H.R. 3221 (111^th): Student Aid and Fiscal Responsibility Act of 2009

GovTrack’s Bill Summary

We don’t have a summary available yet.

Library of Congress Summary

The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress.

House Republican Conference Summary

The summary below was written by the House Republican Conference, which is the caucus of Republicans in the House of Representatives.

This summary can be found at http://www.gop.gov/bill/111/1/hr3221.

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 110^th 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. 

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.  

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 

House Democratic Caucus Summary

The House Democratic Caucus does not provide summaries of bills.

So, yes, we display the House Republican Conference’s summaries when available even if we do not have a Democratic summary available. That’s because we feel it is better to give you as much information as possible, even if we cannot provide every viewpoint.

We’ll be looking for a source of summaries from the other side in the meanwhile.