By a vote of 212 to 206, the House gave final approval at 6:08 a.m. Monday to S. 1932, the "Deficit Reduction Act of 2005." The legislation includes net savings of $12.6 billion from the Part B and D (FFELP and Direct Loan) programs. Overall, the bill reduces federal spending on entitlement programs by a total of $41.6 billion over five years through a combination of revenue increases or, more commonly, budget reductions. Reconciliation bill compromises coming from the House and the Senate authorizing committees, whose leading members participated in the Budget Reconciliation Conference Committee, produced a Conference Report with a five-year total of $16.2 billion in savings, which included the aid savings noted above. The Senate may vote on the bill as early as today (December 19).
The compromise bill contains the following highlights affecting the Title IV loan programs:
- Increases interest on student loans to a fixed rate of 6.8% effective July 1, 2006. Rates will no longer be variable.
- Increases PLUS interest rates to 8.5%.
- Raises the first-year loan limit from $2,625 to $3,500 and raises the second-year loan limit from $3,500 to $4,500.
- Extends PLUS Loan eligibility to graduate and professional students.
- Ends floor income guarantee to lenders, but directs savings to government rather than to students, who pay the excessive interest.
- Ends recycling of 9.5% loans immediately for some lenders, while allowing some nonprofit lenders to continue this practice until December 31, 2010, or in some cases beyond that date if they meet certain conditions.
- Provides an add-on to the maximum award for Pell Grant recipients who major in math, science, and specified foreign languages, but drops the "ProGap" program in the Senate bill that provides an add-on to the maximum award for low-income Pell Grant recipients.
- Changes the Sec. 458 administrative funds that finance the student aid delivery system from mandatory spending to discretionary spending, thereby making them subject to annual appropriations."
NASFAA will distribute a more comprehensive examination of the Reconciliation bill's provisions shortly.
House Committee on Education and the Workforce Chairman John Boehner, R-OH, defended the bill on the House floor. Speaker J. Dennis Hastert, R-IL, said, "I am proud that House Republicans have put in the long hours and hard work necessary to make this happen. This bill is a victory for the American people and the economy of the United States." Authorizing committee Ranking Minority Member George Miller, D-CA, criticized the bill, stating, "Seventy percent of the gross savings generated in the bill are achieved by continuing the practice of forcing student and parent borrowers to pay excessive interest rates in many cases and by increasing charges on parent borrowers."
Progress, Changes Made on Reauthorization
The nature of the HEA Reauthorization has changed significantly.
If the Senate follows the House's lead and passes the five-year Reconciliation bill S. 1932, many statutory provisions would be changed for the student loan programs. Reauthorization of the Act has become intertwined with the Budget Reconciliation bills. Before the Reconciliation Conference Committee acted, both the House and Senate Reconciliation versions of that legislation contained loan provisions that either increased student benefits (such as increasing first- and second-year loan limits), raised revenue (through such provisions as mandating guaranty agencies for FFELP, and ED for Direct Loans, to charge a 1% default fee), or cut the budget costs (such as reducing lender subsidies). In other words, if a reauthorization provision changes current law and it saves money either by raising revenues or by cutting program costs, or if such a change increases program costs, then that provision is part of either the Senate (S. 1932) or the House (H.R. 4241) Reconciliation bill. If a reauthorization proposal has no budgetary impact, generally, it is not part of a Reconciliation bill.
The original Senate Reconciliation bill included all of the HEA Reauthorization provisions in the Senate authorizing committee's bill S. 1614, as modified by S. 1932. However, the House Reconciliation bill did not contain all the provisions in its authorizing committee HEA Reauthorization bill, H.R. 609generally only those with a monetary effect. The Budget Reconciliation Conferees rejected the Senate's all-encompassing approach to completing HEA reauthorization. Consequently, the Budget Reconciliation Conference Report, generally, only has changes that directly affect student aid funding and such changes primarily are only in the Part B and D loan programs. The Budget Reconciliation Conference Report, generally, does not include any changes in the HEA that authorizes program funding or changes various HEA provisions that do not directly affect program operations such as changes in the law for Program Participation Agreements under HEA Part G or campus-based program allocation formulas under HEA Part A.
As a result of this action, even though Part B and D student loan changes the HEA (and they are important changes), much of the HEA reauthorization is not part of the reconciliation bill and must be approved next year by March 31, according to the H.R. 4525, the "Second Higher Education Extension Act of 2005," passed by the House on Saturday. It will be interesting to see whether or not the Congress completes the rest of the HEA reauthorization by the March date. If the Senate concurs with the House and approves the Reconciliation bill, then a number of close observers think a lot of the energy necessary to accomplish this goal will have been dissipated.
By Larry Zaglaniczny
NASFAA Director for Congressional Relations
Posted December 19, 2005 on www.NASFAA.org, the Web Site of the
National Association of Student Financial Aid Administrators (NASFAA).
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