09/17/2007
(original message posted via email)

OGSLP Legislative Update

Budget Reconciliation Update - College Cost Reduction and Access Act

Members of the House and Senate met September 5, 2007 to work on a compromise for the College Cost Reduction Act of 2007 (H.R. 2669) and the Higher Education Access Act of 2007 (S. 1762). Agreement was reached and the final conference report on "The College Cost Reduction and Access Act" (H.R. 2669) has been filed. On September 7, "The College Cost Reduction and Access Act" passed by a vote of 79 to 12 on the Senate floor and by a vote of 292 to 97 on the House floor. Next, the bill will go to the President for signature. The White House is not expected to veto this legislation.

OGSLP supports the following news release issued on September 10, 2007 by the National Council of Higher Education Loan Programs:

NCHELP Statement on H.R. 2669, the College Cost Reduction and Access Act

WASHINGTON, D.C. -- The House and Senate on Friday passed by overwhelming margins H.R. 2669, The College Cost Reduction and Access Act. The National Council of Higher Education Loan Programs (NCHELP) compliments the Congress on keeping the affordability of postsecondary education and training as a top legislative priority but expresses severe reservations about the manner in which these initiatives are funded.

“As the nation and its postsecondary institutions prepare for the largest secondary school graduating classes in history, the Congress failed to increase funding by one new dollar. The sole funding for the provisions provided in the bill come from the Federal Family Education Loan Program (FFELP), the nation’s largest student financial aid program. With the dramatic growth of postsecondary enrollments just a few years away, the Congress will not only have to provide more funds for increases in enrollments but also to backfill for the cuts to the FFELP.

“H.R. 2669 lacks a strong public policy basis, as student loan benefits currently being provided by the nation’s lenders, which last year stepped up with over $70 billion to meet the needs of the nation’s students, will be reviewed in recognition of almost $ 39 billion in cuts that has occurred since February, 2006. The overall lender cuts will severely reduce student and family choice and eliminate options to making their education and training more affordable. While the Congress recognized the contributions of nonprofit lenders, other features such as the shift to auctioning off the right to make parent PLUS loans and the deep cuts to for profit lenders will have severe consequences over the next few years. Limiting the availability of public service loan forgiveness to Direct Loan borrowers is unfair to 80% of the nation’s borrowers.

“The Congress also had an opportunity to advance sound public policy through recommendations advanced by the nation’s guaranty agencies to provide a model of the future to enhance delinquency and default prevention. Instead, the Congress cut funding for guaranty agencies even more than anticipated. Students, borrowers and schools have come to rely on guaranty agencies to promote access to higher education and to employ new strategies and technology to reduce defaults. Congress’ action could lead to reduced services and higher default rates.

“H.R. 2669 keeps a national focus on postsecondary education and training today, but unfortunately it is at the expense of tomorrow’s students.”

NCHELP Summary of the College Cost Reduction and Access Act

Below is a preliminary summary of the provisions of the College Cost
Reduction and Access Act, as contained in the Conference Report for this budget
reconciliation measure. The summary is broken down between the provisions that save
money (the FFELP cuts) and those that spend the savings (after setting aside the $750
million required under the Budget Resolution).

Provisions That Save Money

Guaranty Agency Payments
• Collection retention is cut from 23% to 16% beginning October 1, 2007.
• The account maintenance fee is cut from 0.10% to 0.06%. No specific effective
date is provided.

Special Allowance
• For Stafford and Consolidation loans first disbursed on or after October 1, 2007
held by an eligible not-for-profit lender, reduces SAP by 0.40%.
• For Stafford and Consolidation loans first disbursed on or after October 1, 2007
held by other lenders, reduces SAP by 0.55%.
• For PLUS (including GradPLUS) loans first disbursed on or after October 1, 2007
held by an eligible not-for-profit lender, reduces SAP by 0.70%.
• For PLUS (including GradPLUS) loans first disbursed on or after October 1, 2007
held by other lenders, reduces SAP by 0.85%.
• A detailed definition of an eligible not-for-profit lender is provided. Included is a
limitation to entities acting as a lender on the date of enactment (though a State
may waive this requirement if it determines such action is necessary to carry out
the purposes of the State). An eligible not-for-profit entity must be the sole owner
of the beneficial interest in loans and income from loans (though such loans may
be pledged as security to secure debt) and may not be owned or controlled, in
whole or in part, by a for-profit entity. Trustee compensation cannot exceed
reasonable and customary fees.

