NASFAA Board Reaffirms Reauthorization Recommendations and Takes New Action

At its July 1 meeting in New York City, NASFAA's Board of Directors acted on a report from the NASFAA Reauthorization Task Force (RTF) on recent legislative options concerning Title IV programs. Board actions included reaffirming the package of recommendations previously approved by the NASFAA Board in 2002; revising the Board's previous position concerning School as Lender; and initiating new action on the provisions of the Student Aid Rewards Act (STAR). The RTF did not advance the seven draft recommendations that were distributed for comments in June; thus, no Board action was taken on them. This article describes the actions taken and provides background details.

Summary of Board Actions

1. Reaffirm NASFAA recommendations previously approved in 2002 and 2003 with one exception: the Board rescinded its previous recommendation concerning School as Lender (SAL). The Board approved a new recommendation concerning this topic. This revised package forms the basis of NASFAA's platform for this reauthorization cycle.
2. Direct the NASFAA staff to work with the lending community and other entities to find ways to move the NASFAA reauthorization agenda forward, which includes making significant increases in need based grant funding for all needy students.
3. Oppose the School as Lender provisions and oppose the STAR bill in keeping with the guidelines of programs being fair and equitable for all students.

Process Background

In recent months, Members of Congress introduced numerous bills as part of the long-anticipated Reauthorization of the HEA. The Student Aid Reward (STAR) legislation and the School as Lender (SAL) program were among the items on which the RTF recently sought comment. Not surprisingly, the RTF received many thoughtful but varied opinions on each of these issues. The primary point of opposition from the membership to SAL and/or STAR was the uneven distribution of benefits; that is, benefits that are afforded to some students but not to all students. Similarly, major statements of support for SAL and/or STAR came from the desire for an increase in grant funds for needy students. Three points clearly emerged from the membership comments:

1. There is universal support for increased need-based student aid that treats students in all sectors of postsecondary education equitably.
2. Any savings generated by changes to the student aid programs should be reinvested to improve the existing aid programs and not used for deficit reduction.
3. Aggressive marketing efforts that ignore school choice or by-pass the institutional financial aid office, coupled with political comments by some in Congress, are seen as real threats to the future of the Direct Loan Program and, perhaps in time, to the structure of the existing FFEL delivery model as well.

After considering the comments and input received, the majority of the RTF still believed that NASFAA should oppose the STAR legislation and SAL program, primarily because:

1. The bills set up possible or perceived conflict of interest situations for institutions to maximize student lending in order to generate more grant aid;
2. Aid is allocated to institutions as an inducement rather than based on student need; and
3. Providing a federal aid program only to those graduate schools willing and able to originate FFELP loans or to other schools that decide to participate in the Direct Loan Program, which violates the principles of student access, choice, and equity of loan and/or grant benefits.

NASFAA's Board of Directors did not take action on these recommendations during its May 2005 meeting. Instead, the Board asked the RTF to draft a set of recommendations that could be considered in lieu of these bills and to identify areas where savings might be realized that could be reinvested in need-based aid. The Board requested that these new recommendations provide a means to realizeon some scalethe savings projected to be gleaned through the STAR bill.

In response to the May Board assignment, the RTF prepared seven recommendations, which individually or in combination might provide savings within the current loan programs using existing federal budget scoring rules contained in the Credit Reform Act. The RTF identified these items with the intent that they could produce savings that would be earmarked for the need-based grant programs. The RTF did not conceive of these seven recommendations as a package but rather selected them as the most likely avenues for capturing savings and, in some cases, correcting what some observers have recently perceived as excess profits in the FFEL Program.

The RTF accepted this assignment despite the extremely short time3 weeksnecessary to meet Congressional and NASFAA Board deadlines. Within that timeframe, the RTF crafted recommendations, requested feedback from the membership, conducted a thorough RTF review of the comments, and formulated draft recommendations.

The RTF acknowledged that there were some unavoidable difficulties with this last set of recommendations. The draft product sent to the membership for comment had shortcomings, resulting in some confusion and resultant divisiveness. The compressed time frame did not allow the process to take place in the same thoughtful way as the 2002 review, a point that was critically noted by the membership. In addition, the draft recommendations were in some cases perceived as a final product rather than an attempt to solicit dialogue.

