Summary of the Student Aid and Fiscal Responsibility Act (H.R. 3221) as Passed by the Full House

On September 18, the House passed the Student Aid and Fiscal Responsibility Act of 2009 (H.R. 3221) by a vote of 253 to 171. The bill would use savings from eliminating the Federal Family Education Loan Program (FFELP) to bolster the Pell Grant program, fund a new Federal Direct Perkins Loan program, and increase funding in other higher education and K12 programs.

The bill was introduced to the House Education Committee on July 15th. Since then, the bill has been amended twice -- once through committee markup and again during a full House debate. This article contains a comprehensive summary of the student aid provisions contained in the bill as reported by the full House -- that is, including all accepted amendments. The Senate will soon be taking up similar legislation, which must then be reconciled with the House bill by a conference committee representing both chambers. That negotiated bill must then be approved by the House and Senate before being sent to the President for signature.

Pell Grant  

The bill would:

  • Continue the trend set by the College Cost Reduction and Access Act dividing the Pell Grant into mandatory and appropriated funding. Beginning in the 2011-12 award year, the mandatory portion of the Pell Grant would be indexed to the Consumer Price Index plus 1 percent.
  • The mandatory portion of the Pell Grant is $490 of the $5350 maximum award for 2009-10. For 2010-11, that mandatory portion is scheduled to increase to $690, raising the maximum award to $5550. Barring any further changes, it is this $690 portion that would be increased by CPI + 1 percent.
  • Clarify that part-time students can also receive year-round Pell Grants

Simplification and Asset Caps

The bill would:

  • Eliminate asset data from the FAFSA and the needs analysis formula, effective July 1, 2011.
  • Impose an asset cap of $150,000 beginning on July 1, 2011, that would prohibit receipt of a Pell Grant or a subsidized Stafford Loan. For each award year after 2011-12, the Secretary would be required to publish a revised net asset cap that would be determined by increasing the dollar amounts by a percentage equal to the estimated percentage change in the Consumer Price Index.
  • The House bill does not specify how asset cap information would be captured on the FAFSA.

Student Loan Program Changes  

The bill would:

  • End the Federal Family Education Loan Program on June 30, 2010, unless continuation is expressly authorized by Congress through additional legislation.
  • Provide the Department of Education with $50 million in FY 2010 to provide schools with resources and assistance in transitioning into the Direct Loan program. That assistance includes "technical support, training for personnel, customized assistance to individual institutions of higher education, development of informational materials, and other services the Secretary determines to be appropriate."
  • Require the Secretary of Education to conduct outreach activities to educate students and their families about the transition to Federal Direct Lending.
  • Make interest rates on subsidized Stafford loans disbursed after July 1, 2012, equal to the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1, plus 2.5 percent for the next year, not to exceed 6.8 percent.
  • Allow Schools located outside of the U.S. to receive federal student loans through the Direct Loan program.

Direct Loan Servicing and Default Prevention Contracts  

The bill would:

  • Require the Secretary - when "practicable" - to award multiple servicing contracts on federal loans through a competitive bidding process that will take into account price, servicing capacity, and capability of the servicer to provide default aversion and outreach services. These entities may include not-for-profit servicers and State agencies. The bill would require the Secretary to give special consideration to State agencies with a history of "high quality performance and demonstrated integrity in conducting operations with institution of higher education." Clarifies that an "eligible not-for-profit servicer" - one of the entities eligible for Direct Loan Servicing contracts in an applicable state - must be an entity that is not owned or controlled in whole or in part by a for-profit entity or a nonprofit entity having its principal place of business in another state. 
  • Introduce a "Job Retention Incentive Payment" to servicers if the servicer agrees to give priority hiring for positions created as a result of the contract to those geographical locations at which the servicer performed student loan originations or servicing activities under FFELP.
  • Identify guarantors, nonprofit subsidiaries, and other nonprofits as eligible entities for "Innovation in College Access and Completion National Activities" dollars.
  • Clarify that borrower services, including delinquency prevention, default aversion, and loan counseling, are allowed uses of College Access and Completion Grant dollars.

