Secretary of Education Margaret Spellings, on behalf of the Bush Administration, followed up the President's FY06 budget request by sending the Senate a set of legislative recommendations, as part of the ongoing attempt to reauthorize the Higher Education Act. For the first time, the measure provided details on the President's proposed elimination of the Perkins Loan Program.
In the June 7 letter to Vice President Dick Cheney (in his role as president of the Senate) Spellings called the proposed legislation "a comprehensive package of reforms that would make the student loan programs more efficient, cost-effective vehicles for helping students finance their postsecondary education and would produce $7.2 billion in mandatory spending savings over the five-year period FY 2006-2010."
An identical letter was also sent to Speaker of the House Dennis Hastert (R-Ill.).
As called for in the President's FY06 budget request, the new proposal (called the "Higher Education Act Reform Amendments of 2005") would eliminate the Federal Pell Grant program's $4.3 billion shortfall and increase the maximum Pell Grant award by $100 in each of the next five years.
Spellings said the legislative proposal would also restructure the student loan programs in an effort "to increase student benefits, reduce costs through expanded risk-sharing, and revise the consolidation loan program to ensure all borrowers, whether in school or in the workplace, have access to a common set of benefits."
While the measure adheres very closely to the recommendations set forth in the President's FY06 budget, it provides more detail about changes proposed for the federal student loan programs. Perhaps most significantly, the measure outlines the President's plan for shutting down the Federal Perkins Loan program.
According to the bill, "not later than October 1, 2006, an institution of higher education with a student loan revolving fund ... shall remit to the Secretary of Education an amount equal to the Federal portion of the liquid assets of the fund, as determined on June 30, 2005."
The bill also states that by no later than 180 days after the enactment of the Higher Education Act Reform Amendments of 2005, "the Secretary of Education shall publish, in the Federal Register, a notice describing a plan for the orderly return of Federal capital contributions, and the assignment of Federal Perkins Loans made under, part E of title IV of the Higher Education Act of 1965, to the Secretary."
The bill would also:
- Place a 16-semester time limit on how long students could receive Pell Grants to pay for college, and allow for year-round Pell Grant awards.
- Revise the "base guarantee" for Federal Work-Study and Federal Supplemental Educational Opportunity Grants, in an effort to direct campus-based funds to the neediest students. Institutions that have participated in campus-based aid programs since their inception often receive more funding than newer participants, as part of this base guarantee.
- Allow for reconsolidation of loans so that borrowers already out of college can lock-in better interest rates, and repeal the single-holder rule for consolidation loans.
- Require students to pay a fee, equal to 1% of the principal amount of the loan, to student-loan guarantee agencies.
According to estimates from the Department of Education, over the next five years these reforms would save $11.8 billion in the student loan programs, and increase Federal Pell Grant outlays by nearly $4.6 billion to fund the increase in the maximum award. Overall, Spellings states, "these amendments would produce over $7.2 billion in net outlay savings from the student aid programs."
By Elizabeth B. Guerard
NASFAA Assistant Director for Communications
Posted June 24, 2005 on www.NASFAA.org, the Web Site of the
National Association of Student Financial Aid Administrators (NASFAA).
Copyright 2005. Redistribution to non-NASFAA institutions is prohibited
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