[The following summary was prepared by NASFAA staff.]

S. 1932

TITLE VIII--EDUCATION AND PENSION BENEFIT PROVISIONS

Subtitle A--Higher Education Provisions

SEC. 8001. SHORT TITLE; REFERENCE; EFFECTIVE DATE.

• Changes made by the Higher Education Reconciliation Act of 2005 are effective on July 1, 2006 unless another effective date is provided for a provision.

SEC. 8002. MODIFICATION OF 50/50 RULE.

• Distance Education coursework is excluded from the rule.

SEC. 8003. ACADEMIC COMPETITIVENESS GRANTS.

• Grants for first- and second-year undergraduates will be known as an Academic Competitiveness Grant in the amount of $750 for first-year awards and $1,300 for second-year awards.
• Grants for third- and fourth-year undergraduates will be known as a National Science and Mathematics Access to Retain Talent Grant or a National SMART Grant and will be in the amount of $4,000.
• Award recipients must be U. S. citizens, attend full-time, be Pell eligible and meet other eligibility requirements e.g. in order to qualify for the Academic Competitiveness Grant must have attended a secondary school whose program has been deemed rigorous by the Secretary or for the National SMART Grant major in specified academic disciplines.

SEC. 8004. REAUTHORIZATION OF FEDERAL FAMILY EDUCATION LOAN PROGRAM.

• Extends FFELP program authority through FY 2012.

SEC. 8005. LOAN LIMITS.

• Increases first-year loan limit from $2,625 to $3,500 and raising the second-year loan limit from $3,500 to $4,500.
• Does not increase aggregate loan limits.
• Unsubsidized loan limits for graduate and professional students are raised from $10,000 to $12,000.
• Raises from $5,000 to $7,000 loan limits for coursework needed to enroll in a graduate program or necessary to obtain a required credential to become an elementary or secondary teacher.
• All the above annual loan limit increases are effective on July 1, 2007.
• Allows graduate/professional students eligibility for PLUS loans effective on July 1, 2006.

SEC. 8006. PLUS LOAN INTEREST RATES AND ZERO SPECIAL ALLOWANCE PAYMENT.

• Increases PLUS loan interest rate from current law 7.9 percent to 8.5 percent effective July 1, 2006, but in an apparent oversight applies the 8.5 percent PLUS interest rate only to FFELP, but not DL PLUS loans.
• Conf. Rpt. does not accept House change to keep variable interest rates; instead on July 1, 2006 a borrower's FFELP and DL Stafford interest rate will be a fixed one set at 6.8 percent.
• Rejects House provision allowing borrower to choose either a variable or fixed rate consolidation loan leaving current fixed rate in place.
• The Conf. Rpt. continues to allow a special allowance payment when the student interest rate is below the calculated lender rate. However, The Conf. Rpt. ends the reverse practice and requires lenders to return to the government the difference between the student rate if it is higher than the calculated lender rate rather than the current practice of the lender retaining such difference.

SEC. 8007. DEFERMENT OF STUDENT LOANS FOR MILITARY SERVICE.

• Authorizes FFELP, DL, and Perkins loan deferments of up to three years for borrowers serving on active duty during a war, military operation, or national emergency, as well as, for National Guard personnel serving in a similar fashion.

SEC. 8008. ADDITIONAL LOAN TERMS AND CONDITIONS.

• Mandates that a student studying at an overseas school in a program of study that is approved by the home institution for credit or for study at an eligible foreign school must have such enrollment verified by the lender or guaranty agency before loan proceeds are disbursed.
• DL repayment options except the income-contingent plan are to be the same as FFELP repayment options.
• The Conf. Rpt. phases-out the FFELP origination fee according to the following schedule: a two percent fee is charged from July 1, 2006 through July 1, 2007; after the preceding date drops to 1.5 percent through July 1, 2008; after the preceding date drops to one percent through July 1, 2009; after the preceding date drops to 0.5 percent through July 1, 2010; and, after the preceding date and thereafter is totally eliminated.
• The Conf. Report phases-out the Direct Loan origination fee according to the following schedule: a three percent fee is charged from the date of enactment of the Higher Education Reconciliation Act of 2005 (the date the president signs this bill, S. 1932) through July 1, 2007; after the preceding date drops to 2.5 percent through July 1, 2008; after the preceding date drops to 2 percent through July 1, 2009; after the preceding date drops to 1.5 percent through July 1, 2010; and, after the preceding date and thereafter is set at one percent.
• The Conf. Rpt. specifically authorizes the Secretary to reduce an origination fee or the current law's authority for the Secretary to reduce the DL interest rate if such an action would encourage on-time repayment of the loan.

