With the federal Fiscal Year 2005 beginning October 1, the Congress will once again pass a Continuing Resolution (CR), which is necessary for the continuation of federal student aid and other program funding for which regular appropriations have not yet been approved. Of the thirteen appropriations bills, only the Defense Department funding measure has been completed and sign by the President.
The CR will be approved this week and is expected to be effective for a week, with the Congress passing a second CR next week expiring sometime just after the elections. Thus, the CR will provide funding for the student aid programs and other federal programs and those funds will continue to flow uninterrupted. After the elections Congress will return for a "lame duck" session that may not be completed until just before Christmas, although many lawmakers think they can conclude their work before Thanksgiving.
The House of Representatives passed its version of the
Labor/HHS/Education appropriations bill (H.R. 5006) on September 9. The full
Senate Appropriations committee held a markup session and reported its version
(S. 2810) on September 15. An Excel spreadsheet shows the major higher education program funding levels. The Federal Pell Grant program total spending is increased to $12.83 billion but the maximum award is held to $4,050 for the third straight year. SEOG funding is increased from last year's level of $770.4 million to
$794.5 million in the House bill and increased to $799.9 million in the Senate
committee-reported bill. The House bill level funds the FWS program at last
year's level of $998.5 million while the Senate bill cuts the program by
$257,000. LEAP is level-funded at $66.7 million. Perkins Loans are level-funded at last years in the Senate bill for both Capital Contributions ($98.8 million)
and Loan Cancellations ($66.7 million). The House bill level-funded Loan
Cancellations, but eliminated new Capital Contributions.
Democrats Go After Loan "Loophole" that President and GOP Want to Close Also
A "loophole" benefiting nonprofit lenders was closed by the
House, but similar efforts failed in the Senate. Nonprofit lenders who
finance their loans though tax-exempt bonds were guaranteed a return of 9.5%
to help protect the viability of those entities during the recession of
the 1980's. Congress thought they closed that option in 1993 but also
grandfathered current loans at that time assuming such loan volume would reduce
over time as the underlying bonds were paid off. However, most non-profit
lenders discovered that by refinancing the pre-1993 loans would result in a recycling of the bond funding for new loans with the 9.5% return.
H.R.4283, which reauthorizes the Higher Education Act, is
stalled in Congress. While that bill closes the loophole, authorizing
committee Democrats are pushing to eliminate the loophole this year. Rep. Dale
Kildee (Mich.) the ranking subcommittee Democrat offered an amendment to close
the loophole for one year during floor debate of the Labor/HHS/Education appropriations bill (H.R. 5006). Kildee's amendment was approved 413-3. Senator
Patty Murray (D-WA) offered a similar amendment in the Senate Appropriation
Committee markup, but unlike the Kildee amendment, some of the savings would have been used to fund several student aid programs. Murray's amendment was defeated on a party-line vote of 15 to 14.
During debate on the Murray amendment, Senator Judd Gregg (R-NH), a
member of the Appropriations Committee who also chairs the Senate authorizing
committee, objected to the amendment on jurisdictional grounds. Gregg argued that his authorizing committee would close this loophole, but addressing it in an
appropriations bill was not the proper legislative vehicle for dealing with the
problem. Senate Appropriations Committee Chairman Ted Stevens, R-AK, objected to having mandatory spending savings transformed into discretionary spending. Murray then offered a second amendment that would close the loophole but not use the savings for other student aid programs. When Stevens offered a substitute amendment for the Murray amendment that consisted of the exact Kildee amendment language, several committee Democrats objected, saying the Kildee amendment language was flawed. Some efforts may be made to work out an acceptable amendment before floor consideration of this appropriations bill, but that is problematic since the bill may never be considered on the Senate floor.
Most recently, the ranking Democrat on the House authorizing committee, George Miller of California, circulated a discharge petition seeking to get the Committee on Education and the Workforce to report a bill to correct the perceived problem.
While few in the higher education association or lending communities object to closing the loophole, the debate centers exclusively on the "profit" made by nonprofit lenders. What is seldom mentioned in the congressional debate is that nonprofit lenders must utilize a large portion of the 9.5% return funds for borrower benefits, such as providing for the payment of a borrower's origination fee, for reduced interest rate benefits, for debt forgiveness programs, or for the provision of other borrower benefits. Otherwise such funds under tax law must be returned the U.S. Treasury.
As mentioned earlier, House Republican authorizing committee
leaders closed the loophole in their HEA reauthorization bill (H.R. 4283) and
Senator Gregg says his HEA reauthorization bill would also close the loophole;
President Bush's February FY 2005 budget request would also close the
loophole. The Department of Education maintains it cannot unilaterally deal
with this problem unless it changes regulations, which could take up to two
years to accomplish, but a recent Government Accountability Office (GAO) report insists ED has the authority to make a change in this policy immediately. Until
settled legislatively, the issue will continue to be front and center in higher
education policy debates.
Next Steps for Appropriations
Options for dealing with FY 2005 appropriations are limited. While passing a short-term CR this week and then passing a second CR lasting until just after the November elections, Congress in its lame duck session could pass the appropriations bill funding the Department of Education in the Senate and go to Conference Committee to iron out differences between the House and Senate bills. This option, which is the regular legislative process, appears unlikely. It would take "too much time" to debate the bill on the Senate floor and iron out the differences in a Conference Committee.
The Congress could pass multiple CRs, each lasting a short time period or pass a longer term CR putting off action on the bill until next year (which is what happened with last year's FY 2004 appropriations), or the Congress could pass a permanent CR lasting the entire fiscal year. Remember, however, that a CR maintains program funding at the prior year's appropriations level. This would be a positive development for those programs slated for elimination, because it maintains last year's funding. One example of this situation would be Perkins Loan funding for Capitol Contributions, which are eliminated in the House bill. But FSEOG funding, which is higher in both the House and Senate FY 2005 bills, would be reduced to last year's lower level in a CR.
However, the most likely alternative would be the option most used in past years: the Omnibus Appropriations bill. An Omnibus Appropriations bill lumps program funding for all bills (and consequently individual programs) not yet approved into one massive bill. That bill is separately approved by the House and Senate, and then an Appropriations Conference Committee resolves the differences between each chamber's bills, issues a Conference Report, each chamber passes the Conference Report, and then, finally, the bill is submitted to the President for approval or veto.
Most observers believe this is the most likely scenario; the open question is
whether or not the Congress can complete action on an Omnibus Appropriations bill prior to the end of the 108th Congress. If it cannot, legislation dies in the
House and the process must begin anew in the First Session of the 109th Congress that begins in early January.
There are additional complications if FY 2005 Appropriations are not completed this year, not least of which is that there will be new full
Appropriations Committee chairmen in the Senate and House.
By Larry Zaglaniczny
NASFAA Director for Congressional Relations
Posted September 28, 2004 on www.NASFAA.org, the Web Site of the
National Association of Student Financial Aid Administrators (NASFAA).
Copyright 2004. Redistribution to non-NASFAA institutions is prohibited
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