Summary of Higher Education Budget Reconciliation Act of 2005 Committee Print, October 25, 2005 1. 50/50 rule modified to not apply to courses offered by telecommunications 2. FFEL reauthorized through 2012 3. Stafford loan limits increased as follows Freshman: $2,625 --> $3,500 Sophomore: $3,500 --> $4,500 Grad & Professional Students: $10,000 --> $12,000 (unsub) 4. Changes to Interest Rate Formulas: Repeals the change to fixed rates (6.8% Stafford, 7.9% PLUS) that would have commenced on July 1, 2006, retaining the current interest rate formulas (91-Day T-Bill + 2.3% Stafford and 91-Day T-Bill + 3.1% PLUS during repayment, 60 basis points lower during in-school and grace periods). Consolidation Loans would switch from the current fixed rate formula (weighted average of current rates rounded up to the nearest 1/8th of a point, capped at 8.25%) to a borrower choice of a fixed or variable rate: For Stafford Loans: Variable Rate: 91-Day T-Bill + 2.3%, capped at 8.25% Fixed Rate: 91-Day T-Bill + 3.3%, capped at 8.25% For PLUS Loans: Variable Rate: 91-Day T-Bill + 3.1%, capped at 9% Fixed Rate: 91-Day T-Bill + 4.1%, capped at 9% Observations: - Borrowers would be paying a 1% higher interest rate for the privilege of locking in a fixed rate. - The use of explicit formulas, instead of the weighted average, eliminates the ability to lock in the in-school rate. This will cause students to delay consolidations until the end of the grace period or wait until they enter repayment, since there will no longer be any benefit to consolidating while they are still in the grace period. 5. Requires the collection of a guarantee fee of 1% which may not be retained by the lender for loans disbursed after July 1, 2006. Guarantee agencies will no longer be able to waive the 1% guarantee fee. This guarantee fee may not be waived under voluntary flexible agreements. 6. With graduated repayment, allows borrowers to opt for a different graduated payment ratio. 7. Adds delayed repayment, in which the borrower can make payments that are at least the interest or $50/month, whichever is higher, for a period of up to two years, and then commences with one of the other repayment plans. 8. Schedules a reduction in origination fees from the current 3% (+ 1% guarantee fee) as follows: FFEL: Origination Guarantee Total 2006-07: 2.0% 1.0% 3.0% 2007-08: 1.5% 1.0% 2.5% 2008-09: 1.0% 1.0% 2.0% 2009-10: 0.5% 1.0% 1.5% 2010+: 0.0% 1.0% 1.0% DL: Loan Fee 2006-07: 3.0% 2007-08: 2.5% 2008-09: 2.0% 2009-10: 1.5% 2010+: 1.0% 9. DL repayment incentive restrictions: Prohibits DL from waiving the loan fee or providing repayment incentives before the borrower enters repayment. This prevents DL from offering financial inducements to encourage borrowers to borrow from DL. It does not appear to prohibit DL from offering repayment incentives that commence at repayment that are comparable to those offered by FFEL lenders, such as a rebate of the loan fees or interest rate reductions, provided that they are cost neutral. Although these restrictions do not apply to FFEL, the illegal inducements paragraphs in HEA 435(d)(5) prohibit FFEL lenders from waiving the origination fee (and this legislation already prohibits guarantee agencies from waiving the guarantee fee). Although some lenders currently rebate the origination fee after the loan enters repayment, this practice is likely to change under the new legislation. Under current law, most students who consolidate do so before entering repayment. Since the proposed legislation would eliminate the incentive to consolidate before entering repayment, fewer lenders are likely to offer fee rebates at repayment. More likely lenders will offer discounts that are spread over the lifetime of the loan (e.g., interest rate reductions) or discounts which are paid only after the borrower has stuck with the lender for a specified number of years (e.g., rebates after 'n' years, making the last 'n' payments on the loan). 10. Consolidation Loan origination fees ("offset charges"). FFEL lenders are allowed to collect a consolidation loan origination fee of up to 1.0%. DL is required to collect a consolidation loan origination fee of 1.0%. The origination fees may be capitalized. This provision is apparently intended to provide a disincentive to consolidation. The repeal of the single holder rule increases competition. This provision reduces the effectiveness of consolidation loans as a source of competition among lenders, reducing the pricing pressure on FFEL lenders. 11. DL consolidation of FFEL loans is restricted to borrowers seeking income contingent repayment plans for default aversion or for whom a lender has denied a consolidation application. FFEL lenders remain able to consolidate DL loans after they enter repayment. 12. The in-school early repayment status consolidation loophole is repealed. 13. The ability of married students to consolidate their loans together is repealed. 14. Repeals the single holder rule effective July 1, 2006, but requires the borrower to notify the single holder that he/she is seeking a consolidation loans. 15. Requires various consumer notices at consolidation. 16. Eliminates in-school DL consolidation. 17. Adds a deferment of up to 3 years for military personnel on active duty. 18. Amends provisions for loan forgiveness in areas of national need to include early childhood educators, nurses, foreign language specialists, librarians, highly qualified teachers (bilingual education or low-income communities), first responders in low-income communities (firefighter, police, EMT), child welfare workers, speech language pathologists, and other areas of national need designated by the Secretary of the US Department of Education. Requires five consecutive years of service, and limits the forgiveness to $5,000. No double dipping for national service award recipients or for teachers in national need areas. 19. Makes repeal of 9.5% floor permanent. 20. Increases the fees charged to lenders by 50 basis points for loans first disbursed starting July 1, 2006. 21. Reduces the insurance percentage from 98% to 96%. Lenders designated as exceptional performers will continue to be reimbursed at 98%. 