H.R. 3221: Student Aid and Fiscal Responsibility Act of 2009

H.R. 3221

Student Aid and Fiscal Responsibility Act of 2009

Sponsor
Rep. George Miller

Date
September 16, 2009 (111th Congress, 1st Session)

Staff Contact
Sarah Makin

Floor Situation

H.R. 3221 is being considered on the floor under a structured rule on Wednesday, September 16, 2009.  This legislation was introduced by Rep. George Miller (D-CA) on July 15, 2009, and referred to the Committee on Education and Labor.  The Committee marked-up the bill and passed it by a vote of 30 to 17 on July 21, 2009.  

The bill eliminates the Federal Family Education Loan program and shifts all student loans to a government-run and taxpayer financed system under the Direct Loan program, as well as creates nine new programs and increases the federal government takeover of early education, higher education, school construction, and more.


For additional background, a Conference One-Page document entitled "Eliminating the Federal Family Education Loan Program: Hurting Students & Increasing the Size of the Government" can be found at http://www.gop.gov/policy-news/09/09/10/eliminating-the-federal-family-education.  

 

 

Bill Summary

EXECUTIVE SUMMARY

Along with eliminating the FFEL program and transferring all student loans into the DL program, the bill creates nine new programs and increases the federal government takeover of early education, higher education, school construction, and more.  Specifically, the bill does the following:

  • Increases maximum Pell Grant limits;
  • Spends $2.6 billion for Historically Black Colleges and Universities (HBCUs) and Minority Serving Institutions (MSIs);
  • Spends more than $7.3 billion for a new Green Schools Construction, Modernization and Renovation Grants;
  • Spends $8 billion for the President's new zero to five Early Learning Challenge Fund;
  • Creates two new grant programs for early education;
  • Spends $7 billion for the President's new American Graduation Initiative; and
  • Changes current law regarding the eligibility of drug offenders for financial aid.

In total, the bill spends $70 billion over ten years on new programs and Pell Grants, spends $6 billion over ten years on the Federal Direct Perkin Loan Program, and contributes $7.8 billion toward deficit reduction. 

 

SUMMARY

Title I

Increases Pell Grant Award:  The bill increases Pell Grant amounts to $5,550 in 2010 and $6,900 by 2019. The bill also ties all future award increases to the Consumer Prize Index plus one percent. 

College Access and Completion Fund:  The bill authorizes $3 billion over five years for the entitlement program to assist States, higher education institutions, and other entities to help increase college completion and workforce readiness.  Of these funds, the bill would fund the College Access and Completion Grants, State Innovation Completion Grants, and National Activities Grants for Innovation in College Access and Completion.  The bill also spends $60 million to assess the impact of the College Access and Completion Fund. 

  • College Access and Completion Grants are grants created in the College Cost Reduction Act of 2007 to assist with college access and completion.  The bill funds these grants at $750 million over five years.
  • State Innovation Completion Grants are competitive grants to States to ensure that students graduate from postsecondary schools, meet workforce needs, and coordinate graduation requirements of their two-year and four-year institutions.  The bill funds these grants at $1.5 billion over five years.
  • National Activities for Grants for Innovation in College Access and Completion are provided to institutions of higher education, states, non-profit entities, and private organizations.  The bill funds these grants at $690 million over five years. 

Veterans Officer Resource Grants:  H.R. 3221 creates a new program to award grants, on a competitive basis, to eligible higher education institutions to hire a Veterans Resource Officers to increase the college completion rates for veterans enrolled at such institutions.  An eligible institution of higher education receiving a grant must use the grant to hire one or two Veterans Resource Officers (in the case of an institution that has an enrollment of at least 200 full-time equivalent students who are veterans) to serve in the office of campus programs.  The bill authorizes such sums to fund this grant program.

Historically Black Colleges and Universities (HBCU)/Minority Serving Institutions (MSI):  The bill directs $2.6 billion over five years to HBCUs and MSIs, including $255 million in mandatory funds to support science, technology, engineering, and mathematics education (STEM) and articulation programs. 

Investment in Cooperative Education:  The bill authorizes $10 million for investment in cooperative education.

