Education Finance Council

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Presented by Kathleen Smith Education Finance
Council February 13, 2007
Reauthorization Here We Go Again!
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Overview

• How did we get here?
• HEA Reauthorization
• Higher Education Reconciliation Act
• 2006 Elections
• Where are we going next?
• 110th Congress
• Bush Administration
• FFELP Today Tomorrow

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How Did We Get Here?HEA Reauthorization

• HEA last reauthorized in 1998
• Current reauthorization process began in 2003
• Key issues FED UP (2001!), college costs,
  accountability, consolidation loans
• Continued in 2004
• Agenda dominated by Presidential election
• Continued in 2005
• Agenda dominated by Budget Reconciliation,
  hurricanes, Supreme Court, lobbying scandals
• Continued in 2006
• Political turmoil leading up to mid-term
  elections that brought party shift in House and
  Senate

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How Did We Get Here?HEA Reauthorization

• HEA has been extended by Congress six times while
  awaiting reauthorization
• Current extension lasts through June 30, 2007
• (Not clean ELT, HSIs, GA Account Maintenance
  Fee, 9/11 spouse/parent loan forgiveness)
• New chairmen in House and Senate (George Miller
  and Edward Kennedy) means new priorities
• House quick action in first 100 hours on
  interest rates stated intent to move forward on
  other issues
• Senate expected to take more comprehensive
  approach

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How Did We Get Here?Higher Education
Reconciliation Act

• What is reconciliation?
• Presidents FY 2006 Budget put forward
  unprecedented cuts
• Spending reconciliation had not been used by
  Congress since 1997
• How did it pass?
• Passed House 12/19/05 by vote of 212-206
• Passed Senate, amended, 12/21/05 by vote of 51-50
  (VP cast tie breaking vote)
• Passed House 02/01/06 by vote of 216-214
• Signed by President 02/08/06

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How Did We Get Here?Higher Education
Reconciliation Act

• How did Reconciliation impact the HEA?

• Distance Education
• New Grant Programs
• Loan Limits
• Interest Rates
• Floor Income
• Deferments
• Repayment Plans
• O-Fees/Default Fee
• Consolidation Loan Changes
• Extenders

• School as Lender
• Discharge Provisions
• Teacher Loan Forgiveness
• Lender Insurance
• GA Collection Retention
• Forbearance
• Rehabilitation
• 529 Plans
• Other Issues

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How Did We Get Here?2006 Elections109th
Congress Party Breakdown

• House
• Republicans 229
• Democrats 201
• Independent 1
• Vacancy 4
• Senate
• Republicans 55
• Democrats 44
• Independent 1

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How Did We Get Here?2006 Elections110th
Congress Party Breakdown

• House
• Republicans 202
• Democrats 233
• Senate
• Republicans 49
• Democrats 51 (49)
• Independent 2

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Where Are We Going Next?110th Congress House
Leadership
Dennis Hastert (R-IL) Speaker of the House
Nancy Pelosi (D-CA) Speaker of the House
John Boehner (R-OH) Majority Leader
Steny Hoyer (D-MD) Majority Leader
Roy Blunt (R-MO) Majority Whip
James Clyburn (D-SC) Majority Whip
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Where Are We Going Next?110th Congress Senate
Leadership
Bill Frist (R-TN) Majority Leader
Harry Reid (D-NV) Majority Leader
Mitch McConnell (R-KY) Majority Whip
Richard Durbin (D-IL) Majority Whip (aka
Assistant Majority Leader)
Rick Santorum (R-PA) Republican Conference Chair
Byron Dorgan (D-ND) Policy Committee Chair
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Where Are We Going Next?110th Congress House
Education Committee
Howard Buck McKeon (R-CA) Chairman Committee on
Education the Workforce
George Miller (D-CA) Chairman Committee on
Education Labor
Ruben Hinojosa (D-TX) Chairman Subcommittee on
Higher Education, Lifelong Learning and
Competitiveness
Ric Keller (R-FL) Chairman Subcommittee on 21st
Century Competitiveness
Dale Kildee (D-MI) to chair Early Childhood,
Elementary and Secondary Subcommittee (NCLB)
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Where Are We Going Next?110th Congress Senate
Education Committee
Edward Kennedy (D-MA) Chairman, Committee
on Health, Education, Labor Pensions
Mike Enzi (R-WY) Chairman, Committee on Health,
Education, Labor Pensions
Lamar Alexander (R-TN) Chairman, Subcommittee on
Education Early Childhood Development
Christopher Dodd (D-CT) Chairman, Subcommittee
on Children and Families
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Where Are We Going Next?110th Congress Agenda

