Tuesday, June 12, 2007

$20 Billion Boost to Financial Aid

Good news! Today Congressman George Miller's office announced a big House student aid bill.

*Pell Grant goes up by $500 a year to $5200.
*Expansion in loan forgiveness: Providing loan forgiveness for first responders, law enforcement officers, firefighters, nurses, public defenders, prosecutors, early childhood educators, librarians and others. Revising policies to allow public servants to have their loans forgiven after 10 years.
*Upfront tuition assistance to undergraduates who commit to teaching in underserved public schools (Sort of nationalizing Teach for America, way to go Wendy Kopp)
*Increased federal loan limits.
*Paying for it all, plus a $750 million spending cut, with reductions in lender subsidies.

The bill addresses most of the 4 main concerns raised in a letter sent today by the PIRGs and other student advocates. Luke Swarthout says, "We applaud Chairman Miller" etc.

What the bill leaves out? Bankruptcy protection on student loans. Fair payment assurance: tying repayment to income, so folks don't get trapped with untenable debt burdens. And amnesty for those buried under long-defaulted, "exploded" loans and dangerous levels of private loan debt.


Anonymous said...

This is a reconciliation bill, so it is subject to the so-called Byrd Rule, where Congresspersons can strike non-germane provisions by raising objections. Most of your paragraph on What The Bill Leaves Out would be considered non-germane. Specifically, in reconciliation legislation, provisions must decrease or increase mandatory spending; the bill as a whole must decrease mandatory spending.

Provisions that have no easily-measurable impact on mandatory spending would be non-germane and would need to be included in a regular Reauthorization bill.

Improving consumer protections on federal student loans would fall under the consumerism provisions of the HEA which do not have measurable costs or reduction in costs from the federal standpoint. Thus, those provisions would be included in a regular reauthorization bill, not a reconciliation bill.

Changing bankruptcy protections on federal student loans COULD go into a reconciliation bill because it affects the federal costs of the student loan programs. In 1998, for example, tightening up the bankruptcy provisions (by getting rid of the seven-year discharge option) was used as an offset (a program cost reduction) to help bolster the lenders' special allowance payment formula.

Changes in repayment plans could definitely go into a reconciliation bill. The Deficit Reduction Act of 2006, for example, eliminated repayment plans of longer than 10 years for direct loan nonconsolidation borrowers. Changes in repay plans are tricky, because they typically have opposite budgetary impacts in FFELP and FDLP. In FFELP, more flexible repayment increases program costs, because more years of repayment mean more years of taxpayer subsidies. In FDLP, the opposite is the case. However, because Congress has allowed FDLP to shrink to such a small share of the federal student loan market, the FFELP costs overwhelm the FDLP savings. To improve flexible repayment would mean needing to cut something else, such as guaranty agency subsidies.

Private, non-federally-guaranteed educational loans are not in the federal budget baseline at all, because they are not federal. Legislating additional consumer protections on private loans would have to go through a different type of Committee (banking, not education), as Senator Dodd is attempting to do in the Senate; these types of loans are not under the purview of USDE.

So-called amnesty for borrowers with balances expanded by fees and charges would likely be declared illegal by the courts. A violation of contract. The guaranty agencies got it written into the HEA that the payments they have been promised are contractual in nature. Retroactively changing a contractual obligation is generally frowned upon in our legal system. Guaranty agencies don't work for free and neither do their collection agencies, nor USDE's collection agencies. Collection charges are added so that all of these parties can get paid. They are essentially user charges.

Anya said...

Thanks for this clarification. I was speaking more generally about what's still on the agenda. It seems like most, if not all, of these questions could be handled in the Senate.

At least one state guaranty agency in Illinois is considering "retroactively changing the terms of a contract" by forgiving all interest and charges when a defaulted borrower goes into bankruptcy. Providing some circumstances for forgiveness strikes me as within the purview of the federal government.

The Urban Naturalist said...

One other edit-the bill actually includes income based repayment a version of what has been termed "fair payment assurance" in Senator Kennedy's legislation. This would link repayment to income.

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