Loan Forgiveness for Service Members Activated for Duty:  H.R. 3221 specifies that whenever a student's withdrawal from an institution of higher education is necessitated by activation in the Armed Services, the Secretary will, with respect to the payment period or period of enrollment for which such student did not receive academic credit as a result of such withdrawal, carry out a program to assume the obligation to repay the outstanding principle and accrued interest of a loan. 

Veterans Educational Equity Supplemental Grant Program:  The bill requires the Secretary to award grants to eligible veteran students to assist them with paying for the cost of tuition at an institution of higher education.  The bill authorizes $1.9 billion for these grants for veterans over ten years. 

Simplifies the Student Financial Aid Form:  The bill makes numerous changes to the Student Financial Aid Form in order to simplify it.

Drug Offenders Provision:  H.R. 3221 amends current law regarding drug offenders eligibility for federal student financial aid.  Current law states that if a student is convicted of drug possession, they are ineligible for federal financial aid for one year.  If the student is convicted twice, they are ineligible for two years.  After the third conviction, the student is no longer eligible for federal financial aid, unless they undergo certain rehabilitation requirements.  The bill would allow students who receive student aid and are convicted of drug possession to maintain their student aid eligibility. 

Title II

Elimination of the Federal Family Education Loan Program (FFEL):  H.R. 3221 eliminates the FFEL program, requiring all schools to transition by July 10, 2010, to the Federal Direct Lending (DL) program.  The bill gives the Secretary the authority to award multiple servicing contracts through a competitive bidding process.  The competitive bidding process would take into consideration an entity's account price, servicing capacity, and ability to provide default aversion activities and outreach services.  The bill includes a carve-out for non-profit lenders within a State, ensuring that they would be able to service a minimum of 100,000 loans. 

Federal Direct Perkins Program:  The bill modifies the Federal Perkins Loan Program and changes the program's funding from discretionary to mandatory.  The bill would require schools to contract directly with the Department of Education and require them to pay the interest subsidy on behalf of the borrowers while they are in school, instead of the higher education institution maintaining a revolving fund to offer loans to students.  The bill also increases funding for the Perkins Program to $6 billion. 

Title III

Green School Construction, Modernization, and Renovation Grants:  H.R. 3221 authorizes more than $7.3 billion more for the new Green School Construction, Modernization and Renovation Grants.  Specifically, the bill authorizes $4.1 billion in mandatory spending for public K-12 schools for two years, $2.5 billion in mandatory spending for community colleges in one year, and $70 million in mandatory spending for local schools in Louisiana, Mississippi and Alabama (areas affected by Hurricane Katrina) for two years. 

The bill creates a new green school construction, modernization and renovation grant program for early education buildings, traditional public and charter schools and community colleges.  The bill requires States to develop a database that includes an inventory of public school facilities in the State and the modernization, renovation, and repair needs of, energy use by, and the "carbon footprint" of such schools, and to create voluntary guidelines for high-performing school buildings. 

The bill contains a "maintenance of effort" provision which requires that States and local educational agencies (LEAs) spend at least 90 percent of their overall education funding to be eligible for grants under this Act.  Furthermore, the bill requires that all projects funded by the grant program comply with Davis-Bacon prevailing wage requirements and use only iron, steel, and manufactured goods produced in the United States (this provision is waived if it increases the cost of the project by more than 25 percent).  The bill prohibits funding to be used to renovate buildings used for sectarian or administrative purposes.  None of the funds under the bill are available to private schools or any kind. 

Title IV

Early Learning Challenge Fund:  H.R. 3221 authorizes $8 billion over eight years for the President's new Early Learning Challenge Fund program.  This program would provide competitive grants to State educational agencies, or the agency in a State that administers early childhood programs, for the development of a statewide infrastructure of integrated early learning supports and services for children, from birth through age five.  According to a GAO study, there are already 69 such early education programs that cost the government at least $25 billion per year.  Under this fund, the bill creates two new grant programs for early education; the Quality Pathway Grants and Development Grants. 

Quality Pathway Grants:  These grants are made available to States to be used to increase the number of disadvantaged children who participate in high-quality early education programs.  The bill requires that States must outline how the grant would help them.

Development Grants:  These grants are made available to States to be used to help them develop and implement their early education programs so that they can apply for Quality Pathway Grants. 