SEC. 8009. CONSOLIDATION LOAN CHANGES.

• Single holder rule is not changed by Conf. Rpt.
• Eliminates in-school and spousal consolidation options.
• A subsequent consolidation loan may be made in the DL Program only if the FFELP borrower wishes to obtain an income contingent repayment plan and, the borrower is trying to avoid default, but that is conditioned by the requirement that a such a loan has been submitted to a guaranty agency for what used to be called "preclaims assistance" but is now labeled as "default aversion."
• Also, in the Conf. Rpt. is a provision providing that only if a FFELP borrower has an application for a consolidation loan rejected by a lender or the application is rejected because the borrower wanted income-sensitive repayment terms, then the borrower can receive a direct consolidation loan.
• A borrower with a defaulted loan can receive a DL consolidation loan to resolve the default.
• Unless otherwise specified the terms of DL consolidation loans are the same as FFELP consolidation loans.

SEC. 8010. REQUIREMENTS FOR DISBURSEMENTS OF STUDENT LOANS.

• Restores previously expired HEA provisions providing that schools with default rates for each of the last three years for which data was available that had a cohort default rate below 10 percent could disburse a student loan in a single installment for short enrollment periods and such schools also did not have to withhold loan proceeds for 30 days after a borrower began a course of study for first-year, first time borrowers. Both provisions are effect beginning on the date of enactment of S. 1932, the Higher Education Reconciliation Act of 2005 (the date the president signs the bill).

SEC. 8011. SCHOOL AS LENDER.

The Conf. Rpt. places the following eligibility requirements into law in order for a school to participate as in the school-as-lender program:

• Maintains current law that at least one full-time person responsibilities are the administration of financial aid.
• Maintains the current law provision that it not be a home study school.
• Prohibits loans to undergraduate students.
• Clarifies that only subsidized and unsubsidized loans may be made to graduate or professional students and removes previous borrowing or denial criteria from law.
• Prohibits loans to borrowers not enrolled at the school.
• Adds new requirement that financing, servicing, or administration Title IV contracts are made on a competitive basis.
• Mandates that school-as-lender loan origination fee or interest rate or both must be less than that authorized in the HEA.
• Reduces the cohort default rate eligibility criterion from 15 to 10 percent.
• Requires compliance audit and such audit results must be submitted to the Secretary.
• Provides that special allowance payments, interest payments, ED interest subsidies, and any proceeds from the sale or other disposition of loans must be used for need-based grant programs by the school.
• Retains current law provision that reasonable and direct administrative expenses may be retained by the school from contract proceeds.
• Provides that schools must meet all eligibility and other requirements in subparagraphs (A) through (F) as in effect the day before the date of enactment of the Higher Education Reconciliation Act of 2005 (the day the president signs the bill), and must make such loans on or before April 1, 2006. If a school does not meet these eligibility and April 1, 2006 disbursement requirements it may not participate in the School-as-lender program in the future.

SEC. 8012. REPAYMENT BY THE SECRETARY OF LOANS OF BANKRUPT, DECEASED, OR DISABLED BORROWERS; TREATMENT OF BORROWERS ATTENDING SCHOOLS THAT FAIL TO PROVIDE A REFUND, ATTENDING CLOSED SCHOOLS, OR FALSELY CERTIFIED AS ELIGIBLE TO BORROW.

• Technical change to SEC. 437's heading to more accurately reflect the section's provisions.

SEC. 8013. ELIMINATION OF TERMINATION DATES FROM TAXPAYER-TEACHER PROTECTION ACT OF 2004.