Lender Fees
• Lender fees are increased from 0.5% to 1.0% for loans first disbursed on or after
October 1, 2007.

Exceptional Performer Status
• EP status is eliminated effective October 1, 2007, except that lenders that received
the designation prior to that date retain EP status for the remainder of the year for
which the designation was made. (It is not clear what the effect of this extension
will be, as most if not all EP designations will on October 1, 2007 have extended
beyond their initial term).

Lender Insurance
• Lender insurance is reduced from 97% to 95% for loans made on or after October
1, 2012.

Parent PLUS Auction Program
• Beginning July 1, 2009, FFEL parent PLUS loans will subject to an origination
rights auction.
• State based auctions will occur every 2 years, with the two lowest bidders (lenders
bid on the amount of special allowance they will accept) being the only lenders
permitted to originate parent PLUS loans for those cohorts of students within the
state until the students graduate.
• The Secretary prequalifies bidders regarding borrower benefits, servicing, and
financial capacity.
• The maximum bid cannot exceed CP plus 1.79%.
• Each winning bidder receives SAP at the rate bid by the second lowest bidder.
• Winning bidders must agree to originate parent PLUS loans to each parent
borrower who chooses the lender and seeks a FFEL PLUS loan to enable a
dependent student to attend an institution of higher education in the State.
• The Secretary is to choose an eligible lender of last resort for each State.
• The Secretary guarantees the PLUS loans at 99% and no lender fees are charged.
• Special provisions apply to the consolidation of auctioned parent PLUS loans.

Provisions That Spend Money

Interest Rate Reductions
• Reduces the interest rate on subsidized Stafford FFEL and Direct loans to
undergraduates as follows:

• For a loan first disbursed between July 1, 2008 and June 30, 2009, to
6.0%.
• For a loan first disbursed between July 1, 2009 and June 30, 2010, to
5.6%.
• For a loan first disbursed between July 1, 2010 and June 30, 2011, to
4.5%.
• For a loan first disbursed between July 1, 2011 and June 30, 2012, to
3.4%.

Pell Grants
• Provides new mandatory funding that is projected to be sufficient to increase the
maximum Pell Grant by $490 for the 2008-2009 and 2009-2010 award years,
$690 for the 2010-2011 and 2011-2012 award years, and $1090 for the 2012-2013
award year.
• Eliminates tuition sensitivity for award years beginning July 1, 2007.

Loan Forgiveness for Public Service
• The Secretary cancels the balance of principal and interest on a non-defaulted
Direct Loan for a borrower who (i) has made 120 monthly payments on the DL
loan after October 1, 2007 under an income based repayment plan, a standard 10-
year repayment plan, or income contingent repayment, and (ii) is employed at the
time of forgiveness and during the 120-month period in a public service job. The
term public service job is defined broadly to include full time jobs in government,
military service, and at 501(c)(3) organizations, among others.

Reconsolidation
• Effective July 1, 2008, FFEL consolidation borrowers may obtain a DL
consolidation loan for the purpose of utilizing the public service loan forgiveness
program.

Direct Loan Repayment
• Periods of economic hardship, income based repayment, and standard FFEL and
DL repayment are included in the maximum repayment period for DL income
contingent repayment.

FFEL, DL and Perkins Deferments for Members of the Armed Forces
• Eliminates the current 3-year limitation.
• Extends the current deferment for the 180-day period following demobilization.
• Applies the military deferment to all Title IV loans (eliminates current restriction
which limit this deferment to loans made on or after July 1, 2001).
• National Guard, Reserve and retired military members called to active duty who
were enrolled within 6 months of activation, or are enrolled, are eligible for a
deferment during the 13 months following service.

