[House Report 105-322]
[From the U.S. Government Publishing Office]
105th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 105-322
_______________________________________________________________________
EMERGENCY STUDENT LOAN CONSOLIDATION ACT OF 1997
_______________________________________________________________________
October 21, 1997.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Goodling, from the Committee on Education and the Workforce,
submitted the following
R E P O R T
[To accompany H.R. 2535]
[Including cost estimate of the Congressional Budget Office]
The Committee on Education and the Workforce, to whom was
referred the bill (H.R. 2535) to amend the Higher Education Act
of 1965 to allow the consolidation of student loans under the
Federal Family Loan Program and the Direct Loan Program, having
considered the same, report favorably thereon with an amendment
and recommend that the bill as amended do pass.
The amendment is as follows:
Strike out all after the enacting clause and insert in lieu
thereof the following:
SECTION 1. SHORT TITLE; REFERENCE.
(a) Short Title.--This Act may be cited as the ``Emergency Student
Loan Consolidation Act of 1997''.
(b) References.--Except as otherwise expressly provided, whenever in
this Act an amendment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference shall be
considered to be made to a section or other provision of the Higher
Education Act of 1965 (20 U.S.C. 1001 et seq.).
SEC. 2. LOAN CONSOLIDATION PROVISIONS.
(a) Definition of Loans Eligible for Consolidation.--Section
428C(a)(4) (20 U.S.C. 1078-3(a)(4)) is amended--
(1) by redesignating subparagraphs (C) and (D) as
subparagraphs (D) and (E), respectively; and
(2) by inserting after subparagraph (B) the following new
subparagraph:
``(C) made under part D of this title, except that
loans made under such part shall be eligible student
loans only for consolidation loans for which the
application is received by an eligible lender during
the period beginning on the date of enactment of the
Emergency Student Loan Consolidation Act of 1997 and
ending on October 1, 1998;''.
(b) Terms of Consolidation Loans.--Section 428C(b)(4)(C)(ii) is
amended--
(1) in subclause (I), by inserting after ``consolidation
loan'' the following: ``for which the application is received
by an eligible lender before the date of enactment of the
Emergency Student Loan Consolidation Act of 1997, or on or
after October 1, 1998,'' ;
(2) by striking ``or'' at the end of subclause (I);
(3) by inserting ``or (II)'' before the semicolon at the end
of subclause (II);
(4) by redesignating subclause (II) as subclause (III); and
(5) by inserting after subclause (I) the following new
subclause:
``(II) by the Secretary, in the case of a
consolidation loan for which the application is
received by an eligible lender on or after the
date of enactment of the Emergency Student Loan
Consolidation Act of 1997 and before October 1,
1998, except that the Secretary shall pay such
interest only on that portion of the loan that
repays Federal Stafford Loans for which the
student borrower received an interest subsidy
under section 428 or Federal Direct Stafford
Loans for which the borrower received an
interest subsidy under section 455; or''.
(c) Interest Rate.--Section 428C(c)(1) is amended--
(1) in the first sentence of subparagraph (A), by striking
``(B) or (C)'' and inserting ``(B), (C), or (D)''; and
(2) by adding at the end the following new subparagraph:
``(D) A consolidation loan for which the application is
received by an eligible lender on or after the date of
enactment of the Emergency Student Loan Consolidation Act of
1997 and before October 1, 1998, shall bear interest at an
annual rate on the unpaid principal balance of the loan that is
equal to the rate specified in section 427A(f).''.
(d) Amendments Effective for Pending Applicants.--The consolidation
loans authorized by the amendments made by this section shall be
available notwithstanding any pending application by a student for a
consolidation loan under part D of title IV of the Higher Education Act
of 1965, upon withdrawal of such application by the student at any time
prior to receipt of such a consolidation loan.
SEC. 3. ADMINISTRATIVE EXPENSE REDUCTIONS.
Section 458(a)(1) (20 U.S.C. 1087h(a)(1)) is amended by striking
``$532,000,000'' and inserting ``$507,000,000''.
SEC. 4. TREATMENT OF TAX BENEFITS.
(a) Family Contribution for Dependent Students.--
(1) Parents' available income.--Section 475(c)(1) is
amended--
(A) by striking ``and'' at the end of subparagraph
(D);
(B) by striking the period at the end of subparagraph
(E) and inserting ``; and''; and
(C) by adding at the end the following new
subparagraph:
``(F) the amount of any tax credit taken by the
parents under section 25A of the Internal Revenue Code
of 1986.''.