National Commission:  H.R. 3221 establishes a national commission to review the status of State and Federal early learning program quality standards and early learning and development standards; recommend benchmarks for program quality standards and early learning and development standards, including taking into consideration the school readiness needs of children with limited English proficiency; and report to the Secretaries of Education and Health and Human Services not later than two years after the date of the enactment on its findings and recommendations.

Title V

American Graduation Initiative:  H.R. 3221 authorizes $7 billion for the President's new American Graduation program for FY 2010-2019.  Grants under the program are made eligible to "entities for community college reform," including philanthropic institutions, business groups, labor organizations, higher education entities, or a consortia that includes a higher education institution.  The bill specifies that priority will be given to four-year institutes of higher education who partner with community colleges to work on a way for students to transfer academic credits to earn a bachelor's degree.  The program grants money to States that have longitudinal data systems to aid them in their efforts to improve their postsecondary completion rates.  The bill requires that 90 percent of the grant be directed to community colleges in the State.


Davis Bacon requires all laborers employed by contractors or subcontractors to be paid no less than the localities prevailing wage.  This provision will likely raise the costs of school construction by as much as one-third in some parts of the country, especially in those local communities that have lower costs and are not subject to the prevailing wage structure.

This provision is identical to the one in H.R. 1, the American Recovery and Reinvestment Act of 2009.  

 

Background

Currently, the federal government provides both subsidized and unsubsidized loans for higher education (both undergraduate and graduate) using two main programs-the Federal Family Education Loan (FFEL) program and the Direct Loan (DL) program.  The FFEL loan program offers subsidized loans to students from private lenders.  The FFEL program makes it possible for borrowers to get student loans at low interest rates.  In contrast, the DL program uses the federal government as the lender to provide capital for all loans (as well as interest on subsidized loans).  Under the DL program, the Department of Education serves as the lender and funds come directly from the U.S. Treasury.

The Higher Education Act (current law) sets the terms and conditions on DL and FFEL loans, including the interest rate, repayment periods, default and forbearance capabilities.  The FFEL program was created in 1966, and has provided subsidized loans to students for more than 40 years.  With over 2,000 lenders participating in the FFEL program, serving approximately 4,400 institutions, $70 billion in FFEL loans have been made available to students this year. 

The DL program began under President Clinton in 1993, and has only captured about 34 percent of the total loan market at its height, and has proven to be less efficient and responsive than the FFEL program.  In general, the postsecondary institutions have preferred to provide their students loans through the private FFEL program because of its ability to provide students quality customer service, education, outreach and loan default prevention. 

With approximately 1,700 institutions currently participating in the DL program, DL has made available $22 billion in student loans this year, and many of these schools were forced into the program as the capital markets worsened last year. 

In the 110th Congress, the House passed H.R. 2669, the College Cost Reduction and Access Act.  The bill provided new public service loan forgiveness to borrowers in the DL program but did not include the same benefit for borrowers in the FFEL program.  H.R. 2669 temporarily cut interest rates for students who had DL and FFEL loans.  The legislation also cut payments to FFEL lenders just as the capital markets began to seize up during the subprime mortgage crisis, with some FFEL lenders unable to finance securitizations. 

President Obama's FY 2010 budget proposed to eliminate the FFEL program by June 30, 2010, and to use the savings to make Pell Grant funding mandatory and provide annual increases indexed for inflation.  The President's budget also included reforms to the Federal Perkins Loan Program and a proposal for an expanded pre-K program-both priorities that are expounded in H.R. 3221.

H.R. 3221 eliminates the FFEL program and instead of directing the savings toward deficit reduction, expands Pell Grants and creates ten new entitlement programs. 

Cost

Costs of DL vs. FFEL:  When the DL program was created in 1993, proponents of the program believed that taxpayers would ultimately save money if the federal government served as the lender to students, rather than going through private lenders, who receive a subsidy to keep loan rates low for students.  However, over the years this has not proven to be the case and the program has continuously lost money.  Numerous studies have concluded that the DL program has not provided the promised savings and is actually paying out more in interest payments than it has taken in from borrowers. 

