The Senate's Higher Ed Act Renewal

The U.S. Senate education committee fleshed out its bipartisan package of legislation to renew the Higher Education Act Tuesday, calling for $17 billion in new funds for Pell Grant recipients and $18 billion in cuts to student loan providers over five years.

June 20, 2007

The U.S. Senate education committee fleshed out its bipartisan package of legislation to renew the Higher Education Act Tuesday, calling for $17 billion in new funds for Pell Grant recipients and $18 billion in cuts to student loan providers over five years. The Senate panel also revised a Higher Education Act renewal bill it had released Monday in several key ways, most notably abandoning a plan to require accreditors to ensure that colleges do not discriminate against for-profit colleges in their policies on the transfer of academic credit.

The Senate Committee on Health, Education, Labor and Pensions will meet this morning to consider the two pieces of legislation that together would extend authority for the federal government's higher education programs for five years. Because the legislation is co-sponsored by both Sen. Edward M. Kennedy of Massachusetts and Sen. Michael B. Enzi of Wyoming, respectively the Democratic chairman and senior Republican on the Senate panel, the bills are expected to be approved "swiftly," as a news release from Enzi described it.

The legislation the Senate panel released Tuesday, the Higher Education Access Act of 2007, is a "budget reconciliation" measure that covers all provisions that either cost money or produce savings in the programs covered by the Higher Education Act. The budget bill would produce $18.3 billion in revenue by cutting subsidies for and imposing fees on lenders and guarantee agencies in the Family Federal Education Loan Program, which is about $1 billion less than would be imposed under parallel legislation approved last week by the House of Representatives education committee. (It is also many billions less than would have been cut under draft Senate legislation leaked to reporters in April, which would have cut much more deeply into lender profits.)

The Senate legislation includes several of the changes that are included both in the House bill and in the 2008 federal budget proposed by President Bush in February, including a reduction to 16 percent from 23 percent in the proportion that guarantee agencies can keep of the funds they collect from borrowers and a doubling of the fee that lenders pay the Treasury when consolidating loans, to 1 percent from 0.5 percent. Both bills would also end a program that rewards loan providers who are “exceptional performers” in servicing their student loans.

But the Senate bill is somewhat softer on lenders than the House measure, cutting the amount that the government reimburses lenders on defaulted loans to only 97 cents on the dollar, instead of the 95 cents in the House bill, and reducing lender profits on new federal loans not by the 0.55 percentage points in the House bill, but by 0.5 points for for-profit lenders and 0.35 points for nonprofit lending agencies. Those somewhat minimized cuts are seen as a nod to concerns, frequently expressed by lenders, that cutting too deeply into the federal payments they receive will drive loan providers, especially small ones and state and other nonprofit lending agencies, out of the student loan market.

(The Senate's slightly softer touch did little to quell the sky-is-falling complaints from lenders. Kevin Bruns, executive director of America's Student Loan Providers, which represents 89 lenders of various shapes and sizes, said in a news release Tuesday that the education panel's plan would make "student loans uneconomical for most lenders" and that "[l]enders who remain in the program will be forced to reduce discounts on rates and fees and levels of service," ensuring that "4.5 million students and parents will almost certainly see their loan costs increase." Bruns and other lenders also objected to the Senate legislation's proposal for a pilot project to test the idea of auctioning to the lowest bidders the right of lenders to provide student loans. The test would occur in the federal PLUS loan program for parents.)

The Senate budget reconciliation bill would use the $18.3 billion in cuts to reduce the federal deficit by about $1 billion and provide $17.3 billion in new and enhanced financial aid for students. Among the benefits for students, the bill would:

  • Provide $17 billion over five years for a new program of "Promise Grants," which would go to Pell Grant eligible students with the greatest financial need. The creation of the Promise Grants would result in the equivalent of increasing the maximum Pell Grant to $5,100 next year and to $5,400 by 2011. The comparable bill in the House would increase the maximum Pell Grant by $100 a year for five years beginning in 2008-9, assuming that Congress increases discretionary spending on the Pell program to $4,700 this year.
  • Institute a system of “income-based repayment” for borrowers, in which their student loan payments would be capped at a manageable percentage of their income (15 percent of the amount by which a borrower's adjusted gross income exceeds 150 percent of the poverty line) and their debt canceled after 25 years of repayment.
  • Raise the amount that working students can earn -- through the “income protection allowance” -- without reducing their financial aid awards. Those amounts would rise to $6,000 by 2012-13 for dependent students and $9,330 for financially independent students.
  • Increase to $30,000 from the current $20,000 the family income level under which a student is automatically eligible for the maximum Pell Grant.
  • Forgive the remaining student loan balance after 10 years for borrowers who enter and spend a certain amount of time working in public service fields and fulfill other national needs.

