Chairman of the Senate Health, Education, Labor, and Pensions Committee Edward Kennedy (D-MA) released the Higher Education Access Act of 2007 yesterday as a companion bill to the Higher Education Amendments of 2007 released late Monday afternoon. While substantially shorter than the Higher Education Amendments of 2007 introduced by Kennedy on Monday, this bill is no less broad in nature by increasing access to federal student aid dollars, decreasing subsidies to lenders, and introducing a new student loan auction program for parent PLUS loans in the FFEL program. This article contains a summary of many of the provisions contained in this latest legislation. Both bills are scheduled for full committee markup in the Senate HELP Committee today.
The Higher Education Access Act of 2007 contains the highly anticipated budget reconciliation language that details how the committee plans to cut $18.3 billion from student loan providers in the FFEL program, $1 billion less than the House version passed last week. The two bills under consideration this morning in the Senate HELP Committee would reauthorize the higher education program for five years.
Increasing Access To Federal Student Aid
The Higher Education Access Act would alter several provisions to increase student aid for students. Those proposed provisions would:
- Increase the income protection allowances currently used in the federal needs analysis for both dependent and independent students until the 2012-13 academic year, after which all income protection allowances would revert back to their current levels
- Increase the automatic zero eligibility amount for family income level from $20,000 to $30,000
- Expand the definition of an independent student to include individuals in foster care or those that were in foster care until age 18, emancipated minors, and individuals who have been verified as unaccompanied youth or homeless as defined by the McKinney-Vento Homeless Assistance Act
- Simplify the dependency override process by allowing financial aid administrators to accept the documented determination of independent status by another aid administrator at a different school within the same academic year
- Expand the discretion that financial aid administrators may use when calculating an EFC to include loss of employment or a change in a student’s housing status that results in homelessness
- Mandate that qualified education benefits shall be considered an asset of the student when the student is independent, but of the parents when the student is dependent
- Mandate that combat pay shall not be included in a student’s calculation of need and shall not be treated as financial assistance
- Eliminate the FAFSA question asking if the student has been convicted of drug possession. This provision would not eliminate the penalty for being convicted of drug possession, just the question on the FAFSA that asks about it
Promise Grants
Effective July 1, 2008 the bill would create a new grant program for low-income, Pell-eligible students that would be used to supplement - not replace - other federal, state, and institutional grant aid. "Promise Grants" would be awarded to students with the greatest need and could not exceed a students cost of attendance. The bill would authorize and appropriate the following amounts to carry out the new grant program:
- $2.62 billion for FY 2008
- $3.04 billion for FY 2009
- $3.46 billion for FY 2010
- $3.9 billion for FY 2011
- $4.02 billion for FY 2012
- $10 million for FY 2013
- $3.2 billion for each fiscal year from 2014 through 2017
Tuition Sensitivity
The Higher Education Access Act would eliminate Pell Grant tuition sensitivity provisions that can sometimes penalize students who attend low-cost institutions by restricting their maximum Pell Grant amounts. The bill would authorize and appropriate $5,000,000 for 2008 to carry out this proposal.
College Access Partnership Grant
The bill would create a new grant program that would make payments to states to assist them in increasing college participation and access for low-income students in the state. The legislation would authorize and appropriate $25 million for FY’s 2008 and 2009 to be distributed by the Secretary of Education to states. The federal portion of the grants would cover 2/3 of the costs of the program and the states would be expected to cover the additional 1/3 of the costs.
The outreach and access activities required by the proposed legislation would be carried out by a not-for-profit organization designated by the state. That could include state loan agencies, but could also include non-state affiliated not-for-profit organizations.
Allowable uses of the funds could include: information on the benefits of higher education, planning for higher education, career options, information on financing, financial literacy and debt management, outreach activities for students who may be at risk of not enrolling in higher education, assistance in completing the FAFSA, need-based grant aid, student loan forgiveness or interest rate reductions for borrowers employed in a high-need profession in a state, or other professional development for secondary school guidance counselors or financial aid administrators.
Student Loan Deferments
Economic hardship deferments would be extended from three to six years under the proposed legislation for all borrowers whose first loan is originated before October 1, 2012. Additionally, the Senate bill would increase the minimum requirements for borrowers to obtain an economic hardship deferment from 100 percent of the poverty line for a family of two to 150 percent of the poverty line for each respective family size.
Further, members of the military would be able to receive deferments for more than three years while in active duty. Deferments for military personnel would automatically extend for 180 days after demobilization.
