This past summer, the House Education and Workforce Committee moved
the first reauthorization bill out of committee when it passed the College
Access and Opportunity Act (HR 609) on a party line vote of 27 for,
20 against, and one member voting present. The College Access and Opportunity
Act is the majority party House bill introduced by John Boehner (R-OH),
the Chairman of the Education and Workforce Committee, and Buck McKeon
(R-CA). As of this writing, the Senate has yet to introduce its major
reauthorization bill. However, there have been other bills introduced
by both the House and Senate that deal with particular sections of the
Higher Education Act (HEA), although the only complete reauthorization
bill to be voted on, even in committee, is HR 609. The next step for
HR 609 is to go to the House floor, where the whole House of Representatives
will have a chance to comment on or amend the bill. The chart below
discusses the common policies in reauthorization that affect student
loans and the policy’s possible affect on the borrower and school.
| Proposed policy |
| To increase undergraduate annual loan limits |
| How the proposed policy
change could affect borrowers |
Students may apply for larger loans
annually for their undergraduate education. HR 609 only increases
loan limits for student borrowers during their first two years of
school; however, other proposed bills offer more dramatic increases
in the limits. |
| How the proposed policy
change could affect schools |
Schools may certify eligibility
for higher annual Stafford Loans.
HR 609 offers an increase in annual loan limits for subsidized
undergraduate loans. The bill will increase the limit for first-year
student borrowers from $2,625 to $3,500 and for second-year student
borrowers from $3,500 to $4,500.
However, HR 609 will not increase the annual loan limit for third-year
or above student borrowers. Also, the bill will not increase any
of the aggregate loan limits for undergraduate borrowers.
|
| Proposed policy |
| To increase graduate annual loan limits |
| How the proposed policy
change could affect borrowers |
Students may apply for larger loans
annually for their graduate education. HR 609 again offers only
a slight increase in the annual loan limits; other proposed bills
offer more dramatic increases in the limits. |
| How the proposed policy
change could affect schools |
Schools may certify eligibility
for higher annual graduate Stafford Loans.
Graduate unsubsidized annual borrowing limits will increase from
$10,000 to $12,000, and yet again the aggregate loan limit will
not be increased according to HR 609.
|
| Proposed policy |
| To
change the way interest rates are calculated. There is a change
scheduled in current HEA language that would make “new”
Stafford Loans issued after July 1, 2006 carry a fixed rate instead
of the current variable rate. |
| How the proposed policy
change could affect borrowers |
Borrowers of new loans can continue
to look for the interest rate they pay to change every July based
on the rate of a Treasury bill (T-bill). |
| How the proposed policy
change could affect schools |
Schools may advise students and
parent borrowers that interest rates will continue to be based on
a variable rate based on the T-bill rate.
HR 609 will change the HEA to keep the current variable rate formula
and the current cap of 8.25 percent for Stafford Loans and 9 percent
for PLUS Loans. |
| Proposed policy |
| To
decrease the amount of origination fees paid on new Stafford Loans |
| How the proposed policy change could affect
borrowers |
Stafford Loan borrowers will pay less of a fee for
their student loan. |
| How the proposed policy change could affect
schools |
Schools may expect slightly higher disbursement
amounts.
HR 609 would lower the origination fee gradually for both Federal
Family Education Loan Program (FFELP) and Federal Direct Loan
Program (FDLP) Stafford Loans, with the fee eventually being set
at 0 percent for FFELP Stafford Loans and 1 percent for Direct
Stafford Loans disbursed after July 1, 2010. |
| Proposed policy |
| To
make it mandatory for guarantee agencies to collect the 1 percent
guarantee fee |
| How the proposed policy
change could affect borrowers |
All borrowers
would pay the same fees, regardless of which loan program they borrow
from or the guarantor of their loan. |
| How the proposed policy
change could affect schools |
Schools will not
be able to shop guarantors to find the agency with the lowest fee
offering for their borrowers.
This provision will ensure that the overall fees charged for FFELP
and FDLP Stafford loans are set at 1 percent for all Stafford Loans
disbursed after July 1, 2010. FFELP Stafford Loans will have the
1 percent guarantee fee and no origination fee, while Direct Stafford
Loans will only have a 1 percent origination fee and no guarantee
fee. |
| Proposed policy |
| To
modify the repayment plans |
| How the proposed policy
change could affect borrowers |
Borrowers may
choose different repayment plans that could make repayment easier
based upon the borrower’s ability to repay their loans. HR
609 will change the current graduated repayment plan offered to
FFELP borrowers by eliminating the three times rule, which mandates
that any one installment of a loan payment on the graduated plan
cannot be more than three time the amount of any other installment.
The bill will also create a delayed repayment plan for FFELP borrowers
where the borrower is only required to make interest payments,
up to $600 annually, for the first two years before their loan
goes into either the standard, graduated or income-sensitive repayment
plan. Finally, the repayment plans in the FDLP will be aligned
with the repayment plans in FFELP. The aligning of the repayment
plans may eliminate or change the income-contingent repayment
plan for FDLP loans.
|
| How the proposed policy
change could affect schools |
School may advise
students and parent borrowers about the different repayment options
available to them. |
| Proposed policy |
| To change the forgiveness
programs |
| How the proposed policy
change could affect borrowers |
Borrowers may
qualify for more loan forgiveness when they complete certain types
of public or military service. |
| How the proposed policy
change could affect schools |
Schools may advise
students about different loan forgiveness programs and the amount
of forgiveness that could be earned. |
| Proposed policy |
| To change the interest
rate structure for new Consolidation Loans |
| How the proposed policy
change could affect borrowers |
Borrowers will
have a choice for the type of interest rate they will be charged
on a Consolidation Loan, either fixed or variable. The new variable
rate formula will be the T-bill rate, plus 2.3 percent, which is
the same formula used when calculating the interest rate for Stafford
Loans in repayment. The new fixed rate formula will be the most
recent T-bill rate plus 3.3 percent.
Choosing the fixed rate will also carry with it an offset fee
that a lender may charge of up to 0.5 percent of the total loan
amount. |
| How the proposed policy
change could affect schools |
Schools may advise
their students about the pros and cons of consolidating loans. |
