The House Education and Labor Committee approved by a unanimous voice vote on Wednesday a bipartisan bill aimed at ensuring that the turmoil in the U.S. credit markets does not hinder access to federal student loans. One amendment to the bill was defeated by the committee.
The Ensuring Continued Access to Student Loans Act (H.R. 5715) would give the U.S. Department of Education temporary authority to purchase loans from FFELP lenders, so these lenders can raise capital to originate new loans. However, the Department could only purchase these loans if it would not result in a net cost for the federal government. A NASFAA summary of the bill was provided earlier this week.
"NASFAA actively advocated for many of these provisions and I believe that the House bill, with its student friendly provisions, when combined with other benefits found in Senator Kennedy's bill, will be a win for students," said NASFAA President and CEO Dr. Phil Day. The Senate has yet to take up Senator Edward Kennedy's (D-MA) bill, the Strengthening Student Aid for All Act, which was introduced last week.
The U.S. House of Representatives is currently operating under "pay go" provisions. This requires any legislation passed by the House to be cost neutral - any additional costs created by a bill have to be offset by equal or greater savings. It is unknown if the Ensuring Continued Access to Student Loans Act is cost neutral. The education committee acted so quickly on the bill that the Congressional Budget Office (CBO) has not had a chance to estimate the cost (if any).
During Wednesday's brief markup, Rep. Tom Price (R-GA) tried to amend the bill by requiring any additional costs created by the bill be offset by cutting costs elsewhere. Education committee Chairman Rep. George Miller (D-CA) argued that this amendment was unnecessary because the CBO was required to provide a cost estimate and the bill could not be passed if it did not comply with pay go. Price's amendment was defeated by the committee.
Rep Rob Andrews (D-NJ) raised a concern that the bill could unintentionally affect schools wrestling with the "90/10 provision," which requires a school to receive at least 10 percent of its funding from non-Title IV sources. Andrews argued that students taking advantage of the increased loan limits at these schools might push the revenue from Title IV funds past the 90 percent limit, making these schools ineligible for Title IV programs. The committee's Senior Republican Rep. Howard "Buck" McKeon (R-CA) argued that some schools might be forced to raise tuitions to remain in compliance with the 90/10 provision.
Miller assured Andrews and McKeon that he was aware of these concerns and said he planned to deal with this issue through changes to the 90/10 provision in the Higher Education Act reauthorization bill that the House and Senate are currently negotiating.
"If this bill is successful it will be passed around the same time as HEA and we'll deal with [the 90/10 provision] in HEA bill," Miller said.
McKeon voiced restrained support for the bill noting that the legislation would provide "modest, yet meaningful steps," and that allowing ED to temporarily act as a secondary market would only provide a modest amount of liquidity.
"With this legislation, we will begin to restore confidence in the market through increased liquidity and new benefits and protections for borrowers," McKeon said.
In addition to allowing ED to act as a secondary market, the bill would:
- Reduce borrowers' reliance on costlier private college loans by increasing the annual loan limits on federal college loans by $2,000 for all students, and by increasing the aggregate (the total loan limit over the course of a student's education) loan limits to $31,000 for dependent undergraduates and $57,500 for independent undergraduates;
- Give parent borrowers more time to begin paying off their federal PLUS loans by providing them with the option to defer repayment until up to six months after their children leave school - giving families more flexibility in hard economic times;
- Help struggling homeowners pay for college by making sure that short-term delinquencies in mortgage payments don't prohibit otherwise eligible parents from being able to borrow parent PLUS loans. Under current law, parents with an adverse credit history are ineligible to receive a parent PLUS loan, except under extenuating circumstances. The legislation would temporarily classify as an extenuating circumstance delinquencies on home mortgages of up to 180 days, making it possible for parents who are being strained by the current housing market to secure loans for their children;
- Clarify that existing law gives the U.S. Education Secretary the authority to advance federal funds to guaranty agencies in the event that they do not have sufficient capital to originate new loans, and allow guaranty agencies to carry out the functions of lender of last resort on a school-wide basis. Under the Higher Education Act, these guaranty agencies are obligated to serve as a nationwide network of lenders of last resort if requested to do so by the Education Secretary;
- Include a Sense of Congress that calls on federal financial institutions, including the Federal Financing Bank, to consider using their current authorities to inject liquidity into the student loan marketplace at no cost to the taxpayer to ensure students and parents continue to have access to low-cost federal loans.
"It's good news that, so far, the turmoil in the credit markets hasn't kept any students from getting federal college aid, but we need to provide families with every assurance that this will continue to be the case heading into the fall," Miller said. "This legislation, along with the federal loan safeguards that already exist, will help ensure that students and families will continue to be able to access the low-cost loans they need for college, regardless of what's happening in the credit markets."
Media Coverage and Resources
By Haley Chitty
NASFAA Assistant Director of Communications
Posted 04/10/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