Income Based Repayment Plans
Income-contingent and income-sensitive repayment plans would be replaced by income-based repayment plans for Stafford and Graduate PLUS loans in both the FFEL and Direct Loan programs. Under the income-based repayment plan, borrowers would only be required to make monthly payments equal to 15 percent of their adjusted gross income that exceeds 150 percent of the poverty line. Any borrowers currently utilizing the income-contingent or income-sensitive repayment plans would be able to continue doing so after the enactment of the proposed legislation.
The Secretary of Education would also be required to forgive any outstanding Stafford or Graduate PLUS Loan balances in the FFEL and Direct Loan programs after 25 years of repayment. Periods of economic hardship deferment would be included in the 25 year time period.
Lender Reductions
As in the bill that was passed by the House Education Committee last week, the Higher Education Access Act 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 on defaulted loans from 98 percent to 97 percent of unpaid principal balances
- Reduce the amount that guarantors may keep through collections on defaulted loans from 23 percent to 16 percent
- Increase the loan fee paid to the Department by lenders from 0.5 percent to 1 percent of the principal amount of each newly originated loan made on or after October 1, 2007
- Reduce the special allowance payments from the Department to lenders, but pay different amounts based on the lenders’ for-profit or not-for-profit status.
Defines For-Profit and Not-For-Profit Lenders Differently
In a somewhat controversial move, the Senate bill would create separate definitions between for-profit lenders and not-for-profit lenders. Eligible non-for-profit lenders would include state agencies or authorities, or any other lender that meets the not-for-profit status defined by the U.S. tax code. The definitions also stipulate that for-profit lenders may not own any part of a not-for-profit lender.
These definitions are important because, under the proposed legislation, for-profit lenders would receive larger subsidy cuts than their not-for-profit counterparts. The special allowance rate is a percentage of the average unpaid principal balance of a loan, including capitalized interest that the Department pays lenders. The bill would reduce the allowance rates on all loans made on or after October 1, 2007, but would reduce them less for loans made by not-for-profit lenders.
Any loans sold by a not-for-profit lender to a for-profit lender would immediately receive the reduced allowance rate mandated for for-profit lenders.
Loan Forgiveness in the Direct Loan Program for Public Service Employees
Borrowers working in a "public sector job" as defined in the Senate bill would receive loan forgiveness on any remaining loan balance on which they had been making payments for ten years. The ten-year time period would not need to be consecutive. However, the borrower would need to be in the public service job for a total of 120 payments and would not be able to earn more than $65,000 per year in that job during the applicable time.
Delay of Late Collections on Perkins Loans
Institutions would be allowed to delay late collections on Perkins loans by six months until September 30, 2012.
Competitive Loan Auction Pilot Program
The bill would direct the Secretary of Education to implement a pilot program that requires lenders to bid for right to originate student loans in each state in the country. The Secretary would hold a an auction in each state where lenders would be able to make private and confidential bids on the lowest amount of special allowance funds the lender is willing to receive from the Secretary.
The Secretary would pre-qualify all lenders before the bidding process by outlining the borrower benefits and servicing requirements each lender must meet in order to make a bid. The Secretary would then choose two lenders that will have exclusive rights to originate loans in that state. The pilot program would begin with only parent PLUS loans. The proposed legislation would mandate that the Secretary continue to hold auctions every two years.
In states where no winning bids are made, all schools in the state would be served by a lender of last resort, as determined by the Secretary in each state.
Loans made under this process would receive a 99 percent insurance rate on the unpaid principal and interest due on any defaulted loans.
In cases of consolidation, the borrowers could still look for any consolidation loan on the market, but would be required to go to the originating lender first to see if that lender would match what the borrower has found other loan providers to be offering. If the originating lender refuses to match the terms and conditions being offered by another consolidating lender, the borrower may consolidate with the other lender.
Bipartisan Support Predicted, But Lenders Voice Opposition
The ranking Republican on the Senate Education Committee, Mike Enzi (R-WY), predicted that the bill would receive wide partisan support, according to a Marketwatch. The Senate bill would cut total lender subsidies by $18 billion over the next five years, slightly less than the $19 billion proposed by the House Education Committee last week.
But lenders have already voiced strong opposition to the subsidy cuts, claiming that it will harm thousands of borrowers nationwide. Jon Belew, president of the Consumers Bankers Association, feels that the size of these cuts would eliminate many small and medium size lenders that would simply leave the program altogether, "resulting in less competition and fewer choices for students and their families," reports Marketwatch.
America’s Student Loan Providers Executive Director Kevin Bruns told Marketwatch that he predicts that as many as 4.5 million students and parents will see their loan costs increase as borrower benefits are either reduced or completely eliminated due to the subsidy cuts.
Other Media Coverage
By Justin Draeger
NASFAA Assistant Director for Communications
Posted 06/20/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
