The following is NASFAA's Initial Summary of the College Cost Reduction Act (H.R. 2669)

The Bill would:

• Cut interest rates in half on subsidized student loans over the next five years.
• Increase federal loan limits to provide borrowers with additional assistance in paying for college and to help them rely less on costlier private loans.
• Increase the maximum Pell Grant scholarship by at least $500 over the next five years, ultimately reaching a maximum scholarship of at least $5,200.
• Expand eligibility to include and serve more students with financial need.
• Provide upfront tuition assistance to qualified undergraduate students who commit to teaching in public schools in high-poverty communities or high-need subject areas.
• Provide loan forgiveness for first responders, law enforcement officers, firefighters, nurses, public defenders, prosecutors, early childhood educators, librarians and others.
• Revise policies to allow public servants to have their loans forgiven after 10 years.
• Establish a partnership with federal, state and local government entities, and philanthropic organizations through matching challenge grants aimed at increasing the number of first-generation and low-income college students.

To pay for this aid the bill would:

• Reduce special allowance rates to lenders
• Eliminate the exceptional performer status
• Reduce lender insurance
• Reduce guaranty agencies' collection retention
• Increase lenders' loan fees

Some more in depth details and additional highlights of the bill appear below:

Pell Increase

From the current level of $4,700, the maximum Pell Grant award would be increased by:

• $100 for award year 2008-09
• $200 for award year 2009-10
• $300 for award year 2010-11
• $400 for award year 2011-12
• $500 for award year 2012-13 and each subsequent award year.

The authorized Pell Grant maximum would be increased to:

• $7,600 for academic year 2008-09
• $8,600 for academic year 2009-10
• $9,600 for academic year 2010-11
• $10,600 for academic year 2011-12
• $11,600 for academic year 2012-13

Year-Round Pell Grants

The Secretary of Education would be authorized to award students two Pell grants during an award year to permit such students to accelerate progress toward their degree objectives by enrolling in academic programs for 12 months rather than 9 months.

Determination Of Academic Year For ACG And SMART

For purposes of ACG and SMART grant eligibility, a student would be considered to be enrolled in the first, second, third, or fourth academic year of a program based on the student's class standing, as determined by the institution at which the student is enrolled or accepted for enrollment.

Support For Working Students

For dependent students, there would be an income protection allowance of:

• $3,750 for the 2009-10 academic year
• $4,500 for the 2010-11 academic year
• $5,250 for the 2011-12 academic year
• $6,000 for the 2012-13 academic year

• $6,690 for the 2009-10 academic year
• $7,160 for the 2010-11 academic year
• $7,630 for the 2011-12 academic year
• $8,090 for the 2012-13 academic year

For married students where one is enrolled the amount would be:

• $10,720 for the 2009-10 academic year
• $11,470 for the 2010-11 academic year
• $12,220 for the 2011-12 academic year
• $12,960 for the 2012-13 academic year

Reduced Rates For Undergraduate Subsidized Loans

For loans first disbursed on or after July 1, 2006, and before July 1, 2013, the interest rate would be reduced as follows:

• 6.80 percent for loans made from July 1, 2006 to July 1, 2008
• 6.12 percent for loans made from July 1, 2008 to July 1, 2009
• 5.44 percent for loans made from July 1, 2009 to July 1, 2010
• 4.76 percent for loans made from July 1, 2010 to July 1, 2011
• 4.08 percent for loans made from July 1, 2011 to July 1, 2012
• 3.40 percent for loans made from July 1, 2012 to July 1, 2013

Increase In Annual Loan Limits for Third and Fourth Year Students

The maximum annual loan limits for students in their third or subsequent years would be increased from $5,500 to $7,500.

Increase In Aggregate Loan Limits

Aggregate loan limits would be increased:

• From $23,000 to $30,500 for undergraduate students
• From $65,500 to $73,000 for graduate students

Challenge Grant Program

A Challenge Grant program would be established to award matching grants to philanthropic organizations to increase the number of eligible students from underserved populations who enter and complete college. The grants would be given to organizations that:

• Provide need-based grants to eligible students
• Provide support to eligible students through school- or institution-based mentoring programs
• Conduct outreach programs to encourage eligible students to pursue higher education.

Increase Auto-Zero Threshold

The income threshold needed to be eligible for an auto-zero Expected Family Contribution would be increased from $20,000 to $30,0000 beginning July 1, 2009 and would then be tied to inflation for future years.

Changes To Tax Exclusions

Worksheet A would no longer be considered untaxed income under the proposed legislation and the credit for special fuels tax and foreign income exclusion would be eliminated from Worksheet B.

529 Savings Plan Changes

The bill would treat 529 savings plans as parents' assets and make 529 plans, prepaid tuition plans, and Coverdell Education Savings Accounts exempt from need analysis.

