REAUTHORIZATION UPDATE

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REAUTHORIZATION UPDATE

• TURNING UP THE
• POLITICAL VOLUME!

Scott Miller, AES/ PHEAA Terry Muilenburg, USA
Funds
2
What Well Cover

• Reauthorization Progress, Or Lack Thereof
• Reauthorization Timeline
• Reauthorization Themes
• Differing Viewpoints on Reauthorization
• House Republicans Democrats
• Senate Democrats
• College community
• Political Challenges for Reauthorization

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Reauthorization Progress

• House Work is Underway
• Floor approval for teacher quality, graduate
  education, teacher loan forgiveness bills
• Committee approval of Accessibility bill
• Hearings, discussions on college costs other
  issues
• College cost bill introduced
• Title IV bill expected early 2004

4
Reauthorization Progress (contd)

• Senate Barely Started
• One hearing, so far
• Democrat message bill
• Process will start in 2004

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2004 Reauthorization Timeline

• Feb. House considers student aid bill
• July Senate considers reauthorization bill
• August Conference Committee prepares
• Sept. Conference Committee concludes
• Oct. Final House Senate approval Presidential
  Signature

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Obstacles to Reauthorization Progress

• Senate Will Not Go With Separate Bills As House
  Did, Instead Likely to Take up Only One That
  Comprises the Whole HEA
• Further Complicating the Picture Are the Looming
  November 04 Elections, As Each Party Jockeys for
  Winning Position on Education
• Fewer Legislative Days Than Usual for Congress
  to Act
• Scenario Is Quite Possible Where Reauthorization
  Does Not Finish Next Year

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Reauthorization Themes

• Affordability
• Accessibility
• Accountability
• Reflected in all proposals
• Continuation of philosophy reflected inNo Child
  Left Behind Act

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Affordability

• Congressional impatience with continuing college
  cost increases
• Rep. Buck McKeon (R, CA) leading rhetorical
  charge
• Committee report blames colleges, including state
  Colleges, for excessive cost increases
• Committee sets up College Cost Central website

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Rep. McKeons Affordability in Higher Education
Act

• Establishes College Affordability Index (CAI)
• Compares college costs to CPI over 3 years
• If tuition increases more than 2x the 3-year CPI,
  school must explain the increases develop a
  management and action plan to meet CAI in 2 years
• If goal not met, more reporting accounting and
  one-year left to meet goal

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Rep. McKeons Affordability in Higher Education
Act

• (CAI continued)
• Then, after a hearing, the school loses Campus
  Based aid
• All reports, financial information, etc. made
  public
• First measurement of tuition rates in 2008, first
  penalty cannot be levied until 2011
• Exceptions for low-cost schools

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Rep. McKeons Affordability in Higher Education
Act

• Transfer of Credits
• Directs schools to examine each course on its
  merits
• Credit transfer policy must be made public
• Accreditation by particular type of agency
  (regional or national) cannot be sole reason for
  denial of credit transfer
• College Affordability Demonstration Programs

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Accessibility

• Expanding Opportunities in Higher Ed. Act HR
  3039
• Eliminate 90/10 rule
• Eliminate 50 rule
• Remove obstacles to Hispanic Serving Institutions
  receiving aid under Title III
• Commission a study to examine the federal
  financial aid formula and forms in order to
  simplify and streamline the programs to make our
  student aid system more friendly and responsive
  to student needs

13
House Democratic Plan

• H.R. 3180 College Opportunity for All Act
• Allows limited loan refinancing
• Eliminate Origination Fees
• Eliminate single holder rule
• Increase income protection allowance for student
  earnings
• Double authorization for Pell Grant max.
• Study simplifying CM FAFSA
• Repeal drug-use penalty recent changes to CM
  tax tables
• Increase LEAP TRIO award maximums
• Create new public service loan forgiveness
  programs

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Political Polarization

• Rep. Miller
• While we must address the problem of spiraling
  tuition this year, however we must not take the
  wrong-headed approach of Republican proposals
  that would impose price controls and punish
  innocent students for tuition raises they have no
  role in determining. Instead we must address the
  fiscal policies that result in states' cutting
  aid to colleges and thus forcing students to pay
  higher tuitions.

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Sen. Kennedys College Quality, Affordability
and Diversity Improvement Act

• Lays out reauthorization themes and priorities of
  Senate HELP Committee Democrats
• While themes are similar -- access, affordability
  and college cost -- approaches are very
  different from House Republicans

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Senate Democratic Bill Access

• Increases maximum Pell Grant by 450 in first
  year
• Doubles HOPE Scholarship Tax Credit from 1500 to
  3000 and makes it refundable
• Eliminates origination fees on subsidized
  Stafford Loans
• Increases campus-based aid programs

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Senate Democratic Bill Access (contd)

• Goal is to make up average 3,800 in unmet need
  highlighted by Advisory Committee on Student
  Financial Assistance
• 500 increase in Pell
• 3000 in HOPE refundable credit
• 200 in increased campus-based aid
• 100 in saved loan origination fees
• Total 3,800

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Senate Democratic Bill College Cost Provisions

• Mandates College Cost Summit with
  representatives of institutions to negotiate
  voluntary limits on future tuition increases
• Requires institutions to include current
  information regarding discounts in application
  materials
• Implements a Higher Education Cost Index to
  track inflation in various costs associated with
  higher education

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Senate Democratic Bill Admissions Provisions

• Requires Institutions to Report Admissions
  Information Regarding
• of freshmen who self-identify as economically
  disadvantaged, relative of an alumnus, male,
  female, racial/ethnic group
• of freshmen admitted through binding early
  decision
• of freshmen admitted through regular admissions
• These proposals are controversial in the higher
  education community, which believes this is
  inappropriate federal intrusion into campus
  admissions practices. (note this should begin
  with a bullet, not a checkmark)