• Democrats take control of House and Senate
• New committee chairmen new leadership new
  agenda
• Agenda for campaign Six for 06 (House)
• Real Security at Home and Overseas
• Better American Jobs Better Pay
• College Access for All (Make college tuition
  deductible from taxes, permanently. Cut student
  loan interest rates.  Expand Pell Grants)
• Energy Independence Lower Gas Prices
• Affordable Health Care Life-Saving Science
• Retirement Security and Dignity

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Where Are We Going Next?110th Congress First
100 Hours (House)
Rules changes including lobbying and ethics
reform and reinstatement of Pay-Go Rules (first
order of business, not considered part of 100
hours) Enact 9/11 Commission Recommendations Incr
ease Minimum Wage Expand Stem Cell
Research Negotiate for Lower Prescription Drug
Prices Cut Interest Rates on Student Loans End
Subsidies for Big Oil and Invest in Renewable
Energy
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Where Are We Going Next?110th Congress Senate
Agenda

• Similar priorities as House, but longer timetable
• First work period (through mid-February)
  lobbying and ethics, minimum wage, 9/11
  Commission, and remaining FY 2007 spending bills
• Second work period (through the end of March)
  stem-cell research, global warming, student loan
  interest rates, energy, immigration and pay/go
  legislation
• Student loan issues potentially on the table
• Senator Kennedys Student Debt Relief Act (S.
  359)
• Senator Kennedys Student Loan Sunshine Act
• Senator Clintons Borrower Bill of Rights
• Senator Durbins request for IG investigation
• Senator Durbins phase-down of interest rates

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Where Are We Going Next?110th Congress Cutting
Student Loan Interest Rates in Half

• HR 5, the College Student Relief Act
• Introduced Jan. 12th, Approved by a vote of
  356-71 Jan. 17th
• 211 Cosponsors
• Interest Rate Reduction
• Applies to new, Subsidized Stafford loans for
  undergraduates
• Phased in over 5 years 68 BP reduction each
  year
• Interest rate of 6.12 for loans for which the
  first disbursement is made on or after July 1,
  2007 and before July 1, 2008
• Interest rate of 5.44 for loans for which the
  first disbursement is made on or after July 1,
  2008 and before July 1, 2009
• Interest rate of 4.76 for loans for which the
  first disbursement is made on or after July 1,
  2009 and before July 1, 2010
• Interest rate of 4.08 for loans for which the
  first disbursement is made on or after July 1,
  2010 and before July 1, 2011
• Interest rate of 3.40 for loans for which the
  first disbursement is made on or after July 1,
  2011 and before January 1, 2012
• Rate reduction sunsets rate reverts to 6.8 Jan.
  1, 2012

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Where Are We Going Next?110th Congress Cutting
Student Loan Interest Rates in Half

• Offsets
• House reinstated Pay-Go rules cost of
  increased spending or tax cuts must be offset
  with other program cuts or tax increases
• Cost of the interest rate reduction is
  approximately 7 billion over 5 years Savings
  from lender cuts are approximately 7 billion
  over 5 years, and 14 billion over 10 years.
• Interest rate reduction is temporary, but program
  cuts are permanent
• Offset Details
• Reduce lender insurance from 97 percent to 95
  percent
• Eliminate the Exceptional Performer program
• Incrementally reduce the guarantee agency
  collection retention rate to 16 percent (actual
  rate to be determined through regulation)
• Double the lender-paid origination fee on all
  loans from 0.5 percent to 1 percent
• Reduce lender yield by 10 basis points for those
  large lenders holding the top 90 percent of
  student loan volume and
• Increase from 1.05 to 1.30 percent the interest
  payment rebate fee paid on consolidation loans
  for holders with 90 percent or more of total
  principal and accrued unpaid interest in
  consolidation loans.