Loan Forgiveness

The Secretary would forgive up to $5,000 of the student loan obligation for any borrower who is employed full-time, for at least five consecutive years in an area of national need without defaulting on their loan.

Borrowers would be considered employed in an area of national need if they are employed as:

• An early childhood educator
• A nurse
• A foreign language specialist
• A librarian
• A highly qualified teacher of bilingual education or at a school in a low-income district
• A child welfare worker
• A speech-language pathologist
• A person working in national service (participants in projects under the National and Community Service Act of 1990)
• A public sector employee

Income Contingent Repayment For Public Sector Employees

The Secretary would forgive any remaining balance due for a borrower who has made 120 payments on an income contingent repayment plan and who is employed, and was employed for the 10-year period that they were making the payments, in a public sector job. The term "public sector job" is defined as a full-time job in emergency management, government, public safety, law enforcement, public health, education (including early childhood education), social work in a public child or family service agency, or public interest legal services (including prosecution or public defense).

Economic Hardship Deferment

The three year limitation on economic hardship deferment would be eliminated. The definition of economic hardship would be changed from 100 percent of the poverty line (for family of two) to 150 percent of the poverty line. The bill would also end the requirement that debt burden be 20 percent of Adjusted Gross Income (AGI) to qualify for economic hardship.

Income-Based Repayment

The bill instructs the Secretary to create a program that allows borrowers who have a partial financial hardship to pay only 15 percent of their discretionary income (the difference between AGI and 150 percent of the poverty line). Borrowers that have any debt after 20 years would have the remaining debt forgiven. PLUS loan borrowers would not be eligible for this program.

Penalties For Lack Of State Investment

The bill instructs the Secretary to withhold LEAP funding from any state that funds higher education during the 2008-09 academic year and future academic years at a lower level than the average amount provided during the five most recent, preceding academic years.

Incentives For Institutions To Keep Tuition Low

Beginning with the 2008-09 academic year, Pell Grant recipients at institutions that have tuitions equal to or less than the percentage change in the higher education price index (HEPI) will be given a 25 percent increase in their Pell award. Institutions that guarantee they will not increase tuition by more than the HEPI for five years (one-and-a-half years for an associate degree) will be given an additional 10 percent Pell increase for their students. The HEPI is defined as a "statistical measure of change over time in the prices of a fixed market basket of goods and services purchased by colleges and universities through current fund educational and general expenditures (excluding expenditures for research), as developed by the Bureau of Labor Statistics."

TEACH Grant

The bill establishes a $4,000 TEACH Grant and a $500 bonus TEACH Grant for students who commit to teach in areas of national need (i.e., STEM teachers). Undergraduates could receive up to $16,000 ($18,000 for STEM teachers) and graduates could receive up to $8,000 ($10,000 for STEM teachers). To be eligible, students would have to maintain at least a 3.25 GPA and be in the 75th percentile or better on admissions tests. TEACH Grant recipients who failed to meet their teaching commitment would have their grants turned into Stafford Loans.

Increases Come at the Cost of Lender Subsidies

The legislation would pay for increased student benefits by reducing lender subsidies. These changes would affect loans made on or after Oct. 1, 2007. The bill would:

• Reduce Special Allowance Rates To Lenders: The special allowance rate is a percentage of the average unpaid principal balance of a loan, including capitalized interest that the Department pays lenders. The bill would reduce the allowance rates on loans made on or after October 1, 2007.

• Eliminate Exceptional Performer Status: The bill would eliminate exceptional performer status for lenders. This status is given to certain lenders that meet minimum performance standards that allows them to receive 100 percent federal insurance on unpaid loans.

• Reduce Lender Insurance: The bill would reduce the insurance on unpaid loans from 97 percent to 95 percent.

• Reduce Guaranty Agency Collection Retention: Beginning Oct. 1, 2007, the amount that guaranty agencies would be allowed to retain from defaulted loan collections would be reduced from 23 percent to 16 percent.

• Increase Lenders' Loan Fees: The loan origination fee that lenders pay to the Department and that cannot be collected from borrowers would be .5 percent of the loan principal on any loan first disbursed on or after Oct. 1, 1993 and 1 percent of the principal on any loan first disbursed made on or after Oct. 1, 2007. However, lenders designated by the Secretary as a small lender (lenders in the bottom 15 percent of loan volume) would have their fees eliminated.

Media Coverage

An Ambitious Student Aid Bill (Inside Higher Ed)

Democratic Bill Would Further Cut Lender Subsidies to Pay for Pell Increase (The Chronicle of Higher Education) A paid subscription may be required

House education chair seeks college lender cuts (Reuters)

Bill Would Cut Student Lender Subsidies $18.75 Billion (Dow Jones)

House Panel Chairman Unveils Student Lender Subsidy Cut (The Wall Street Journal) A paid subscription is required

By Haley Chitty
NASFAA Assistant Director for Communications

Posted 06/13/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.