Income Based Repayment
• Allows a FFEL or DL borrower (other than a parent PLUS borrower or a
consolidation borrower if the Consolidation loan was used to discharge a parent
PLUS loan) to elect for a period of up to 10 years to have payments limited to the
monthly amount by which the borrower’s (and his or her spouse’s) annual
adjusted gross income exceeds 150% of the poverty line for the borrower’s family
size.
• Interest due and not paid on subsidized loans is paid by the Secretary for a period
of 3 years (excluding periods in which the borrower has as economic hardship
deferment). Otherwise, interest on subsidized and unsubsidized loans is
capitalized at the time the borrower ends the election to make income based
payments (or begins to make payments as described below).
• Special allowance payments to lenders are to be calculated on the basis of unpaid
principal and accrued interest.
• The maximum monthly payment amount for borrowers who no longer qualify for
this payment plan or wish to discontinue the plan shall not exceed the monthly
amount for a standard 10-year payment plan based on the borrower’s situation
when the election was first made. The total payment period in such case is not
limited to 10 years.
• The Secretary shall repay a FFEL loan or cancel a DL loan to a borrower who at
any time elected income based repayment and for a period prescribed by the
Secretary (but not to exceed 25 years) (i) made payments under income based
repayment, (ii) made payment at least equal to those determined under the special
rules that apply for borrowers who no longer qualify or discontinue income based
repayment, (iii) made payments under a standard 10-year payment plan, (iv) made
payments under the DL income contingent repayment plan, or (v) been in an
economic hardship deferment.
• The Secretary is directed to establish procedures for annually determining
eligibility for income based repayment, including verification of income.
• These changes will be effective July 1, 2009.

Economic Hardship Deferment
• Revises the poverty eligibility criterion to cover borrowers whose income does
not exceed 150% of the poverty line applicable to the borrower’s family size.
• Eliminates the debt burden eligibility criterion.

Need Analysis
• The income protection allowance is increased.
• The simplified needs test and auto-zero requirements are expanded and the
income limit is increased.
• A qualified educational benefit is considered an asset of the student if the student
is independent, otherwise of the parent
• The definition of “other financial assistance” is revised to exclude distributions of
financial assistance that are not included in gross income.

TEACH Grants
• Authorizes a new grant program to provide up to $4000 for each academic year
for undergraduate or postgraduate study by eligible teacher candidates. Applicants
must agree to serve for a total of 4 academic years within 8 years of completing
study as a full time teacher in certain fields at certain schools.
• Funds will be made available beginning July 1, 2008.

College Access Challenge Grant Program
• Establishes a new matching grant program for state and local government entities
and philanthropic organizations aimed at increasing the number of first generation
and low-income students. The program is funded at $66 million for each of the
2008 and 2009 fiscal years.

Minority-Serving Institutions
• Makes a new investment in Historically Black Colleges and Universities,
Hispanic-Serving Institutions and other minority serving institutions aimed to
ensure that students not only enter college, but remain and graduate.

Upward Bound
• Mandatory funding for 4 years is provided for assistance for certain projects that
did not receive assistance in FY2007.

Links to the College Cost Reduction and Access Act Legislative Information

• NCHELP September 10, 2007 News Release – NCHELP Statement on Passage of H.R. 2669, the College Cost Reduction and Access Act (PDF)

• NCHELP Summary of the College Cost Reduction and Access Act (PDF)

• The College Cost Reduction and Access Act (H.R. 2669) as passed by the Senate and House on September 7, 2007 (PDF)

• A black-line of Title IV, Parts B, D, G and I of the Higher Education Act of 1965, as they would be amended by the College Cost Reduction and Access Act (H.R. 2669), passed by the Senate and the House on September 7, 2007 (PDF)

• Conference Report and Joint Explanatory Statement of the College Cost Reduction and Access Act (PDF)

OGSLP will continue to keep you advised regarding important legislative actions. This and other legislative information can be found on OGSLP's Legislation Page. If you have questions, please contact Policy, Compliance, and Training at (405) 234-4432 or pct@ogslp.org.

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