Member Views on Two Issues Sought by NASFAA Reauthorization Task Force; Comment Deadline Is May 18

General Background Information

Over 80 bills have been introduced so far. Among these bills are ones that will be considered specifically as part of the reauthorization legislative process, while others could surface as amendments either in subcommittee or committee markups, or as floor amendments.

The Task Force has completed its initial work on two issues that we anticipate will be discussed at the NASFAA Board of Directors meeting later this month. The Task Force now is asking the membership for views, opinions, and comments on these two issues which the Task Force will take into account before forwarding a recommendation to the Board. The two issues address HEA provisions on School-As-Lender and the Student Aid Reward (STAR) Act, which is intended to share the taxpayer savings inherent in the Direct Loan Program with Pell Grant recipients or, possibly graduate students at participating schools. STAR legislation has been introduced in both the House (H.R. 1425) and the Senate (S. 754). The two bills are nearly identical, so a look at just one of them is sufficient to understand the intent of the program.

Unfortunately, the comment period will be short, given that the congressional authorizing committees may mark-up its HEA reauthorization bill next month, NASFAA may wish to take a position on these issues and bills prior to that markup, and the Board of Directors meeting occurs shortly. The Task Force and NASFAA urge all members to make your views on these issues known to us so that the next conference call of the Task Force, to discuss these draft recommendations and alternatives, and the Board discussion will be enriched by your comments. Your comments are due by COB Wednesday May 18, 2005. Please send your comments to govtaffairs@nasfaa.org. All responses will be treated as confidential and working documents will be stripped of any identifying information by NASFAA staff before your comments are shared with the RTF or the Board.

This document is divided into two parts. Part One contains a discussion of a draft recommendation on School-as-Lender and the STAR bill that, at least initially, has majority support on the Task Force. Part Two is a discussion of a draft recommendation on the STAR bill that, at least initially, has substantial minority support on the Task Force. While it is not unanimous, there is a consensus, at least initially, on the Task Force concerning the School-as-Lender issue. Again, the Task Force is eager to hear the opinion of the membership on these issues before it makes a final recommendation to the Board. It is fair to state that membership comments are important to members of the Task Force and they continue to have open minds as to what is the best outcome for students, schools, and the profession regarding these issues.

PART ONE

Initial Reauthorization Recommendations

• "Promote fairness and equity for students across all sectors of postsecondary education."

As debate on the HEA Reauthorization continues, the Task Force anticipates a May Board of Directors discussion on HEA provisions on School-As-Lender and the Student Aid Reward (STAR) Act. After carefully considering these two issues, the Task Force is now seeking membership comment on its draft recommendations and options in these areas.

Many on the Task Force believe both School-As-Lender and the STAR Act violate its' first principle and do not "promote fairness and equity for students across all sectors of postsecondary education." In fact, each does quite the opposite. Therefore, the Task Force is seeking membership input on a draft recommendation to the NASFAA Board that NASFAA urges the Congress to:

• Phase-out the current HEA School-As-Lender provision and
• Oppose the STAR bills.

Rationale:

The Federal Stafford Loan Programs were established by the federal government to provide students with financial options to help them pay for their higher education and address the national social need for an educated, productive citizenry. While revised in many ways over the years, the revisions were generally intended to provide access and choice to higher education by directly supporting the needs of students. For example, Congress added the School-As Lender provision to allow a lender-of-last-resort option to provide access to students who were excluded from the loan programs due to no available lenders, or whose loan applications were rejected by the lender even though the students met the federal program criteria. The intent was to create federal programs that would treat students equally, regardless of the institution they attended. Similarly, much of the controversy surrounding the inauguration of the Direct Lending program was due to the efforts of the financial aid community to keep the playing field for the student and institution as level as possible.

The current statute authorizing the School as Lender option as well as recently proposed bills concerning School-as-Lender (H.R. 555) and Student Aid Reward [STAR] (H.R. 1425 and S. 754) do not appear to provide students with equal access to higher education. These bills appear to offer options that are inherently unequal to certain students and schools. By creating operating benefits only for select schools and certain populations of students, the loan programs would be further removed from equal treatment of students regardless of school of attendance.

NASFAA has raised concerns about illegal inducements that occur in the current competitive marketing environment. A majority of the Task Force feels, at least initially, that these proposals, taken together, run contrary to association's position that inducements should be restricted.