Perkins Loans  

The bill would eliminate the current Perkins Loan program and introduce a new loan type, the Federal Direct Perkins Loan, under the existing Direct loan program. Current Perkins participants would be "held harmless" in the proposed legislation in terms of loan-making authority. Specifically, the bill would:

  • Make $6 billion available annually beginning in the 2010-11 award year for a new "Federal Direct Perkins Loan" program that would be administered in much the same way as unsubsidized Stafford loans.
  • Establish a minimum base guarantee equal to the average annual amount of Perkins Loans made for award years 2003-04 through 2007-08; to ensure that schools receive their base guarantee even if the new formula would otherwise come up with a smaller amount, allocations are ratably reduced for schools whose allocations under the new proposed formula (described in the bullet that follows) exceed their base guarantee.
  • Change the allocation formula as follows:
    • 50 percent would be determined by the sum of the adjusted self-help need amounts of undergraduates and that of graduate students of the institution;
    • 25 percent would be allocated based on an amount equal to a "low-tuition incentive amount" as compared to similar institutions based on sector; and
    • 25 percent would be allocated based on the ratio of Pell Grant recipients that graduate from the institution compared to degree attainment of Pell Grant recipients at other institutions.
  • Give the Secretary the authority to require schools to assign loans to ED in instances where the institution has "failed to maintain an acceptable collection record."
  • Require an institution that participates in the new Perkins program to "pay matching funds, quarterly, in an amount agreed to by the institution and the Secretary, to an escrow account approved by the Secretary, for the purpose of providing loan benefits to borrowers." (Note that the details of such a match, such as amount and uses, have yet to be specified.)
  • The bill would also set forth how current Perkins loans would be serviced and handled between the institution and the Department. Essentially, the institution may give over servicing to the Department and receive a portion of collections representing the institutional share minus a percentage withheld for servicing costs, or may choose to continue servicing outstanding loans itself and returning the federal share of collections to the government. NASFAA is still examining the full ramifications of the proposed Perkins changes.

Other Student Aid Related Changes

  • The bill would prohibit students from receiving Title IV aid if they had been convicted of selling a controlled substance while they were receiving any grant, loan, or work assistance money. For a first offense, the period of ineligibility would be two years. For a second offense, the period of ineligibility would be indefinite. A similar provision already exists in the HEA, but includes possession as well as sale, albeit with a different penalty structure.
  • Softens the 90/10 rule by:
    • extending the period from July 1, 2011, to July 1, 2012, whereby increased unsubsidized Stafford loan borrowing authorized by ECASLA is treated as non-Title IV revenue;
    • allowing funds from the proposed Direct Perkins Loan program to be treated as non-Title IV revenue until July 1, 2012;
    • giving proprietary schools three years (as opposed to two) to come into compliance with 90/10 provisions; and
    • giving schools two years (as opposed to one) of noncompliance before they would be moved into provisional eligibility status.
  • Allows veterans who attend private colleges in states with a zero or very low basic tuition benefit to shift the unused portion of the maximum fee benefit to help cover costs of the veteran's actual tuition. This provision seeks to fix an issue with the Post-9/11 GI Benefits where veterans were being denied funds because they attended schools in states that had no, or very low, tuition charges but higher student fees.
  • Forgive any federal student loans for members of the military that are borrowed for the term in which they are then called to active duty.
  • Adds a new category of eligible student to the provision introduced by P.L. 111-39 (the technical amendments made to the HEOA) that reduces to zero the Title IV EFC of students whose parents or guardians were killed in action in Iraq or Afghanistan after 9/11. The EFC of a student whose parent or guardian died in the line of duty while actively serving as a public safety officer would be reduced to zero, effective with the 2010-11 academic year. Public safety officers include law enforcement officers, firefighters, and members of rescue squads or ambulance crews; they may be paid or volunteer but must serve a public agency in an official capacity. (The proposed provision does not specify any time period for death of parent/guardian.)


Publication Date: 9/22/2009

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