Summary of Dems' Plan for Student Loan Reform

Congress took the first steps yesterday to pass a reconciliation bill that includes provisions to eliminate the Federal Family Education Loan Program (FFELP) and significantly boost funding for the Pell Grant program. The House Budget Committee voted 21 to 16 to report the bill to the full House for a vote.

With the Pell Grant program facing a three-year, $18 billion funding shortfall and the federal government facing a ballooning national debt, the Obama administration and Democratic leaders in Congress say that using savings generated by eliminating FFELP is the only way to avoid significant cuts to students' Pell Grants. The estimated cost of the Pell Grant program has ballooned due to an increase in enrollments, changes to the needs analysis formula, and more students being eligible for Pell Grants because of their declining financial situations. Administration officials have said that students' Pell Grant awards could be reduced by as much as 60 percent without additional mandatory funding generated by eliminating FFELP.

"The current economic climate creates tough decisions for everyone," said NASFAA President and CEO Joan Crissman. "It is encouraging that Congress continues to make funding student financial aid a top priority in these difficult times."

Democratic leaders in Congress have adopted an unorthodox plan to pass this controversial legislation. The House plans to pass the healthcare reform legislation that has already been passed by the Senate, clearing that bill to be signed into law. The House also plans to pass a separate reconciliation bill that would combine student aid reform with healthcare provisions to amend the healthcare reform bill passed by the Senate. Senate Democrats would then have to secure 50 votes to clear the reconciliation bill for the President, with Vice President Joe Biden casting the 51st vote.

Because of the unorthodox approach, an official version of the bill has not been released. The reconciliation bill marked-up by the House Budget Committee contained the Student Aid and Fiscal Responsibility Act (SAFRA). That SAFRA language is expected to be replaced with a streamlined bill when the reconciliation bill is sent to the House Rules Committee. The House could vote on the reconciliation bill as early as this week. While the new language has not been released, reports indicate that the new legislative language will:

Eliminate FFELP to $68 billion in savings, according to a letter from the Congressional Budget Office (CBO). (That estimated savings decreases to $40 billion when taking into account "market risk," however Congress is required to use the $68 billion estimate as specified under the Federal Credit Reform Act (FCRA).
Pay off a portion of the Pell Grant program shortfall and automatically increase the maximum Pell Grant by the Consumer Price Index (CPI)
Provide additional funding for Minority Serving Institutions

The bill may also include provisions that affect student loan interest rates and income-based repayment. NASFAA will provide a summary of the legislation once it has been released.

Unlike SAFRA, the new language is not expected to include:

The Perkins Loan Program overhaul
The American Graduation Initiative to provide $10 billion to Community Colleges
The $3.5 billion College Access and Completion Fund

The reconciliation package is expected to garner widespread support from the higher education community, but higher education associations are waiting to see the final language before offering official positions on the bill.

Besides the Pell Grant funding provided in the reconciliation bill, the healthcare reform legislation passed by the Senate includes more than $510 million for student aid in the 2010 fiscal year. The Senate healthcare bill would:

Eliminate the requirement for independent students to supply parental financial information to apply for aid from the Department of Health and Human Services
Increase annual and aggregate Nursing Student Loan
Create a pediatric specialty loan repayment
Create a Public Health Workforce Loan Repayment Program
Make grants to institutions to award scholarships to individuals employed in public and allied health positions
Set authorized funding levels for the National Health Service Corps
Make grants to institutions to provide need-based financial assistance in family medicine, general internal medicine, or general pediatrics
Make grants to institutions to provide tuition and fee assistance to workers employed in long-term care settings
Make grants to institutions for financial assistance to general, pediatric, and public health dentistry students
Establish various support programs for practitioners of geriatric medicine
Make nurse faculty eligible for the existing Nursing Student Loan Repayment Program.
Create a United States Public Health Sciences Track, giving students tuition remission and a stipend for up to 4 years, in exchange for a service obligation.
Reauthorizes Scholarships for Disadvantaged Students through 2015.
Excludes from taxable income all amounts received under the National Health Service Corps Loan Repayment Program, certain related state programs, or under any other State loan repayment or loan forgiveness program that provides for health care services in under-served or shortage areas.

In addition, the bill would require insurance companies offering health insurance that provides dependent coverage of children to continue to make such coverage available for unmarried adult children until the age of 26. The bill specifically allows schools to continue offering their own student health plans.

Posted 03/16/10 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.