Reauthorization Update
By Betsy Mayotte

Fall 2005

By the time you read this article, we will know if reauthorization of the Higher Education Act has been completed in 2005 or if a Continuing Resolution had to be passed to delay it until 2006. However, as of the writing of this article, debate in Congress continued on the reauthorization bills and budget reconciliation. We can’t see into the future, but we can examine the past history of this reauthorization. So just where are we in the process and how did we get there?

There has actually been quite a bit of movement on the HEA, albeit most within the last few months. Back in February, the House introduced the newest version of their reauthorization bill, H.R. 609, a largely partisan bill introduced by Education Subcommittee Chairman John Boehner (R-OH).

Overall reaction to the bill was lukewarm at best -- from the student loan and education constituencies to, as expected, the other side of the aisle. Proposals in the bill included a choice between fixed and variable interest rates for consolidation loans for borrowers; a reduction of lender and guarantor reinsurance by two percent; year-round Pell grants; and an introduction of a college cost index and transfer of credit provisions.

In the spring, Congress passed a five-year, $14 trillion budget resolution that, in part, instructed the House and Senate subcommittees to save more than $12 billion over five years. This started a whole new ballgame. While we had always known that this Reauthorization was a zero-sum game, that just meant that if we wanted funds for something new or expanded, the money had to be cut from somewhere else. Now we were faced with the possibility of having existing funding cut and no new provisions or expansions. Suddenly, 609 started not to look so bad.

The Hill took this opportunity to show us that they had our best interests at heart. The call went out to all affected parties; schools, lenders, servicers, guarantors, student groups, parents and borrowers. The message: You know we have to cut and you’re the experts, so let’s get creative and see what we can come up with to meet our mandate and still assist students.

July came and the House Education and Workforce Committee met, discussed, amended and approved, by a party-line vote, H.R. 609. While it was not the bill some were hoping for, considering the reconciliation instructions, it was better than we could have expected. Loan limit increases were still there, the 90/10 rule was softened up a bit, and forgiveness programs were proposed for first responders, educators and social workers. Overall, it was certainly something we could live with.

Meanwhile, the industry was still hearing rumors of a Senate bill, but not so much as a whisper about what might be in it. Finally, right after Labor Day, Subcommittee Chairman Michael Enzi (R-WY) and Senator Edward Kennedy (D-MA) introduced the long-awaited Senate Reauthorization bill (S.1614). As a bipartisan bill, S.1614 has, so far, been viewed as a much more likely bill to pass, but it is still not without its cons. Some of the highlighted issues include maintaining the interest rate “fix” that would change Stafford loans to a fixed rate of 6.8 percent in 2006; no change in consolidation interest rate formulas and rules; allowing graduate students to borrow PLUS loans; no change from the House’s increased loan limit proposals; placing a moratorium on school as lender and eliminating the Lender Exceptional Performer Program. The Senate Committee introduced and quickly passed the bill by unanimous vote on September 8.

With the release of the Senate bill, the odds were looking pretty good that reauthorization was actually going to happen – and relatively soon. And then Hurricane Katrina hit. Once again, we’ve got a whole new ballgame.

So where do we stand and what to predict? A continuing resolution was passed to extend the HEA to December 31st, 2005 rather than by the six months originally proposed. The big question now is about the budget. The cost of the hurricanes continues to rise and may well cause additional cuts from all programs.

To keep up-to-date on reauthorization and other federal policy changes, read Betsy’s column in e.clips, American Student Assistance’s online newsletter for student aid professionals.

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