• The Conf. Report makes permanent the temporary elimination of the 9.5 percent lender return as enacted in the Taxpayer-Teacher Protection Act Of 2004.
• The Conf. Report makes permanent the elimination of the 9.5 percent lender return using recycling as enacted in the Taxpayer-Teacher Protection Act Of 2004 effective on the date of enactment of the Higher Education Reconciliation Act of 2005 (day the president signs the bill). However, governmental and nonprofits may continue to use recycling until December 31, 2010 as long as they meet certain conditions detailed below.
• The Conf. Rpt. allows recycling to continue until December 31, 2010 for loan holders that as of the date of enactment of S. 1932 and during the quarter which the special allowance was paid to a "unit of State or local government or a nonprofit private entity" and must not be "owned or controlled by, or under common ownership or control with, a for-profit entity." Furthermore, in order to continue recycling such entities must have less than $100 million in loan volume for which such special allowances were paid in the most recent quarterly payment before September 30, 2005.
• Eliminates a termination date so new borrowers after October 1, 2005 are eligible for the bill's teacher loan cancellation benefit of up to $17,500. The provision is effective as if enacted on October 1, 2005 and establishes prerequisites for private school teachers to qualify for FFELP or DL loan forgiveness

SEC. 8014. ADDITIONAL ADMINISTRATIVE PROVISIONS.

• The Conf. Rpt. provides that for subsidized and unsubsidized loans for which a guarantee of principal that is made on or after July 1, 2006, a fee of not more than one percent of principal will be deposited into a guaranty agencies Federal Student Loan Reserve Fund. This fee may be either collected from the proceeds of the borrower's loan or may be made by payment from other non-Federal sources. Mandates that guaranty agencies who participate in the Voluntary Flexible Agreement (VFA) program charge the one percent fee on subsidized and unsubsidized loans.
• Reduces insurance from 98 percent to 97 percent for any loan first disbursed on or after July 1, 2006.
• Insurance and reinsurance is set at 100 percent for exempt claims that are defined as follows: "the borrower (or the student on whose behalf a parent has borrowed), without the lender's or the institution's knowledge at the time the loan was made, provided false or erroneous information or took actions that caused the borrower or the student to be ineligible for all or a portion of the loan or for interest benefits thereon."
• Reduces claim payments from 100 percent to 99 percent for lenders and servicers designated as exceptional performers.
• Eliminates the requirement that a borrower forebearance request be in writing. Instead the forebearance agreement must be documented confirming a borrower's agreement by notice to the borrower and noting this in the borrower's file.
• Changes guaranty agency agreements with the Secretary to preclude an "excessive proportion" of agency default recoveries come from loan consolidations. Excessive proportion is defined as over 45 percent.
• Requires on or after October 1, 2006 that borrowers not be charged by a guaranty agency more than 18.5 percent of loan principle and interest for collection costs on a defaulted loan that is paid off through consolidation and, further, 8.5 percent of the amount charged is returned to the government.
• Eliminates the Secretary's waiver authority of illegal inducement HEA restrictions for guaranty agencies participating in the Voluntary Flexible Agreement Program.
• A graduate or professional student or a parent must completely repay to the Secretary or loan holder any Title IV monies they have fraudulently received in order be eligible to receive a PLUS loan.
• Reduces the number of payments to rehabilitate a loan from 12 months of consecutive payments to 9 payments made during 10 consecutive months within 20 days of the due date.

SEC. 8015. FUNDS FOR ADMINISTRATIVE EXPENSES.

• Currently, ED costs for administering the Title IV programs are mandatory, entitlement spending. Such ED administrative costs will now be subject to annual appropriations, but guaranty agency account maintenance fees remain mandatory, entitlement expenditures.

SEC. 8016. COST OF ATTENDANCE.

• Permits room and board costs for less than half-time students to be included in their COA using the current statutory room and board requirements. However, the use of a room and board cost allowance for less than half-time students is limited to "not more than 3 semesters or the equivalent, of which not more than 2 semesters or the equivalent may be consecutive."
• Permits a one-time inclusion of the cost for a first professional credential in COA for a student in a program requiring professional licensure or certification.

SEC. 8017. FAMILY CONTRIBUTION.

• Effective July 1, 2007, increases the dependent student IPA from $2,200 to $3,000.
• Effective July 1, 2007, the Conf. Rpt. increases IPA for independent students without dependents other than a spouse from $5,000 to $6,050 for single students, from $5,000 to $6,050 for married students both enrolled, and from $8,000 to $9,700 for married students with one enrolled.
• Effective July 1, 2007 reduces the percentage of dependent student assets that are taxed from 35% to 20%; for independent students without dependents other than a spouse reduces the asset conversion rate from 35% to 20%; for independent students with dependents other than a spouse reduces the asset conversion rate from 12% to 7%.

SEC. 8018. SIMPLIFIED NEED TEST AND AUTOMATIC ZERO IMPROVEMENTS.