(2) Student contribution from available income.--Section
475(g)(2) is amended--
(A) by striking ``and'' at the end of subparagraph
(C);
(B) by striking the period at the end of subparagraph
(D) and inserting ``; and''; and
(C) by inserting after subparagraph (D) the following
new subparagraph:
``(E) the amount of any tax credit taken by the
student under section 25A of the Internal Revenue Code
of 1986.''.
(b) Family Contribution for Independent Students Without Dependents
Other Than a Spouse.--Section 476(b)(1)(A) (20 U.S.C. 1087pp(b)(1)(A))
is amended--
(1) by striking ``and'' at the end of clause (iv); and
(2) by inserting after clause (v) the following new clause:
``(vi) the amount of any tax credit taken
under section 25A of the Internal Revenue Code
of 1986; and''.
(c) Family Contribution for Independent Students With Dependents
Other Than a Spouse.--Section 477(b)(1) (20 U.S.C. 1087qq(b)(1)) is
amended--
(1) by striking ``and'' at the end of subparagraph (D);
(2) by striking the period at the end of subparagraph (E) and
inserting ``; and''; and
(3) by adding at the end the following new subparagraph:
``(F) the amount of any tax credit taken under
section 25A of the Internal Revenue Code of 1986.''.
(d) Total Income.--Section 480(a)(2) (20 U.S.C. 1087vv(a)(2)) is
amended--
(1) by striking ``individual, and'' and inserting
``individual,''; and
(2) by inserting ``and no portion of any tax credit taken
under section 25A of the Internal Revenue Code of 1986,''
before ``shall be included''.
(e) Other Financial Assistance.--Section 480(j) is amended by adding
at the end the following new paragraph:
``(4) Notwithstanding paragraph (1), a tax credit taken under section
25A of the Internal Revenue Code of 1986 shall not be treated as
estimated financial assistance for purposes of section 471(3).''.
Purpose
The purpose of H.R. 2535, ``The Emergency Student Loan
Consolidation Act of 1997'', is to amend The Higher Education
Act of 1965 to allow the immediate consolidation of loans made
under the Federal Family Education Loan Program and the William
D. Ford Federal Direct Student Loan Program, and to make
certain technical corrections to Part F of Title IV of the
Higher Education Act of 1965.
Committee Action
On September 18, 1997, The Subcommittee on Postsecondary
Education, Training and Life-Long Learning held a hearing on
the Shutdown of the Consolidation Loan Process in the William
D. Ford Direct Student Loan Program. On September 24, 1997,
Representatives McKeon, Goodling, and Boehner introduced H.R.
2535, ``The Emergency Student Loan Consolidation Act of 1997.''
On October 1, 1997, the Committee on Education and the
Workforce assembled to consider H.R. 2535. The Committee
adopted the bill as amended by a recorded vote of 43-0.
Background and Need for Legislation/Committee Views
We are very disappointed that the Department suspended the
Direct Loan Consolidation Program, which initially left more
than 84,000 students without the ability to consolidate their
student loans. Without consolidation, these students would
incur not only additional interest costs but also considerable
difficulty in meeting their current loan payments. These
students may also be unable to secure other credit such as a
mortgage, and they may default on their student loans if the
Committee does not act now.
This legislation will provide these students an alternative
solution for consolidating their student loans. We support
expansion of loan consolidation in the Federal Family Education
Loan (FFEL) Program because it provides an additional option to
students who choose to consolidate their loans. To the extent
practicable, we believe that expansion should be on the same
terms as provided in the Direct Loan Consolidation Program in
order to ensure that students will not have to bear additional
costs simply because they choose to consolidate their loans
within the FFEL program. The Committee believes that immediate
enactment of H.R. 2535 will help these students.
The Committee notes the comments of an individual student
affected by the direct loan consolidation. At a hearing before
the Subcommittee on Postsecondary Education, Training and Life-
Long Learning, Ms. Angela Jamison said: ``The staff at the
(direct loan) consolidation center has alternatively ignored
us, given us incorrect information, or even lied to us. One of
the worst things that happened was that we were almost unable
to close on our home,'' due to the loan consolidation problem
at the Department. A process that was supposed to have taken
her eight to twelve weeks has taken her and her husband more
than eight months.
