monthly or quarterly, or be capitalized quarterly.

Special Provision for Parents Delinquent on Mortgage Payments

The bill would allow lenders to consider parents eligible for PLUS loans even if, during the period January 1, 2007, through December 31, 2009, the parents are or were:

• No more than 180 days delinquent on a mortgage payment on their primary residence

• No more than 180 days delinquent on any medical bill payments

• No more than 89 days delinquency on the repayment of "any other debt"

LLR Provisions

The bill permits the Department of Education to designate an entire institution as eligible for lender of last resort (LLR) loans; the guaranty agency for the school's state would be required to make loans to all of a designated institution's otherwise eligible students and parents under the LLR program regardless of an individual borrower's ability to obtain loans otherwise. This would be effective on the date the bill becomes law. The bill also specifies that the Secretary of Education shall determine whether institutions qualify to participate in lender of last resort (LLR). Institutions must meet a "minimum threshold" of students who are unable to obtain a conventional FFELP loan - determined by the Secretary - before qualifying for institution-wide LLR participation.

The bill would also prohibit lenders from offering any borrower benefits while operating under LLR. It also includes a termination date of June 30, 2009, for institutional-wide certification. On that date, schools would lose their LLR eligibility and students would once again need to qualify on a student-by-student basis for LLR loans.

Additionally the bill requires the Secretary of Education to do the following while operating under LLR provisions.

• Disseminate information regarding availability of LLR loans

• Provide Congress and the public with copies of new or revised agreements made between the Department and guarantors

• Provide Congress and the public with quarterly reports on the number and amounts of loans originated or approved under LLR

• Provide budget estimates of the costs of loans made under LLR compared to loans made in the Direct Loan program

• Provide an annual report of all amounts and numbers of loans issued on LLR beginning on July 1, 2010

Department as a Secondary Market

The bill temporarily authorizes the Department to purchase FFEL loans originated on or after October 1, 2003, provided those purchases do not result in any cost to the federal government. The Department's authority to purchase loans under this provision expires on July 1, 2009.

The bill would stipulate that if the Department acts as a secondary market lender, it must ensure that any proceeds paid to a lender are used in a "manner consistent with ensuring continued participation of such lender in the Federal student loan programs." In other words, it would prohibit lenders from using those proceeds in any other way than ensuring they continue participating in FFELP.

It also specifies that forward purchasing agreements from the Department should be used "to ensure continued participation" in the FFEL Program. The bill allows lenders to continue servicing loans purchased by the Secretary as long as the cost does not exceed the cost the Department would otherwise incur for servicing those loans.

The price the Department pays is established by the Secretary of Education in consultation with the Secretary of Treasury based on what is in the best interest of the U.S. without cost to the federal government. The bill requires the Secretaries of Education and Treasury, as well as the Director of OMB, to post a notice in the Federal Register that establishes the terms and conditions governing loans purchased by the Department, including the methodologies used to determine purchase prices.

The bill also authorizes funding through the Direct Loan program general funding authority to carry out the secondary market provisions of the bill.

Prohibited Inducements

The bill bars guaranty agencies from using prohibited inducements to expand their loan volume while using lender of last resort. The prohibition would not permit a guaranty agency to advertise, market, or promote loans under LLR.

Suspension of Master Calendar and Negreg

The Department will be allowed to implement all the provisions of the bill with the exception of the changes made to the ACG and SMART Grant programs without conforming to the master calendar deadline dates and without negotiated rulemaking. Thus, the Department will be able to move quickly to prevent student loan disruptions, although it also means that the loan amendments can be implemented without input from the community. The ACG/SMART Grant program regulations will be subject to negotiated rulemaking.

Impact Study on College Costs

Requires the General Accountability Office (GAO) to conduct a study of the impact of raising loan limits on (1) tuition, fees, and room and board at institutions of higher education; and (2) private loan borrowing for attendance at institutions of higher education. The report would be due to the House and Senate education committees within one year after the bill becomes law.

Federal Coordination

The bill urges the Federal Financing Bank, the Federal Reserve, and other federal-chartered private entities such as the Federal Home Loan Banks to work with the Departments of Treasury and Education to ensure that students and families have access to federal student loans in the 2008-2009 academic year.

By Justin Draeger
NASFAA Assistant Director of Communications

Posted 05/15/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.