Legislators Introduce Reauthorization Bills
Submitted by: USA Funds Services’ SASFAA Team

Republican and Democratic members of the U.S. House Education and Workforce Committee recently introduced separate proposals for reauthorizing the Higher Education Act. Both bills call for significant changes in the terms of consolidation loans, raising loan limits and reducing loan-origination fees. Additionally, the Republican plan would reverse a scheduled change in the student-loan interest-rate formula.

Committee Chairman John Boehner, R-Ohio, and Howard “Buck” McKeon, R-Calif., who chairs the Subcommittee on 21st Century Competitiveness, introduced the College Access and Opportunity Act. The bill calls for eliminating the change to fixed-rate Federal Stafford and Federal PLUS loans that is scheduled to take effect July 1, 2006. These rates would remain variable, adjusted annually on July 1, based on the rate for the 91-day Treasury bill. Boehner and McKeon note that the scheduled fixed rates of 6.8 percent for Stafford loans and 7.9 percent for PLUS loans are significantly higher than the prevailing variable interest rates on those loans.

Rep. Rob Andrews, D-N.J., another member of the committee, introduced the Access and Equity in Higher Education Act. A number of House Democrats, including several on the committee, have signed on as co-sponsors of the bill.

Key student-loan provisions of the two reauthorization bills include the following items:

	College Access and Opportunity Act (Boehner and McKeon)	Access and Equity in Higher Education Act (Andrews)
Consolidation loans	Changes interest rates to variable rates from the current fixed-rate formula, effective for applications received beginning July 1, 2006. Repeals the so-called “single-holder rule,” which requires borrowers whose loans are held by a single entity to request a consolidation loan from that entity. Eliminates spousal consolidation loans. Requires consolidation lenders, as well as schools conducting exit interviews, to provide borrowers applying for consolidation loans information about the effects of consolidation on total interest, repayment terms, loan cancellation and deferment options.	Changes interest rates to variable rates from the current fixed-rate formula. • Sets interest rates for the majority of borrowers according to the formula used to determine Stafford-loan interest rates: the 91-day Treasury bill plus 2.3 percent. For borrowers who demonstrate that their monthly payments will exceed 8 percent of their total income, the margin added to the T-bill drops to 1 percent, and to zero for those whose payment will exceed 9 percent of their income. Lowers to 5 percent from 8.25 percent the interest-rate cap for borrowers whose payments would exceed 10 percent of their total income. Drops cap further for borrowers whose payments would exceed 10 percent of their income.
Loan limits	Raises annual loan limits for first-year students to $3,500 from the current limit of $2,625, and for second-year students to $4,500, from the current $3,500. Does not increase aggregate loan limits for undergraduates. Increases to $12,000, from the current $10,000, annual unsubsidized loan limits for graduate and professional students.	Increases annual loan limits on subsidized Stafford-loan limits to $4,000 for first-year students, $6,000 for second-year students, and $20,000 for remaining years of undergraduate study. Increases annual loan limit for subsidized Stafford loans to $10,000 for graduate students. Raises aggregate loan limits on subsidized Stafford loans to $30,000 for undergraduates and $90,000 for graduate students. Raises annual loan limit on unsubsidized Stafford loans to $5,500 for first- and second-year students and $20,000 for the years of undergraduate studies. Raises annual loan limit for unsubsidized-Stafford loans to graduate students to $25,000 less any amount borrowed in subsidized Stafford loans.
Loan-origination fees	Phases in a reduction in the current 3-percent loan-origination fee. Reduces fees to 2 percent for loans first disbursed July 1, 2006, to June 30, 2008; to 1.5 percent for loans first disbursed from July 1, 2008, to June 30, 2010; and reduce to 1 percent the fee on loans disbursed thereafter.	Eliminates the 3-percent origination fee on subsidized Stafford loans and reduces to 1.5 percent the origination fee on unsubsidized Stafford loans in the Federal Family Education Loan Program (FFELP).
Repayment options	Establishes a “delayed” repayment plan under which borrowers could make interest-only payments for up to two years.	Revises the income-sensitive-repayment option in the FFELP to permit repayment over 25 years. If a borrower has not made adequate progress in repayment of the loan principal after 10 years, the lender would recalculate the payment to provide for repayment in full during the next 15 years. If any outstanding balance remains after 25 years, the loan would be acquired by the U.S. Department of Education. Revises extended-repayment option to permit borrower to make interest-only payments during first two years or have interest capitalized (added to principal).
Loan forgiveness	Increases the maximum amount of loan forgiveness from the current $5,000 to $17,500 for certain teachers of mathematics, science and special education and reading specialists who teach in schools that serve large populations of low-income students. Includes provisions for forgiveness of consolidation loans and PLUS loans taken out by spouses or parents on behalf of public-safety officials and members of the Armed Forces who were killed or permanently and totally disabled in the Sept. 11, 2001, terrorist attacks.	Replaces existing loan-forgiveness provisions for child-care providers with a new loan-forgiveness program for public-service employees. Eligible employees include those in qualified public-service jobs for at least eight years and in income-sensitive or income-contingent repayment for at least 15 years.

Additionally, the Republicans’ College Access and Opportunity Act reduces to nine from the current 12 the number of consecutive on-time voluntary payments that a borrower in default must make to rehabilitate a loan. That legislation also requires guarantors to make financial- and economic-education materials available to borrowers who’ve made satisfactory repayment arrangements on defaulted loans to restore their eligibility for federal Title IV student-aid. And, under the bill, guarantors, lenders and other loan-service providers would be required to report student-loan information to all national credit bureaus.