The Senate committee's bill, unlike the House bill, does not appear to lift the annual and aggregate limits on how much individual students can borrow from the federal loan programs, a top priority of private college officials. Nor does it cut the interest rate on subsidized student loans, which the House bill would slash in half over five years.

The Senate legislation would also eliminate from the federal financial aid application a controversial question asking whether applicants have been convicted of drug possession while receiving federal student aid. That question has been used to identify and strip financial aid from thousands of students. While the Senate bill would leave the drug possession penalty in the law, dropping the question from the federal financial aid form would make enforcement of the provision very difficult.

"We're thrilled that the committee has acted to make sure that students with drug convictions will no longer be automatically stripped of their aid and will be able to stay in school and on the path to success," said Tom Angell, government relations director at Students for Sensible Drug Policy. "While it would be more appropriate to simply erase the penalty from the lawbooks altogether, we support the committee's effort to make sure that students with drug convictions can get aid just like anyone else."

The release of the Senate committee's budget reconciliation bill follows by a day its release of the its bill to renew the rest of the Higher Education Act. That legislation (which was described in-depth in an article Tuesday) went through several changes between Monday and Tuesday, as members of the committee continued to negotiate over certain aspects of it.

Among the most significant alterations, the Senate panel gutted a provision that would have required accreditors to ensure that the colleges they oversee did not deny the transfer of a student’s credit based solely on the accreditation status of the institution from which the student is transferring. That has been a top legislative priority of for-profit colleges, most of which are nationally accredited and many of which complain that colleges’ transfer policies discriminate against them. Officials of some nonprofit colleges have argued that it would intrude on the most fundamental academic decisions of their institutions.

But under intense lobbying by some officials of nonprofit colleges -- most notably an advertisement placed in Congressional publications by the American Association of Collegiate Registrars and Admissions Officers, which accused the Senate panel of preparing to "dumb down education" -- the Senate committee dropped that language and replaced it with a provision that would merely compel accrediting agencies to require the colleges they oversee to report whether they deny academic credit based solely on the accreditation of the "sending institution."

The Senate bill, as of Tuesday, would also prohibit the Education Department from changing federal regulations on colleges' transfer of credit policies, as department officials are believed to be preparing to do based on the work of a federal panel that considered possible changes in rules governing accreditation.

The Senate flip-flop infuriated officials at the Career College Association, which believed as of Monday night that it had won a long-sought legislative victory.

"This legislation basically says that it's okay to actively discriminate, as long as you announce your policy," said Harris N. Miller, president of the career college group. "' No Irish need apply,' as long as you put a sign up that says that."

Barmak Nassirian, associate executive director of the registrars' group, saw the transformation differently. "We are pleased to see that sanity prevailed over special interests on the question of transfer," Nassirian said, though he expressed concern about changes the bill would also make in weakening a federal law designed to ensure that for-profit colleges derive meaningful revenue from sources other than the federal student aid programs. "The removal of the transfer mandate will at least allow legitimate schools to protect the integrity of their own programs and credentials."

The reworked Senate Higher Education Act legislation also slightly softens language in the bill released Monday that would require accreditors to ensure that colleges “use empirical evidence” and “external indicators” to show how they perform in areas such as student retention, course and program completion and graduation, state licensure and job placement (for work-related programs), and enrollment of students in graduate programs.

The revised version of the bill released Tuesday would direct colleges to use "empirical evidence" and "external indicators" only "as appropriate," which would appear to give colleges significant discretion about when to do so. And it would restrict the education secretary from establishing "any criteria that specifies, defines, or prescribes the standards that accrediting agencies or associations shall use to assess any institution's success with respect to student achievement," which would seem to block any attempt by department officials (feared by college officials) to set minimum standards that colleges would have to meet.

The revised Higher Education Act bill to be considered today would also delay by a year the final phaseout of the controviersal "school as lender" program, to 2012 from 2011.

One other party very unhappy about the Senate's Higher Education Act bill plans made its displeasure known in a strongly worded letter to Kennedy Tuesday. The Council for Educational Opportunity, which lobbies on behalf of the TRIO programs for disadvantaged students, excoriated the committee chairman for the panel's failure in its bill to fend off changes that the Education Department has proposed making in the Upward Bound and Talent Search programs that are part of TRIO.

"The bill being considered in your Committee does nothing to address these problems, and, in fact, provides additional discretion to the Department of Education to radically alter the design and function of TRIO programs such as Talent Search and Upward Bound," Arnold L. Mitchem, the council's president, wrote. He added: "[T]hese legislative provisions appear to signal your support of radical alterations in the design of TRIO programs. For these reasons, and with regret, the Council is unable to support the bill in its present form and will seek appropriate changes, either in committee markup or when the bill is considered on the floor of the Senate."

Kennedy's committee meets to consider the Higher Education Act and budget reconciliation measures today.


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