Finally, the RTF realized that the depth of the data analysis was not as thorough as it would have been if more time were available. The seven recent RTF draft savings proposals were brought forth as identifiers of areas where cost savings may exist. These proposals were drafted based upon government-released reports, including the Congressional Budget Office report that showed that the STAR proposal was scored to provide over $17 billion in savings over 10 years to be distributed between schools and the Treasury. There is disagreement about the accuracy of these reports due to the belief that budget-scoring rules are flawed, perhaps suggesting a need to commission more reliable and more widely accepted reports. However, for the foreseeable future, these are the current rules of the game and they will determine how the federal budget is crafted and scored.

Comments on Recent Proposals

1. Support for finding ways to increase funding for need-based grants;
2. Commitment to service for students and their families;
3. Desire for fairness and equity;
4. Desire to maintain the current loan programs so that there would be on-going efforts to continue to improve services and delivery systems; and
5. Recommendations that NASFAA support a middle ground to maintain a school's ability to choose a program that best fits the needs and operations of the students it serves.

Many comments suggested that the recent recommendations seemed to favor the Direct Loan Program over the FFEL Program. This was not the RTF's intent. The RTF has always supported the continuation of the current loan programs as indicated in the 2002-2003 recommendations. While the RTF membership consists of both FFEL and DL schools, as a body it does not endorse one program over the other. What the RTF does endorse is the belief that the loan programs should operate efficiently, without excess profitability; if there is excess profitability, it should be placed first in need-based grant programs for all students or to provide borrower loan benefits. Also, the RTF firmly believes schools should have the freedom to select whichever loan delivery system (DL or FFEL) meets the needs of the individual school and its students without undue pressure from any entity such as the Department, guaranty agencies, or lenders.

Overall, the legislative proposals adopted by NASFAA's Board seek to preserve both the FFEL and the Direct Loan programs by equalizing and strengthening both programs. To that end, NASFAA supports increasing loan limits, eliminating student fees, and improving and expanding repayment options for all borrowers in each program.

Additional Discussion on School as Lender (SAL)

In November 2002, NASFAA's Board position approved a position to maintain the School as Lender provision and clarify that proceeds beyond administrative expenses would be used only for need-based student aid at the school.

Until the latest discussion on STAR and SAL, this position felt appropriate. In light of the comments recently received, the Board determined that the previous position is no longer tenable. After discussion at the July 2005 meeting, the NASFAA Board voted to oppose the existing School as Lender provision because the provision does not support the premise of equal benefits for all students.

Additional Discussion on Student Aid Reward Act (STAR)

The comments NASFAA members provided on the STAR Act led the NASFAA Board to vote to oppose this legislation. This was done in light of the fact that the STAR proposal, as currently drafted, does not promote fairness and equity to all student borrowers or to the schools that they attend. The NASFAA Board felt it was necessary to clarify its position on this issue and believes this position is in keeping with its guiding principles.

Process Outcomes

1. More funding is needed for need-based grants.
2. If there are unnecessary expenditures in the Title IV programs, these need to be identified, researched, and properly addressed.
3. Students should be provided fair and equitable access to programs and funding, no matter what type of institution they attend.
4. We cannot cannibalize our current programs to provide funding for our neediest of students.
5. The current set of political and budgetary conditions does not appear to be favorable to higher education.

By September 2005, lawmakers are directed through the reconciliation process to find significant budget savings from the federal student loan programs, while calling for a very modest increase in the maximum Pell Grant of $50 per year. While many in Congress and the Administration seem reluctant to provide increased student aid funding, NASFAA will continue to fight on behalf of students for higher grants, higher loan limits, and the elimination of fees. The reality of the current climate dictates that we make tough choices by finding areas where the long-term interests of students are championed, even if there may be short-term dislocations. We understand the concerns of some who felt NASFAA should sit on the sidelines during debates on these tough issues; however, we cannot do this. We believe that NASFAA must continue to speak for students and for our members.

Next Steps

The difference today from 20 years ago is that such benefits now exist; however, they are dependent not on traditional need-based criteria, but rather on the postsecondary institution the student attends and the ability of the financial aid office to attract lender industry willingness to offer such benefits to that institution. The RTF hopes to extend these borrower benefits to all students regardless of the school attended or the type of loan delivery system (FFEL or DL) chosen by the school.

Finally, NASFAA will prepare formal recommendations along with legislative language and forward that information to the House and Senate authorizing committees. We will continue to work with the lending community and other entities to find ways to move NASFAA's reauthorization agenda forward, which includes seeking significant increases in need-based funding available for all needy students. We encourage all NASFAA members to ask Congress to support and enact an HEA reauthorization measure that encourages the goals and priorities that the Association has advanced as the best way to assist needy students.

By NASFAA Staff

Posted July 8, 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
Please submit Web Site questions or comments to web@nasfaa.org