• Expands eligibility for the Simplified Need Test for students and parents who received benefits from a means-tested Federal benefit program. The term "means-tested Federal benefit program" means a mandatory spending program of the Federal Government, other than a Title IV program, in which eligibility for the program's benefits, or the amount of such benefits, are determined on the basis of income or resources of the individual or family seeking the benefit, and includes such programs as the Supplemental Security Income program, Food Stamps, School Lunch, TANF, special nutrition program for women, infants, and children, or other programs identified by the Secretary.
• Expands Automatic Zero eligibility in a similar fashion to the SNT changes above and raises the income cap to $20,000.

SEC. 8019. ADDITIONAL NEED ANALYSIS AMENDMENTS.

• Active duty members of the armed forces are treated as independent students.
• 529 plans are to be considered as assets of the parent not the dependent student.
• Exempts certain family-owned small businesses from asset consideration.
• If non-Title IV aid is received to offset a specific component of COA, and the aid is excluded from the estimated financial assistance OR COA, it must be excluded from both.

SEC. 8020. GENERAL PROVISIONS.

• Modifies the academic year definition by reducing the minimum 30 weeks of instructional time for programs whose course of study is measured in clock hours to 26 weeks but credit hour schools must offer a minimum of 30 weeks.
• Domestic telecommunications programs are Title IV eligible as long as such a program is determined to effectively deliver distance education programs by an ED recognized accrediting agency and such agency is qualified to evaluate distance education programs.
• Liberalizes the restrictions on distance education programs by eliminating both the current statutory requirement that a certificate program be at least one year in length and eliminates the limit that no more than 50 percent of the total courses at the school can be distance education related.
• An eligible program includes those that utilize direct assessment of student learning or recognizes such direct assessment for the awarding of credit or clock hours for past experience providing such an assessment is consistent with the school's accreditation or program utilizing the assessments results. Such a program must seek the Secretary's initial approval.

SEC. 8021. STUDENT ELIGIBILITY.

• Adds a new Title IV eligibility requirement that a student must repay to the lender in the case of Part B loans and must repay to the Secretary any other Title IV aid for which the student obtained such funds fraudulently and was convicted of or pled "no contest" or guilty to such a crime.
• Modifies current law by dropping the specific HEA references for tax information for IRS verification (e.g. the adjusted gross income, Federal income taxes paid, filing status, and exemptions reported by applicants (including parents)) and instead references the Tax Code provision on income contingent loan repayment sharing of IRS information with ED employees. The Tax Code only references the following tax information: "taxpayer identity information with respect to such taxpayer, the filing status of such taxpayer, and the adjusted gross income of such taxpayer."
• Modifies the HEA provision providing for Title IV ineligibility for sale or possession of illegal drugs so that the provision applies only for convictions taking place while a student is enrolled in school and was receiving Title IV assistance.

SEC. 8022. INSTITUTIONAL REFUNDS.

• Permits multiple leaves of absence supporting ED's current practice.
• Opens up the possibility for clock hour schools to use scheduled hours to determine whether the student has passed the 60% point and, therefore, earns 100% of aid.
• Spells out late disbursement requirements.
• Implements a 45-day timeframe within which the institution must return funds rather than the current regulatory 30-day timeframe.
• Clarifies the application of the 50% provision for student repayments, overturning the Department's current interpretation simply dividing in half the amount of grant the student must repay.
• Writes into law that a student does not have to return amounts less $50 which is an increase above the $25 now in current regulations.

SEC. 8023. COLLEGE ACCESS INITIATIVE.

• Requires guaranty agencies to provide ED with information for the development of web links accessible to students and parents so that they may have a comprehensive listing of postsecondary education opportunity programs, publications, web sites and other services located in the States for which the agency is the designated guarantor.
• Agencies must undertake activities to promote access to a postsecondary education providing information on college planning, career preparation and financing an education. They are to coordinate with other entities that provide or distribute such information.
• Guaranty agencies are required to pay for such activities from their operating or reserve funds.
• These activities must be accomplished within 270 days of the Reconciliation bill's signing into law by the president.

SEC. 8024. WAGE GARNISHMENT REQUIREMENT.

• Increase the amount of wages that may be garnished from 10 to 15 percent, but current law is retained allowing a greater percentage if the individual agrees.

Summary prepared by NASFAA's legislative staff.

Posted February 2, 2006 on www.NASFAA.org, the Web Site of the
National Association of Student Financial Aid Administrators (NASFAA).
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