School as Lender (SAL) [Section 435(d)(2)(D)]

This HEA provision allows all graduate schools--but only graduate schools--who meet the requirements, to participate in the FFEL Program as an institutional lender. Profits from the program may only be used for reasonable administrative costs and need-based grants.

Arguments for SAL:

• There are approximately 100 institutions currently operating as lenders and they should be allowed to continue in the program.
• The institutional profits generated by the program may provide additional aid for needy graduate students who have limited financial aidspecifically grant--resources to begin with.
• The accountability features of the proposal safeguard against institutional misuse of profits and intended to ensure that students benefit from the institution's decision to participate in the program.

Arguments against SAL:

• It is unfair to provide monetary benefits generated from a federal program only to a certain class of institutions.
• Schools that act as lenders have a conflict of interest when it comes to counseling students against unneeded borrowing since the school profits from increased borrowing.
• Schools should do what they do best and lenders do what they do best and not confuse the two roles.
• Some suggest that state legislatures may encourage schools as lenders in order to reduce state support for student aid and for schools.
• Some believe that schools as lenders would destabilize the current loan system. They suggest that the lenders only would provide the capital to make loans to schools with the best paper. As a result capital may not be available to other less fortunate schools creating a loan access problem.
• Fees and other student expenses in the program should be reduced rather than providing profits to institutions.
• The level of dollars generated by the program are based on dollar volume and may encourage institutions to promote over-borrowing on the part of students.
• This provision provides one student loan program, i.e. FFELP, with an unfair advantage over the other and runs contrary to the concept of attempting to achieve an even playing field in the loan programs.

Student Aid Rewards Act of 2005 (STAR) H.R. 1425, S. 754

Arguments for STAR

• The rewards generated by the program will provide an estimated $17 billion in additional aid for needy students at Direct Loan schools in the first ten years alone.
• There is a national interest in promoting a more cost-effective program and saving taxpayer dollars.

Arguments against STAR

• The level of dollars generated by the program are based on dollar volume and may encourage institutions to promote over-borrowing on the part of students.
• STAR funding would first go to schools that join Direct Lending after the date the bill is enacted. If funds are sufficiently large, then current Direct Lending participants would receive the benefits of the program.
• This provides one loan program, i.e. Direct Loans, with an unfair advantage over the other and runs contrary to the concept of attempting to achieve an even playing field in the loan programs.
• The program designated "most cost-effective program" may change depending on budget scoring assumptions. Institutions would then presumably be motivated to switch to the other loan program, which would require changing systems and operational processes, or lose their rewards.

PART TWO

Minority Statement on STAR

NASFAA's Statement of Ethical Principles states that it is "committed to removing financial barriers for those who wish to pursue postsecondary learning." Its Mission Statement asserts that "The Association promotes and encourages programs which remove financial barriers to student enrollment and retention, thereby assuring that any qualified student who desires to pursue and complete an education can obtain sufficient resources to do so."

• The STAR Act is aligned with both NASFAA's ethical principles and mission statement.
• By all indications, STAR is the single best hope of a significant increase to federal grant dollars for the neediest students to be proposed during this Reauthorization.
• Under STAR, the Congressional Budget Office estimates that as much as $17 billion over ten years will be generated in new federal grant dollars for Pell recipients - an average of $1000 more for each Pell recipient annually at participating schools.

STAR would not require schools to choose Direct Lending, although it is anticipated that about 15% of schools would move from FFELP to DL. Many schools would remain in FFELP because of the benefits their students receive in that program that are judged to be more valuable.

In an environment of an un-level playing field, for NASFAA to oppose STAR in the interest of elusive parity for both programs is to disregard the best interests of students and taxpayers. Our job is to ensure the highest level of access to higher education for all students. The job of stabilizing the lending marketplace belongs to others.

STAR is a significant benefit for students and for taxpayers - $17 billion more for students at no net cost to taxpayers. It is a compelling reason for NASFAA to publicly support the STAR Act.

We Want Your Comments by Close of Business May 18

Submitted by the NASFAA Reauthorization Task Force

Originally posted May 12, 2005 on www.NASFAA.org, Web Site of the
National Association of Student Financial Aid Administrators
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