Two months after the Department shut down the system and
stopped accepting applications, the Department still faces a
backlog of 32,223 loan applications. While we applaud the
progress the Department has made in approving consolidation for
almost 22,000 students since the program was suspended, we
remain deeply concerned that almost 30,000 students have either
withdrawn or have had their applications deactivated. Nearly 60
percent of the backlog that the Department has eliminated in
the last two months has come from rejections and withdrawals,
not from consolidation of loans. Clearly, these results are
unacceptable. We are hopeful that the Department will promptly
approve loans for the 30,000 students with currently pending
loan consolidation applications. The Committee will continue to
closely monitor the Department's actions in processing the
current backlog of applications.
In reporting this legislation, the Committee included a
provision authored by Mr. Andrews, that students who currently
have loan consolidation applications pending in the Direct Loan
Program should have the ability to withdraw those applications
at any time and seek loan consolidation within the FFEL
program. This provision was included in order to ensure that
student borrowers have the final say in selecting their
consolidation loan provider.
The fact that students have found themselves in this
consolidation processing dilemma is in stark contrast to the
Department's perception of itself as the ``Microsoft'' and
``Citibank'' of higher education as senior members of the
Department of Education have been quoted as saying. In a recent
hearing before the Subcommittee on Postsecondary Education,
Training, and Life-Long Learning, David Longanecker, the
Assistant Secretary for Postsecondary Education stated, ``the
Direct Loan Program provides a simpler, more automated, and
more accountable system to borrowers * * * students have
witnessed the development of a level of customer service not
previously experienced in financial aid delivery.''
Perhaps that is the view from Washington, DC. The view from
the frontlines seems much different. At least one student, Ms.
Angela Jamison, who testified at a subsequent hearing described
the Department's customer service as ``beset by chronic
mistakes which range from incompetence to malfeasance.''
The Department has stated three major problems which have
caused a huge backlog of consolidation loans:
Inherent complexity of student loan consolidation.
Higher volume than anticipated.
Transition from one contractor to another.
The Committee concurs that there is inherent complexity in
the student loan program, and with the United States Department
of Education charged with running a financial program larger
than Citibank it is tremendously difficult. The majority of the
Committee's Membership have repeatedly pointed this out since
direct lending first came under consideration, and it has been
the Committee's greatest concern with the Federal Government
taking on such a huge task. However, the Committee notes that
the private sector faces many of the same such problems. Many
private lending institutions' expertise in financial services
and systems allow them to process loan consolidations in a
timely fashion. The Committee hopes to give the Department the
tools they need to address these concerns as we work in the
Higher Education Act to update and modernize the Department's
management of the financial aid system.
In addition, the Committee believes that the Department's
excuse of ``higher volume'' rings hollow. From the inception of
the direct loan program, the Department has been actively
promoting the benefits of direct loan consolidation at the
expense of the taxpayer. It should have anticipated high volume
and been able to handle such volume, or it should have
refrained from the marketing blitz that was conducted. The fact
that this crisis has been allowed to happen is totally
contradictory to the language of the Higher Education Act which
states, ``The Secretary shall not offer such loans if, in the
Secretary's judgment, the Department of Education does not have
the necessary origination and servicing arrangements in place
for such loans.'' It is obvious from the testimony received at
the Subcommittee hearing that the necessary origination and
servicing arrangements are not in place. They have not been in
place for more than eight months. What is not clear is how the
Department reached the conclusion required by the Act that the
necessary origination and servicing arrangements were in place
prior to the Department's marketing of the program.
Finally, the transition from one contractor to another is a
poor excuse. At the time of the transfer one year ago, the new
contractor should have been required to prove its ability to
manage the consolidation program before ever receiving the
monetary benefits of a Federal contract.
The Emergency Student Loan Consolidation Act will open the
loan market and allow the private sector to consolidate loans
for direct loan borrowers. This should alleviate the backlog
and bring much needed competition to the consolidation loan
market. Students will no longer need to wait months as is the
case under the current system. The Committee expects the
Department to fix the problems it is having in the loan
consolidation program, but recent college graduates need help
now.
Currently, the Higher Education Act of 1965 prohibits
direct student loan borrowers from consolidating their direct
student loans into FFEL loans through private lenders and
servicers. Even if borrowers could consolidate their direct
loans into the FFEL program, few would because in most cases
they would pay a higher interest rate, and would lose their
deferment benefits on any subsidized loans which were
consolidated.