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Senate Democratic Bill FFELP and FDLP proposals

• Rewards FDLP Schools and Borrowers and Penalizes
  FFEL Providers
• Allows ED to give a financial reward payment to
  schools that participate in FDLP, which must be
  used for Supplemental Educational Opportunity
  Grants (SEOG)
• Allows one-time re-financing of consolidation
  loans, but only in FDLP, at a fixed interest rate

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Senate Democratic Bill FFELP and FDLP proposals
(contd)

• Allows write-off of ICR loans after 10 years for
  those in public service jobs
• Eliminates 9.5 floor on pre-10/1/93 loans
  financed from tax-exempt bonds
• Requires lenders to rebate windfall profits
  when borrower interest rate exceeds lender yield
  formula

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Political Polarization -- Again!
Chairman Boehner Issued a Stinging Press Release
on the Senate Democratic Bill

• the Senate Democrat plan lets colleges and
  universities continue to accept billions of
  dollars a year in federal subsidies without any
  new accountability to parents, students, and
  taxpayers, despite evidence that questionable
  spending practices by institutions are
  contributing significantly to exploding costs

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Political Polarization -- Again! (contd)

• Chairman Boehner Press Release (contd)
• resources that could be better spent
  strengthening Pell Grants for needy students
  would instead be used to coax schools to stay in
  a faltering loan program most schools dont even
  like

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Why This Approach? Is It Serious?

• In order to pay for access expansion proposals,
  needed to generate revenue.
• FFEL providers are the usual target when money is
  needed.
• And, under arcane budget rules, FDLP appears to
  save money.
• Senate staff have indicated this is a Message
  bill, and the message to FFEL is a stiff one.

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Why This Approach? Is It Serious? (contd)

• Good News proposals to legislate advantages for
  FDLP unlikely to move in a Republican-majority
  Congress and Republican Administration.
• Bad News revenue reduction proposals must be
  taken seriously, because there is no new money
  available for reauthorization.

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What Are the Real Costs of FFEL FDL Loans?

• Credit Reform Act Sets Congressional Scoring
  Rules
• New scoring rules were impetus behind FDLP in
  1993
• Estimates life-of-loan costs per dollar loaned
• Subsidy costs include estimates of in-school
  interest, defaults, lender g.a. payments,
  offset by lender borrower fees paid to the
  federal government
• Subsidy costs are discounted for time value of
  money

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What Are the Real Costs of FFEL FDL Loans?
(contd)

• FDL Costs Depend on Relationship Between Long-
  and Short-term Interest Rates
• In-school interest is treated as foregone revenue
• Borrower payments are treated as expected
  revenues
• Longer repayment plans generated larger revenue
  estimates

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What Are the Issues Regarding the Scoring of FFEL
FDL Loans?

• Credit Reform Does Not Count FDL Admin. Costs
• Authoritative Opinions
• Treasury Dept 2003 In a re-estimate, increases
  FDL costs by 5 billion
• OMB 2003 Revises FFEL costs downward by 3
  billion
• GAO 2001 Small swings in interest rates can
  cause major swings in FDL cost estimates
• ED OIG 1999 Impact of economic conditions on
  cost estimates makes it impossible to compare
  programs costs

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Split Within College Community

• Coalition for Better Student Loans
• Odd coalition of school associations lenders
• ACE, NASFAA, NAICU, NASULGC, AAUNCHELP, EFC,
  CBA, Sallie Mae, College Parents of America,
  others
• Surveys of parents students support goals

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Split Within College Community (contd)

• AASCU, USSA PIRG
• Alliance for Access Affordability
• USSA We believe that proposals to raise
  borrowing limits and charge students for
  consolidating loans serve the interests of
  lenders and allow dramatic tuition hikes, at the
  expense of students and taxpayers

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Coalition for Better Student Loans

• ACE, NAICU, NASULGC, AAU, Lenders Guarantors
• Substantial Increase in Loan Limits
• 10,000 total for 1st two years
• 30,000 aggregate for undergraduates
• 12,000 annually subsidized loans for graduate
  students
• 25,000 annually sub. unsub. for graduate
  students
• Schools can set lower limits
• Phase-out of Origination Fees

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Coalition for Better Student Loans (contd)

• More Repayment Options, Including
• Longer repayment terms
• Interest-only options
• lt Interest-only for borrowers demonstrating
  financial hardship
• Adhere to Original Purposes of Loan Consolidation
• No refinancing, retain single-holder rule
• Charge a fee, if necessary to offset improvements
• Expand Loan Forgiveness Opportunities

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Alliance for Access Affordability

• AASCU, USSA, U.S. PIRG
• Expand Federal Grant and Work Study Programs As
  the Preferred Alternative to Larger Loan Limits
• Maintain Current Aggregate Borrowing Limits in
  the Federal Student Loan Programs
• Promote "Borrower Friendly" Loan Repayment
  Policies
• Access to Income-Contingent Repayment for all
  borrowers
• Tax-credit for interest paid by low-income
  borrowers
• Require Colleges Universities to Develop a
  Comprehensive Plan to Provide Intensive Loan
  Counseling to Students
• Free Student Borrowers From Lender Taxes

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Political Challenges

• Direct Loans vs FFELP, Again!! (and Again.)
• House Republican Leaders Clashing With College
  Presidents
• Senate Democratic Leaders Clashing With College
  Presidents
• Budget Deficit Makes New Money Hard to Find
• Presidential Election-Year Politics Come Into
  Play
• Will We Finish By October 2004?

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REAUTHORIZATION UPDATE

• TURNING UP THE
• POLITICAL VOLUME!

Scott Miller, AES/ PHEAA Terry Muilenburg, USA
Funds