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Congress Advances HEA Update; More to Follow

September 18, 2007

Over the August break, leaders of the two congressional committees charged with renewing the Higher Education Act completed the process of blending the House- and Senate-passed versions, which contained changes with implications for federal spending. President Bush’s signature on the act will mark another chapter in the five-year effort to update HEA, which governs the allocation of federal student financial aid and the rules and requirements for institutions that participate in programs covered by the law.

In order to ease passage of this legislation--the College Cost Reduction and Access Act--Congress used rules associated with the budget process. As part of that process, the House and Senate committees with jurisdiction over HEA were instructed to develop legislation that would reduce entitlement spending during the next five fiscal years, albeit by relatively small amounts. Both the House and Senate have passed legislation conforming to this requirement, and each bill achieves the required savings through cuts in payments to Federal Family Education Loan (FFEL) program lenders and guaranty agencies. Both bills actually generate substantially higher levels of savings in mandatory spending than were required by the budget directive. The additional savings are intended to offset costs associated with a broad array of new or enhanced student-aid benefits.

However, one requirement of using the federal budget process, known as "reconciliation to minimize legislative barriers," is that Congress can only make changes to the law that will either increase or decrease federal spending. As a result, other programmatic changes to the Higher Education Act were dropped during the development of the compromise legislation and will need to be addressed separately. The path that this separate bill might take and the timing for its consideration on Capitol Hill are far from clear.

This is not the first time Congress has adopted an incremental approach to making changes to HEA. In early 2006, President Bush signed into law the Higher Education Reconciliation Act of 2005, which made a number of changes to the federal student loan system and created two new grant programs--the American Competitiveness Grant (ACG) and the National Science and Mathematics Access to Retain Talent (SMART) Grant. However, the changes fell short of fully revising and extending the Higher Education Act.

Provisions of the College Cost Reduction and Access Act
The changes to the Higher Education Act legislation would allow the spending of more than $20 billion on new or enhanced student-aid benefits. The provisions providing new or enhanced aid would:

  • Increase the maximum Pell Grant award during the 2008-09 and 2009-10 academic years by $490, from its current level of $4,310 to $4,800. For the 2010-11 and 2011-12 academic years, the increase would rise to $690; and for 2012-13 to $1,090. These increases would be on top of the funding provided each year by Congress through the regular appropriations process. Thus, if Congress provided additional funding to allow the Pell Grant to rise above the current level of $4,310, the maximum Pell Grant would rise by a commensurate amount.
  • For subsidized Stafford Loans for undergraduate students, reduce the interest rate (currently 6.8 percent) via four annual rate reductions. Beginning July 1, the rate would drop to 6 percent, with future annual cuts taking the rate to 3.4 percent in 2012.
  • Extend the period across which members of the armed forces and the National Guard may have their student loan payments deferred.
  • Expand the income-based repayment plan under which borrowers’ loan payments would be capped or forgiven.
  • Establish a new loan forgiveness program for new borrowers under which any outstanding loan balance would be forgiven after 10 years of public service and loan repayments.
  • Adjust in a number of ways the need-analysis rules used to calculate eligibility for federal financial aid, for example, by increasing the income protection allowance to let a student keep a larger share of his or her work earnings.
  • Establish the TEACH Grants program under which students preparing for a career in teaching and who agree to teach in a high-poverty school may receive grants of $4,000 per year of study--up to a total of $16,000. Recipients who do not complete their service requirement would be required to repay TEACH Grants as if they had been loans.
  • Provide, through mandatory spending, a total of $500 million over the next five fiscals years to support historically black colleges and universities, Hispanic-serving institutions, tribal colleges and universities, Alaska Native- and Native Hawaiian-serving institutions, predominantly black institutions, and Asian and Pacific Islander-serving institutions.
  • Create College Access Challenge Grants, which will make funds available to states and philanthropic organizations to provide need-based grants, mentoring, and outreach programs.
  • Provide, through mandatory appropriation, $228 million to support the Upward Bound program.
  • Establish a pilot loan auction program for PLUS loans.

What’s Not in the Legislation
Since Congress was only able to include changes to the Higher Education Act that had fiscal implications for the federal government, a large number of policy issues were left unaddressed in the legislation. A number of these issues have been controversial, and that may complicate the development and passage of subsequent legislation needed to complete the renewal of the act. Among the lingering items that will continue to be deliberated are:

  • The Student Loan Sunshine Act, which would ban gifts from lenders to college employees and would require lenders to disclose the terms of their arrangements with colleges and universities.
  • Additional disclosure and publication on the Department of Education Web site of annual changes in tuition prices, with a special focus on institutions where tuition levels increase above certain prescribed levels.
  • Changes to the federal requirements that apply to accreditation agencies and that govern institutional transfer of credit policies.
  • Simplification of the ACG and SMART grant programs.
  • Changes to the annual and aggregate student-loan limits.
  • Modifications to international education programs.
  • Adjustments to various general provisions in the Higher Education Act, including rules to promote the integrity of federal student-aid programs.

NACUBO CONTACT Matt Hamill, senior vice president, advocacy and issue analysis, 202.861.2529,