Upon enactment, this legislation will immediately change
these provisions to allow borrowers to consolidate direct
student loans into FFEL consolidation loans. The interest rate
for all new consolidation loans will be the equivalent of the
91-day Treasury Bill rate plus 3.1 percent (the same as in the
Direct Loan Program). In addition, borrowers who consolidate
subsidized loans, whether in the Direct Loan Program or the
FFEL Program will not lose their deferment benefits. During
periods of deferment, the Secretary will pay the interest on
the loans which were eligible for an interest subsidy prior to
the consolidation and the borrower will only be responsible for
the interest on the loans included in the consolidation loan
which were not eligible for an interest subsidy under Section
428 or Section 455 of the Higher Education Act.
This is emergency legislation, so these changes will only
remain in effect until September 30, 1998. The cost of this
legislation will be paid for by reducing the mandatory
administrative funds for Section 458 of the Higher Education
Act by $25 million, which is less than 5% of the Department's
Section 458 allocation. The Committee notes that even with this
reduction, the cap on administrative funds will remain $16
million higher than current year expenditures.
The Committee expects the full cooperation of the Secretary
with the lending community to ensure that consolidation loans
are made in a timely manner. The Committee notes that in the
past the Department has been slow to approve necessary forms,
and that in fact a common consolidation form has been pending
approval for two years. Necessary approvals are to be made in
days, rather than months or years. The Committee is also
concerned that during this emergency, private lenders will come
to the aid of students, only to have the Department conduct
another direct consolidation loan marketing blitz to these same
students once the application backlog has cleared.
During consideration of H.R. 2535, the Committee also
unanimously supported an amendment offered by Mr. Kildee of
Michigan and Mr. Clay of Missouri. This amendment makes
technical corrections to the need analysis provisions of the
Higher Education Act of 1965 to conform them to changes made
earlier this year to the tax code which provide students and
parents with tax relief for higher education. This provision
will ensure that students who receive a tax credit under the
HOPE Scholarship Program and are also eligible to receive a
Pell Grant will not be penalized and have their Pell Grant
reduced by the amount of their HOPE Scholarship tax credit.
Without this amendment, some 69,000 students would lose an
estimated $125 million annually in student aid they would
qualify for and need to help pay for their college education.
Without this language, the Committee is concerned that such
treatment could inadvertently disadvantage lower and middle
income students and parents, and runs contrary to the goals and
purposes of the Higher Education Act.
The Committee anticipated making this correction as part of
the reauthorization of the Higher Education Act next year.
However, as with the emergency student loanconsolidation
provisions in this legislation, this amendment is time sensitive. By
adopting this change to the need analysis formula now, the Department
can begin the process of revising the student aid application forms and
processes well in advance of the 1999 academic year so that students
and families will not encounter delays in the processing of their aid
applications.
The Committee urges the quick enactment of this important
legislation.
Summary
The purpose of H.R. 2535, The Emergency Student Loan
Consolidation Act of 1997, is to amend The Higher Education Act
of 1965 to allow the immediate consolidation of loans made
under the Federal Family Education Loan Program and the William
D. Ford Federal Direct Student Loan Program, and to make
certain technical corrections to Part F of Title IV of the
Higher Education Act of 1965.
Section-by-Section Analysis
H.R. 2535, the Emergency Student Loan Consolidation Act of
1997, as reported by the Committee on Education and the
Workforce on October 1, 1997.
Section 1 contains the short title and reference(s) of the
bill.
Section 1(a) cites the short title of the bill as the
``Emergency Student Loan Consolidation Act of 1997''.
Section 1(b) contains the reference to the Higher Education
Act of 1965.
Section 2 contains the loan consolidation provisions.
Section 2(a) contains the definition of loans eligible for
consolidation.
Section 2(a)(1) amends Section 428(C)(a)(4) to redesignate
subparagraphs (C) and (D) as subparagraphs (D) and (E).
Section 2(a)(2) amends Section 428C(a)(4) to add a new
subparagraph to include direct loans as eligible student loans
for purposes of consolidation only.
Section 2(b) contains the terms of consolidation loans.
Section 2(b)(1) amends Section 428C(b)(4)(C)(ii) to
maintain current law provisions for all consolidation loans for
applications received before the date of enactment and on or
after October 1, 1998.
