Beginning July 1, 2008, the TEACH Grant program will provide up to $4,000 a year in grant aid to undergraduate and graduate students and students enrolled in a post-baccalaureate teacher credential program, or current or prospective teachers. Eligible undergraduate and post-baccalaureate students may not receive more than $16,000 and graduate students may receive no more than $8,000 in total TEACH Grants.

Students enrolled less than full-time will have their TEACH Grant reduced according to a schedule established by the Department in regulations. The amount of TEACH Grant awarded when combined with other student aid may not exceed a student's cost of attendance (COA).

In exchange for TEACH Grant aid, students must agree to serve as a full-time teacher at specified schools and teach in a specified field for four academic years within eight years after completing the college course. TEACH Grant recipients that do not fulfill their teaching obligations must repay the grant as if it was an unsubsidized Direct Loan.

Student Eligibility Requirements:

• Undergraduate students must have a 3.25 GPA (high school GPA for first year undergrads) OR score in the 75th percentile on at least one admissions test.

• GPA requirements do not apply graduate students who are currently teachers or who are retiring and have expertise in a subject where there is shortage of teachers (math, science, special ed, English as a second language, or another high-need subject).

• Graduate students completing a high-quality alternative teacher certification program, like Teach for America, are also eligible for the program.

• Students must be completing (or planning to complete) the coursework required to become a teacher.

• To receive a TEACH Grant students must also agree to:

  • Serve as a full-time teacher for at least four years within eight years of completing their course of study
  • Comply with the requirements for being a highly qualified teacher (defined in section 9101 of the Elementary and Secondary Education Act)
  • Teach math, science, a foreign language, bilingual education, special ed, a reading specialist, or a subject designated as "high need" by the federal or state government, or local education agency and approved by the Department
  • Provide certification by the school's chief administrator annually as evidence of required employment

Institution Eligibility Requirements:

In order to award TEACH Grant aid the Department must determine that an otherwise eligible institution:

• Provides high quality teacher preparation and professional development services, including extensive clinical experience as a part of pre-service preparation

• Is financially responsible

• Provides pedagogical coursework, or assistance in the preparation of coursework, including monitoring student performance, and formal instruction related to the theory and practices of teaching

• Provides supervision and support services to teachers or assistance in the provision of such services, including mentoring focused on developing effective teaching skills and strategies.

The bill authorizes such sums as may be necessary to provide TEACH Grants to each eligible applicant.

TITLE II - STUDENT LOAN BENEFITS, TERMS, AND CONDITIONS

Sec. 201. Interest Rate Reductions

The bill gradually cuts interest rates on subsidized Stafford loans for undergraduate students in half according to the following schedule:

• 6.8 percent for loans first disbursed July 1, 2006 to July 1, 2008
• 6 percent for loans first disbursed July 1, 2008 to July 1, 2009
• 5.6 percent for loans first disbursed July 1, 2009 to July 1, 2010
• 4.5 percent for loans first disbursed July 1, 2010 to July 1, 2011
• 3.4 percent for loans first disbursed July 1, 2011 to July 1, 2012

Sec. 202. Student Loan Deferment for Certain Armed Forces Members

This section eliminates a three-year limitation on loan deferment for certain members of the armed forces. It allows deferments until 180 days after the borrowers are demobilized. It also allows borrowers in the military to receive the benefit regardless of when the loan was originated. Eligibility for this deferment remains limited to members serving on active duty or performing qualified National Guard duty during war and a national emergency.

Sec. 203 Income-Based Repayment

Generally, the provisions in this section become effective July 1, 2009.

Loan payments will be limited to 15 percent of a borrower's discretionary income or 15 percent of the amount that a borrower's (and spouse's if applicable) adjusted gross income exceeds 150 percent of the poverty line, divided by 12. Unpaid interest and principal are capitalized and any outstanding loan balance is forgiven after 25 years of repayment.

PLUS Loans made on behalf of a dependent student and Direct Consolidation Loans that contain PLUS loans are not eligible for the income-based repayment program.

Holders of these loans must apply the borrower's payments first to interest, second to fees, and then toward the principal of the loan.

Any interest due and not covered by the borrower shall be paid by the Secretary for up to three years except for periods that a borrower is in deferment due to economic hardship.

The lender shall also capitalize the interest due when the borrower stops participating in the income-based repayment program, or begins making payments larger than what is specified under income-based repayment.

Principal due and not paid under income-base repayment shall be deferred.

Borrowers may remain in income-based repayment more than 10 years.

When borrowers leave the program the maximum payment required on the loan shall not exceed the monthly amount based on a 10-year repayment period when the borrower first joined income-based repayment. The time the borrower is permitted to repay the loan may exceed 10 years.

The Department must repay or cancel any outstanding loan principal and interest for borrowers after 25 years of repayment.

Borrowers currently repaying loans according to income-contingent repayment or income-sensitive repayment plans will have the choice to continue in their current plans or may participate in the program created by this bill.

The Department must establish procedures to annually determine borrowers' eligibility for the program, including verification of a borrower's income and the amount of their loans.

NASFAA has created a more in depth analysis of this provision.

The Association of American Medical Colleges has created a more in depth analysis of this provision.

Sec. 204. Deferral of Loan Repayment Following Active Duty

Active duty National Guard or other reserve component of the armed forces and retired members of the armed forces who are called to active duty while enrolled at an institution will be eligible for a deferment during the 13 months after they complete their service. Their deferment expires if they enroll in school again.

NASFAA has created a more in depth analysis of this provision.

Title III - REDUCTIONS TO LENDERS IN THE FFEL PROGRAM

The proposed legislation would introduce several cuts to lenders and guarantors. The agreed upon legislation would:

• Eliminate the "Exceptional Performer" status that allows lenders that meet certain requirements established by the Secretary of Education to receive higher insurance rates on defaulted loans

• Reduce the insurance paid by the federal government to lenders on defaulted loans from 98 percent to 97 percent of unpaid principal balances through October 1, 2012 at which point the insurance will be reduced to 95 percent

• Reduce the amount that guarantors may keep through collections on defaulted loans from 23 percent to 16 percent

• Reduce the special allowance payments (SAP) from the Department to lenders based on their tax status. For-profit lenders would receive a 55 basis point SAP reduction and non-for-profit lenders would receive a 40 basis point SAP reduction. To ensure that only nonprofit lenders benefit from the increased subsidization, nonprofit lenders that are owned in-whole or in-part by a for-profit entity would not be eligible for the reduced subsidy reductions. Nonprofit lenders that are purchased by for-profit entities would also lose their higher subsidization rates on the date of the sale.

• Increase the loan fee paid to the Department by lenders - that cannot be passed on to borrowers - from 0.5 percent to 1 percent of the principal amount of each newly originated loan made on or after October 1, 2007

• Decrease the account maintenance fees paid by the Department to guarantors from .10 percent to .06 percent on newly originated loans