Historically, the DL program has paid more in interest to the Treasury than the amount of interest it has gotten back from borrowers.  A 2004 GAO report reevaluated the DL cash flow and found that the program borrowed $137 billion from the Treasury during FY 1995-2003.  Of this amount, $92 billion was outstanding as of September 20, 2003.  In FY 2003, with appropriations of $2.7 billion received, the total cash outflows of the DL program still exceeded the total inflows by $10.7 billion.  This was largely due to the fact that the interest the Department paid to the Treasury was significantly higher than the interest rates collected from borrowers.  GAO also found that there were significant misestimates causing the Department of Education to claim receipts that were higher than their actual inflows.  In fact, the Department itself claims that "interest receipts are a difficult cash flow to estimate because of the complexities associated with periods during which students are not required to make interest payments." 

According to a report released by PriceWaterhouseCoopers in 2005, the DL program is not more cost effective than the FFEL program.  The report shows that current budget scoring methods do not consider important factors when comparing the costs of FFEL to DL.  For instance, the report noted that budgetary predictions of the cost of DL as opposed to that of FFEL do not take into account the impact of interest rate variability and that DL costs are more sensitive to changes.  In reality, the DL continues to pay more out in interest than it receives and the cost to administer the program has increased almost by 600 percent. 

Original CBO Cost Estimate:  An original CBO estimate from July 24, 2009, determined that the estimated subsidy cost shown in the budget is lower for the DL program than for the FFEL program, and that enacting the bill would yield net budgetary savings for shifting new lending from the guaranteed loan program to the direct loan program.  On balance, CBO estimates that enacting H.R. 3221 would reduce direct spending by $13.3 billion over the 2009-2013 period and $7.8 billion over the 2009-2019 period. 

However, assuming appropriation of the necessary amounts, implementing the bill would increase discretionary spending by at least $13.5 billion over the 2009-2019 period.  The CBO estimate reflects the bulk of the likely discretionary costs under H.R. 3221; but because they have not completed a comprehensive estimate of all effects that would be subject to appropriation action and do not take into account the cost of market risk (which reduces savings by another $33 billion) this CBO score is not complete. 

Updated CBO Cost Estimate:  In a letter to Senator Gregg on July 27, 2009, CBO Director Douglas Elmendorf states that the "billions in savings" in H.R. 3221 are deceptive.  According to the CBO Director, current budget scoring rules do "not include the cost to the government stemming from the risk that the cash flows may be less than the amount projected (that is, that defaults could be higher than projected).  CBO found that after accounting for the cost of such risk ... the proposal to replace new guaranteed loans with direct loans would lead to estimated savings of about $47 billion over the 2010-2019 period-about $33 billion less than CBO's estimate under the standard credit reform treatment."

According to a more recent CBO analysis, H.R. 3221 will actually cost taxpayers billions more than Democrats have acknowledged.  When CBO re-examined the cost of reforms to the Pell Grant program included in H.R. 3221, they found an additional $11.4 billion in spending, costs that will be passed on to taxpayers in the form of deficit spending.  In this re-estimate, CBO used more current data to predict the number of college students expected to quality for Pell Grants and the amount of the grants under the Democrats' proposed legislation.  Their review predicted an additional $10.5 billion in direct spending over ten years, along with $900 million in additional discretionary spending. 

Given the limitations of CBO's scoring rules, the fact that most of the bill's "savings" are poured back into more entitlement spending, and the increased cost of the Pell Grant program, it is very likely that the bill increases federal spending over five and ten years.


The Limitations of Budget Score-keeping in Comparing the Federal Student Loan Programs; http://www.studentloanfacts.org/NR/rdonlyres/65DDECF9-3020-4C6A-8C8F-B568556FEA64/2456/PWCReport.pdf.

http://www.cbo.gov/ftpdocs/102xx/doc10295/Gregg_StudentLoans__09-07-27.pdf 

Amendments

 

1) Rep. Miller (D-CA):  The managers amendment permits part-time students to receive year-round Pell Grants so long as these students are using the extra grant to accelerate their course work.  This privilege was extended to full-time students in H.R. 4137, the Higher Education Act reauthorization bill passed last Congress.

The amendment clarifies that guaranty agencies, their nonprofit subsidiaries and nonprofit servicers are eligible sub-grantees under the State Innovation Completion Grant and the Innovation in College Access and Completion National Activities.

The amendment includes language to clarify that States should allow private, nonprofit institutions to voluntarily participate in the State's efforts to increase college enrollment and completion.