22. Forbearance agreements no longer need to be made in writing, and need only be confirmed by sending a notice to the borrower. 23. Limits guarantee agency collection costs for defaulted loans that are consolidated to 18.5% of the outstanding principal and interest. 24. Requires reporting to each national credit bureau, as opposed to just one. 25. Changes School as Lender to require 10% default rate, prohibits loans to undergraduate students, prohibits loans to students who are not enrolled at the institution, requires contracts to be awarded on a competitive basis, requires loans to offer an origination fee or interest rate (or both) that are lower than the statutory requirements, requires an annual compliance audit, eliminates PLUS and Consolidation loans from the SAL program, requires all proceeds (including special allowance payments, interest subsidies, borrower interest payments, and sales proceeds) to be used for need-based grants, and requires that the proceeds supplement and not supplant non-Federal funds. The supplement and not supplant requirement will be difficult to enforce, given the difficulty of identifying a reduction in an increase in non-Federal aid. 26. Expands simplified needs by allowing students to qualify who qualify under another means-tested federal benefit program, such as supplemental security income (Title XVI of the Social Security Act), the food stamp program, the free and reduced price school lunch program, temporary assistance to needy families, and WIC. 27. FAFSA changes. - Early Estimates: Allows families to submit the FAFSA up to four years prior to enrollment in order to obtain a non-binding estimate of EFC. - EZ FAFSA: Simplified form for students who qualify for auto-zero-EFC. - FAFSA on the Web shall use skip logic to simplify the form as appropriate. - Requires a printable electronic form of the FAFSA (Adobe PDF format?) that may be used to submit the FAFSA. - Streamlined renewal FAFSAs. - Encourages the Department to reduce the number of data elements on the FAFSA. - Requires the Department to allow submission before January 1. 28. Prohibits fees from being charged for use of the FAFSA and EZ FAFSA. Fees may only be charged for value-added services, and entities that charge such fees must provide clear and conspicuous consumer notices that the FAFSA is free and can be completed without professional assistance and provides the fafsa.ed.gov web site address for online completion. 29. Expands the definition of independent student to include students who are in foster care or were in foster care through age 18. 30. Student income protection allowance increased from $2,200 to $3,000 with subsequent increases pegged to the December-December CPI, rounded to the nearest $10. 31. PJ Authority. Adds additional examples of special circmstances, including: - student status as a ward of the court at any time prior to age 18 - student status as an individual adopted at or after age 13 - student status as a homeless or unaccompanied youth 32. Modifies the definition of independent student to include members of the Armed Forces serving on active duty for other than training purposes. 33. Changes to Section 529 Prepaid Tuition Plans and College Savings Plans: - Distributions that are not included in AGI will not be reported on Worksheet B as untaxed income. - Prepaid tuition plans and College Savings Plans will be counted as an asset on the FAFSA, with the value being set to either the refund value or the current balance of the account. - Qualified tuition programs will not be counted as an asset of a dependent student (but can be counted as an asset of an independent student). 34. Excludes from net assets the net value of a small business (<= 100 full-time equivalent employees) that is owned and controlled by the family. 35. State aid that is targeted at a component of COA may be excluded from both estimated financial aid and COA. 36. Expands the definition of eligible program to include distance education. 37. Requires completion of repayment of Title IV funds fraudulently obtained before being eligible for new federal student aid. 38. Prohibits student loans for individuals subjected to involuntary civil commitments for sexual offenses. 39. Expands data match with the IRS to include all information by students and parents on Federal income tax returns. 40. Restricts the drug offenses eligibility suspension to just those offenses that occurred while the student was receiving Title IV aid. 41. Requires the compilation of a directory of state postsecondary education programs and services. 42. Cancels student loan debt for victims of the 9/11/01 terrorist attacks and for survivors (spouses, parents) of first responders who died or became permanently and totally disabled due to injuries sustained in the terrorist attacks on September 11, 2001. 43. Allows waivers and modifications of statutor and regulatory provisions in connection with a Gulf hurricane disaster. Also cancels various financial obligations by students and schools, including student loans disbursed for the affected enrollment periods. Also has a temporary 6 month deferment of repayment obligations on other student loans. Excludes amounts received for a cancelled enrollment period from relevant grant and loan limits. [Although this is not limited to hurricane Katrina, it is limited to a "Gulf" hurricane disaster. Congress needs to establish more general criteria for disasters meriting statutory/regulatory waivers and modifications and permanently encode them into law, instead of continually issuing one-time bandaids every time there is a new disaster.] 44. Requires notification of students and parents who qualify for means-tested Federal benefit programs (e.g., free/reduced cost school lunches, food stamps, WIC, etc.) of potential eligibility for a maximum Pell Grant. 45. Looks like the proposals to phaseout the historical allocation formula for campus-based aid has been dropped (this previously appeared in HR 609). Likewise for Year-Round Pell Grants, increases in Pell Grant authorized levels, increases in Perkins loan limits, State Scholars program.