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Where Are We Going Next?110th Congress HEA
Reauthorization

• Its long overdue, and members seem to want to
  get it done
• In the House, Rep. Hinojosa has said HEA is the
  subcommittees top priority
• In the Senate, Chairman Kennedy has expressed
  interest in comprehensive HEA reforms
• But
• NCLB and other issues may take center stage
• Secretarys Commission on the Future of Higher
  Education may change the focus
• The 2008 election is already in full swing

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Where Are We Going Next?Bush Administration

• State of the Union Address Jan. 23, 2007
• Outlines priorities for coming year
• Included limited reference to education, none to
  HEA
• FY 2008 Budget Request
• Released February 5th
• Draconian cuts to FFELP (18.8 billion over 5
  years)
• Elimination of other programs (SEOG, LEAP, revoke
  federal portion of Perkins revolving funds, etc.)
• The money saved goes to Pell (increase max
  award to 4,600 in 2008 5,400 by 2012)
  Academic Competitiveness Grants (increase by
  50) and junior/senior and aggregate loan limit
  increases
• Department of Education and White House appear
  focused on NCLB reauthorization
• New Under Secretary of Education has made clear
  her intent to focus on implementing
  recommendations of the Secretarys Commission on
  the Future of Higher Education

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Where Are We Going Next?Bush Administration

• Secretarys Commission on the Future of Higher
  Education A Test of Leadership Charting the
  Future of U.S. Higher Education
• Final report issued 9/19/06 Secretary outlined
  action plan
• Accessibility (strengthen K-12, expand NCLB to
  high schools, address adult literacy )
• Affordability (Simplify FAFSA complete in half
  the time, notify students of estimated aid
  eligibility earlier, provide new funds for
  need-based aid, commission independent review of
  federal aid system )
• Accountability (build on and link 40 existing
  higher education information systems unit record
  system, incentives for states/institutions that
  collect and report student learning outcome data,
  change accreditation to emphasize results,
  redesign ED college search website )

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Where Are We Going Next?Bush Administration

• Regulatory Agenda
• Negotiated Rulemaking underway
• Interim Final Rules for HERA released
  (ACG/SMART Grant and Student Aid) and re-released
  as final rules
• OIG Audit Reports
• Nelnet audit issued September 2006
• ED and Nelnet announced settlement January 19,
  2007 ED issued DCL and letters to all holders
  January 23, 2007

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Where Are We Going Next?FFELP Today Tomorrow

• Greater technological advances than ever before
• Historically low default rates
• More students than ever entering higher education
• Lowest borrowing costs in history
• Greatest extension of borrower benefits could
  be at risk
• Greatest extension of borrower and family
  outreach programs could be at risk

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Historic Low Default Rates
22.4
5.1
4.5
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Student Loan Interest Rates
6.8
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2005 School Participation RatesFFELP vs. Direct
Lending
Source U.S. Department of Education Loan
Disbursements by School FY 2005
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Where Are We Going Next?FFELP Today Tomorrow

• What can you do?
• Stay in touch with your Congressional members
• Invite members of Congress and/or staff to tour
  your facilities
• Be PROUD of what you do
• Be sure your Congressional members know who you
  are, what you do and the students you serve

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Where Are We Going Next?FFELP Today Tomorrow

• What its all about
• Far and away the best prize that life has to
  offer is the chance to work hard at work worth
  doing. Theodore Roosevelt

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