The amendment merges the new discretionary Veterans Resource Officer Grants program with the current discretionary program to award grants to campuses to create Centers of Excellence for Veterans Student Success.

The amendment permits the Pell-eligible children of fallen public safety officers to automatically receive the maximum Pell Grant award.

The amendment creates a new discretionary program to provide grants to local educational agencies for the improvement of teacher excellence.

The amendment clarifies language in the nonprofit carve out for loan servicing related to the definition of an eligible servicer, the cost of the servicing and the ability of servicers to hold on to existing loans.

The amendment provides $50 million in fiscal year 2010 for the Secretary to give technical assistance to institutions of higher education to assist as the institutions transition to the Direct Loan program.

The amendment makes technical changes in the early childhood program, including requiring States to include on their applications a description of how the State will implement a process to improve the quality of early learning services being provided to abused or neglected children.

With regard to the Community College Program, the amendment makes Tribal Colleges and Universities eligible to receive funds under the American Graduation Initiative.  The amendment allows grantees to use funds to increase the availability of library services for students.  The amendment permits the Secretary to develop a model system that would allow students to determine the transferability of their courses.

The amendment includes $1 million for the National Research Council to conduct a study on the quality of online education.

2) Rep. Hoesktra (R-MI):  The amendment strikes the school construction programs under the bill, which authorize $6.6 billion in new mandatory spending to create three federal school construction programs for elementary and secondary public schools and institutions of higher education, and applies the savings to reduce the federal deficit. 

3) Rep. Cardoza (D-CA):  The amendment directs the Secretary of Education to prioritize community colleges located in areas with high unemployment rates when awarding grants for community college reform.

4) Rep. McMorris-Rodgers (R-WA):  The amendment would limit the ability of certain schools that received funding under the economic stimulus package for school construction from receiving additional money through the new federal school construction program authorized under this bill.  The bill also prohibits funds under the bill from being used to repair or renovate stadiums, or other facilities used for athletic contests or public exhibitions where admission is charged; improve or build administrative or operations facilities; or purchase carbon offsets. 

5) Rep. Pingree (D-ME):  The amendment would add to the list of reserved funds (five percent) for distressed areas and areas affected by natural disaster those local educational agencies that serve a geographic area that contains a military installation selected for base closure. 

6) Rep. Pingree (D-ME)/Rep. Ross (D-AR):  The amendment would remove the prohibition of funding to community colleges who received funds for construction, modernization, renovation, and repair under the American Recovery and Reinvestment Act of 2009, or under the Higher Education Act of 1965.  This amendment would allow community colleges to double-dip for construction funds.

7) Rep. Foxx (R-NC):  The amendment would strike the American Graduation Initiative, while maintaining the privacy provisions that apply to the whole Act.  The amendment would direct all the savings toward deficit reduction.  (The privacy provisions ensure that student information is protected from individuals not authorized to view it, and that students cannot be identified by any unique identifier.)

8) Rep. Reyes (D-TX):  The amendment would allow community colleges to use grant money to increase the provision for members of the National Guard and Reserves, and men and women returning from active duty.

9) Rep. Etheridge (D-NC)/Rep. Welch (D-VT)/Rep. David Price (D-NC)/Rep. Pomeroy (D-ND)/Rep. John Lewis (D-GA)/Rep. David Scott (D-GA)/Rep. Pingree (D-ME)/Rep. Tonko (D-NY)/Rep. Matsui (D-CA):  The amendment would clarify that borrower services, including delinquency prevention, default aversion services, financial aid counseling, career and education counseling, financial literary, guidance counselor and financial aid officer training services, and other outreach services are allowed uses of grant funds under the bill.  The amendment also explicitly authorizes the Department of Education to contract directly with guaranty agencies for funded services.

10) Rep. Driehaus (D-OH):  The amendment would encourage States receiving State Innovation Completion Grants to design policies to improve the rates of enrollment and re-enrollment of dislocated workers in postsecondary education.  The amendment refers to the definition for "dislocated worker" in the Workplace Investment Act of 1998.

11) Rep. Cuellar (D-TX):  The amendment would require the Secretary to conduct outreach activities to inform students and families about the transition to the DL program.  The amendment would require that the Secretary operate and maintain a website where individuals can obtain information on the switch from FFEL to DL; develop and disseminate information to high school seniors and their families regarding student loans and student aid; provide assistance to institutes of higher education to educate students on the repayment of DL; and ensure that all outreach efforts are developed using "plain language and are culturally- and language-appropriate." 