Section 2(b)(2) amends Section 428C(b)(4)(C)(ii) to strike
the ``or'' at the end of subclause (I).
Section 2(b)(3) amends Section 428C(b)(4)(C)(ii) by
inserting ``or (II)'' before the semicolon at the end of
subclause (II).
Section 2(b)(4) amends Section 428C(b)(4)(C) (ii) by
redesignating subclause (II) as subclause (III).
Section 2(b)(5) amends Section 428C(b)(4)(C)(ii) by adding
a new subclause retaining interest subsidy benefits for
students on all subsidized loans with respect to applications
received on or after the date of enactment and on or before
October 1, 1998.
Section 2(c) amends Section 428C(c)(1) by adding a new
subparagraph requiring the annual interest rate on the unpaid
principal balance of all consolidation loans be equal to the
rate specified in Section 427A(f) with respect to applications
received on or after the date of enactment and before October
1, 1998.
Section 2(d) allows students whose consolidation loan
application is pending with the Department of Education to
withdraw their application and reapply for a consolidation loan
under FFEL.
Section 3 amends Section 458(a)(1) by striking $532,000,000
and inserting $507,000,000.
Section 4 contains the provisions for the treatment of tax
benefits for the purposes of determining financial need.
Section 4(a) contains the provisions relating to the family
contribution for dependent students.
Section 4(a)(1) contains the provisions relating to
parents' available income.
Section 4(a)(1)(A) amends Section 475(c)(1) by striking
``and'' at the end of subparagraph (D).
Section 4(a)(1)(B) amends Section 475(c)(1) by striking the
period at the end of subparagraph (E) and inserting ``and''.
Section 4(a)(1)(C) amends Section 475(c)(1) by adding a new
subparagraph (F) to exclude the amount of any tax credit
claimed under section 25A of the Internal Revenue Code of 1986
by parents from the calculation of available parental income.
Section 4(a)(2) contains the provisions relating to the
student contribution from available income.
Section 4(a)(2)(A) amends Section 475(g)(2) by striking
``and'' at the end of subparagraph (C).
Section 4(a)(2)(B) amends Section 475(g)(2) by striking the
period at the end of subparagraph (D).
Section 4(a)(2)(C) amends Section 475(g)(2) by adding a new
subparagraph (E) to exclude the amount of any tax credit
claimed under section 25A of the Internal Revenue Code of 1986
by the student from the calculation of available student
income.
Section 4(b) contains the provisions relating to the family
contribution for independent students without dependents other
than a spouse.
Section 4(b)(1) amends Section 476(b)(1)(A) by striking
``and'' at the end of clause (iv).
Section 4(b)(2) amends Section 476(b)(1)(A) by adding a new
clause (vi) to exclude the amount of any tax credit claimed
under section 25A of the Internal Revenue Code of 1986 from the
calculation of available family income for independent students
without dependents.
Section 4(c) contains the provisions relating to family
contribution for independent student with dependents other than
a spouse.
Section 4(c)(1) amends Section 477(b)(1) by striking
``and'' at the end of subparagraph (D).
Section 4(c)(2) amends Section 477(b)(1) by striking the
period at the end of subparagraph (E) and inserting ``; and''.
Section 4(c)(3) amends Section 477(b)(1) by adding a new
subparagraph (F) to exclude the amount of any tax credit
claimed under section 25A of the Internal Revenue Code of 1986
from the calculation of available family income for independent
students with dependents.
Section 4(d) contains the provisions relating to definition
of total income.
Section 4(d)(1) amends Section 480(a)(2) by striking
``individual, and'' and inserting ``individual,''.
Section 4(d)(2) amends Section 480(a)(2) by adding a new
sentence to exclude the amount of any tax credit taken under
Section 25A of the Internal Revenue Code of 1986 from the
computation of expected family contribution for programs funded
under this Act.
Section 4(e) amends Section 480(j) by adding a new
paragraph (4) to exclude the amount of any tax credit taken
under section 25A of the Internal Revenue Code of 1986 from
being counted as estimated financial assistance.
Explanation of Amendment
The Amendment in the Nature of a Substitute is explained in
this report.
Oversight Findings of the Committee
In compliance with clause 2(l)(3)(A) of rule XI of the
Rules of the House of Representatives and clause 2(b)(1) of
rule X of the Rules of the House of Representatives, the
Committee's oversight findings and recommendations are
reflected in the body of this report.
