The House of Representatives is scheduled to debate, and expected to pass the College Student Relief Act (H.R. 5) today.

The bill was introduced on Friday by House Education and Labor Committee Chairman George Miller (D-CA). Nearly half of the House, 209 of the 435 members , cosponsored the bill, although none of the cosponsors were Republican. A companion bill (S. 282) was introduced by Sen. Richard Durbin (D-IL).

The bill would gradually reduce the interest rate on new subsidized Stafford loans from 6.8 percent to 3.4 percent over a five year period. Interest rates, for new originations only, would be reduced under the following schedule:

• loans first disbursed on or after July 1, 2007 and before July 1, 2008: 6.12 percent
• loans first disbursed on or after July 1, 2008 and before July 1, 2009: 5.44 percent
• loans first disbursed on or after July 1, 2009 and before July 1, 2010: 4.76 percent
• loans first disbursed on or after July 1, 2010 and before July 1, 2011: 4.08 percent
• loans first disbursed on or after July 1, 2011 and before Jan. 1, 2012: 3.40 percent

The legislation would cost more than $7 billion, according to the Congressional Budget Office. To offset the costs and comply with the "paygo" rule passed earlier this year, H.R. 5 would reduce government subsidies to lenders and increase the amount lenders pay to the government. In a press release Miller argued that five of the six measures proposed to offset the cost of lowering interest rates "have been proposed in the President's Budget, or were already debated and passed in the House or Senate Committees during Budget Reconciliation last year, but were not enacted into law."

Loans first disbursed on or after July 1, 2007 would:

1. Decrease the lender Special Allowance Payment (SAP) rate on Stafford, PLUS and Consolidation loans by .1 percentage point (10 basis points). This provision only applies to the lenders which hold 90 percent of all loan volume. Lenders with a combined loan volume that comprises 10 percent of all loan volume (99 percent of FFEL lenders) are exempt.
2. Lower lender insurance rates from 97 percent to 95 percent except for lender-of-last resort and exempt claims which would continue to receive 100 percent insurance
3. Eliminate "Exceptional Performer" Lender Status
4. Increase lender origination fees for Stafford, PLUS and Consolidation loans from .5 percent to 1 percent
5. Gradually lower guaranty agency collection fees from 23 percent to:
   • 20 percent beginning Oct. 1, 2007
   • 18 percent beginning Oct. 1, 2008
   • 16 percent by 2010 (according to Miller's press release, but this language is not included in the language of the bill)
6. Increase the annual fee on consolidation loans from 1.05 percent to 1.30 percent if the application is received on or after July 1, 2007 and if at least 90 percent of the outstanding principal and interest on loans held by the lender is comprised of consolidation loans.

Unlike the interest rate reduction, the increased fees and cuts to lender subsidies would not end on Jan. 1, 2012.

Miller continued his campaign to mobilize support for the bill. "This legislation will be a vital first step towards helping lower college costs for millions of low- and middle-income students, while keeping our promises to taxpayers to maintain responsible spending," Miller said in a press release. "In the new Congress, we must continue to do everything possible to address rising costs so that no qualified student is prevented from going to college because of the price."

Miller's colleague across the isle, Howard "Buck" McKeon (R-CA), described the bill as "well-intentioned" in a letter to Miller, but criticized the process used to pass the bill. In the letter, McKeon writes that Miller has written the House Rules Committee to prevent the consideration of any amendments to the bill. He urged Miller to reconsider this request and consider a bill McKeon introduced to provide greater transparency on college costs and try to hold institutions accountable for tuition, fee, and other cost increases.

"In light of the unprecedented, closed manner in which this Congress has begun and the real opportunity for bipartisan cooperation on the twin priorities of college access and affordability, I respectfully ask that you reconsider your request and urge the Committee to allow the consideration of this balanced amendment," McKeon wrote in his letter to Miller. "[W]ith some degree of bipartisan cooperation, I believe [H.R. 5] could be made better and more meaningful not just for certain college graduates who would benefit from the bill in its current form, but for current and future college students as well."

Other critics of the bill argued that the legislation does little to increase college access and does not provide a substantial benefit to borrowers. Many supported Democrats for investing in student aid, but questioned if the $7 billion could have been better spent.

In a letter to lawmakers, NASFAA President Dallas Martin endorsed the College Student Relief Act, but urged lawmakers to place the "highest priority" on increasing Pell Grant funding, recommending that the maximum Pell Grant award for FY 2008 be increased to $5,100. In addition, Martin advocated sensible modification and increased funding of campus-based financial aid. He also urged lawmakers to increase federal loan limits so that borrowers are not forced to take out alternative, private loans which generally carry a higher interest rate and usually lack borrower benefits like deferments, consolidation or loan cancellation for those who pursue certain careers.

"NASFAA has long-supported and urged congressional action to change the Title IV programs to achieve the goal of universal access to a postsecondary education," Martin wrote. "This bill is a positive first step in rebuilding the Title IV student assistance programs."

No matter what happens in the House today, the legislation is likely to be changed if the bill is considered by the Senate. This would force a conference between the two chambers to negotiate a compromise between the two versions of the bill. While House Democrats can use their majority to force legislation through, the Senate may have to compromise with Republicans to secure 61 votes in order to invoke cloture which is needed to prevent a filibuster. This suggests that before the bill can be sent to the President to sign into law, Democrats will have to make changes to the bill in order to satisfy Republicans. Further, the bill would have to be approved by the Administration which expressed its opposition to the bill in a "Statement of Administration Policy."

Additional Media Coverage

House to Vote Student Loan Interest Bill (Associated Press)

Educating Democrats (The Wall Street Journal A paid subscription is required

Democrats' student aid plan is limited (McClatchy Newspapers)

Opinion: Halving Student Loan Interest Rates Is Unaffordable and Ineffective (The Heritage Foundation)

By Haley Chitty
NASFAA Assistant Director for Communications

Posted 01/17/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.