12) Rep. Murphy (D-CT):  The amendment would clarify that States may use funds awarded as Quality Pathways Grants to establish or support partnerships with institutions of higher education for training early learning providers.

13) Rep. Childers (D-MS):  The amendment would merge the new discretionary program, the Veterans Resource Officer Grants, with the current discretionary program to award grants to campuses who create Model Programs for Centers of Excellence for Veteran Student Success.  The amendment also requires that the Veterans Resource Officer duties include serving as a liaison between veteran students, faculty and staff, local facilities of the Department of Veterans Affairs (VA), and mental health care providers at the VA.  The amendment would also require the Officer to organize and advise veteran student organizations and host veteran-oriented group functions on campus; distribute news and information to all veterans (newsletters, list serves, etc.); assist in the training of VA certifying officials.

14) Rep. Adler (D-NJ):  The amendment would give priority for State Innovation Completion grants to entities that promote activities to increase degree or certificate completion for students who are veterans.

15) Rep. Himes (D-CT)/Rep. McCarthy (D-NY)/Rep. Schwartz (D-PA):  The amendment would include as a eligible use for State Innovation Completion Grants "programs to provide financial literacy education and counseling to elementary, secondary, and postsecondary students that include an examination of how financial planning may impact a student ability to pursue postsecondary education."  The amendment also includes as an eligible use of Innovation in College Access and Completion National Activities Grants activities that enhance financial literacy especially to students who are "traditionally underrepresented in postsecondary education."  The amendment includes among the outreach activities required under the bill delivering a wide range of financial literacy and counseling tools to equip students with the information "necessary to make prudent decisions concerning their educational success and financial well-being."

16) Rep. Kilroy (D-OH):  The amendment would include among the organizations to partner with under the Grants to Eligible Entities for Community College Reform organizations who are focused on serving low-income, non-traditional students, or students who are dislocated workers or those who do not have a bachelor's degree.  The amendment gives priority to those organizations as well under the Grants to Eligible States for Community College Programs. 

17) Rep. Minnick (D-ID):  The amendment would allow servicemen and women to transfer academic credits earned while serving in the Armed Forces between institutions of higher education.

18) Rep. Perriello (D-VA):  The amendment would require States to evaluate and report disparities by geographic area (rural and urban) of available high-quality early learning programs for low-income children, and steps the State will take to address the disparity.

19) Rep. Schauer (D-MI):  The amendment would give priority for grants to schools, States, and non-profits that encourage dislocated workers to complete their degrees.

20) Rep. Teague (D-NM):  The amendment would add veterans to the list of priority grantees under the American Graduate Initiative.  The amendment also adds to the allowable uses of funds programs that prepare students to enter careers serving veterans in the Veterans Administration, and occupations in energy-related fields.

21) Rep. Teague (D-NM):  The amendment would require "all savings in federal expenditures not otherwise expended as a result of the enactment of this Act shall be made available for the reduction of the federal deficit."  As was noted in the Legislative Digest on H.R. 3221, because most of the bill's "savings" are poured back into more entitlement spending, and the increased cost of the Pell Grant program, it is very likely that the bill increases federal spending over five and ten years and there would not be any further savings. 

22) Rep. Souder (R-IN):  The amendment would strike section 123(d), "Suspension of eligibility for drug-related offenses," and reinstate current law.  Current law states that if a student is convicted of drug possession, they are ineligible for federal financial aid for one year.  If the student is convicted twice, they are ineligible for two years.  After the third conviction, the student is no longer eligible for federal financial aid, unless they undergo certain rehabilitation requirements.  H.R. 3221 would allow students who receive student aid and are convicted of drug possession to maintain their student aid eligibility.

23) Rep. Flake (R-AZ):  The amendment would prohibit funds appropriated under the bill to be used for Congressional earmarks.

24) Rep. Kline (R-MN)/Rep. Guthrie (R-KY):  The amendment in the nature of a substitute would extend the programs under H.R. 5715, the Ensuring Continued Access to Student Loans (ECASLA), through 2014, and create a commission to develop a new private sector model for student lending.