Government Reform and Oversight
With respect to the requirement of clause 2(l)(3)(D) of
rule XI of the Rules of the House of Representatives, the
Committee has received no report of oversight findings and
recommendations form the Committee on Government Reform and
Oversight on the subject of H.R. 2535.
Committee Estimate
Clause 7 of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison by the
Committee of the costs which would be incurred in carrying out
H.R. 2535. However, clause 7(d) of that rule provides that this
requirement does not apply when the Committee has included in
its report a timely submitted cost estimate of the bill
prepared by the Director of the Congressional Budget Office
under section 403 of the Congressional Budget Act of 1974.
Constitutional Authority
The Higher Education Act and amendments thereto made by
H.R. 2535, are Constitutional under the spending clause of the
constitution, Article I section 8, clause 1.
Application of Law To Legislative Branch
Section 102(b)(3) of Public Law 104-1 requires a
description of the application of this bill to the legislative
branch. This bill provides funds loans to eligible recipients;
the bill does not prohibit legislative branch employees from
otherwise being eligible for such services.
Unfunded Mandate Statement
Section 423 of the Congressional Budget & Impoundment
Control Act requires a statement of whether the provisions of
the reported bill include unfunded mandates. The Committee
received a letter regarding unfunded mandates from the Director
of the Congressional Budget Office and as such the Committee
agrees that the bill does not contain any unfunded mandates.
See infra.
Budget Authority and Congressional Budget Office Cost Estimate
With respect to the requirement of clause 2(l)(3)(B) of
rule XI of the House of Representatives and section 308(a) of
the Congressional Budget Act of 1974 and with respect to
requirements of clause 2(l)(3)(C) of rule XI of the House of
Representatives and section 403 of the Congressional Budget Act
of 1974, the Committee has received the following cost estimate
for H.R. 2535 from the Director of the Congressional Budget
Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, October 7, 1997.
Hon. William F. Goodling,
Chairman, Committee on Education and the Workforce,
House of Representatives, Washington, DC
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2535, the
Emergency Student Loan Consolidation Act of 1997, as ordered
reported from the House Committee on Education and the
Workforce on October 1, 1997.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Deborah
Kalcevic for federal costs and Marc Nicole for state and local
government impacts.
Sincerely,
June E. O'Neill, Director.
Enclosure.
H.R. 2535--Emergency Student Loan Consolidation Act of 1997
Summary: H.R. 2535 would amend the Higher Education Act of
1965 to make four changes. The bill would:
give lenders authority until October 1, 1998, to
allow student loan borrowers to include federal direct
student loans in a federally guaranteed consolidated
loan,
temporarily change until October 1, 1998, the terms
of federal guaranteed consolidated loans related to
federal interest subsidies and loan interest rates,
reduce the student loan administrative fund capped
entitlement level in 1998 from $532 million to $507
million, and
amend the student financial aid eligibility criteria
to adjust the formulas for recent changes in the tax
law.
CBO estimates the provisions of H.R. 2535 would increase
federal outlays by $12 million in 1998 but have a negligible
budgetary impact over the 1998-2002 period.
H.R. 2535 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would not affect
the budgets of state, local, or tribal governments. In
addition, enactment of this bill would impose no private-sector
mandates as defined under UMRA.
Estimated Cost to the Federal Government: The estimated
budgetary impact of these proposals over the 1989-2002 period
is shown in the following table. The budgetary effects through
2007 are displayed in the section on pay-as-you-go
considerations.
The budgetary impact of H.R. 2535 falls within budget
function 500 (education, training, employment, and social
services).
ESTIMATED BUDGETARY IMPACT OF H.R. 2535 AS ORDERED REPORTED FROM THE HOUSE EDUCATION AND THE WORKFORCE COMMITTEE
[By fiscal year, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
CHANGES IN DIRECT SPENDING
Student loan consolidations:
Budget authority...................................... ....... 25 ....... ....... ....... .......
Estimated outlays..................................... ....... 25 ....... ....... ....... .......
Student loan administration:
Estimated budget authority............................ ....... -25 ....... ....... ....... .......
Estimated outlays..................................... ....... -13 -8 -3 -1 .......
Total changes:
Estimated budget authority............................ ....... 0 ....... ....... ....... .......
Estimated outlays..................................... ....... 12 -8 -3 -1 .......
----------------------------------------------------------------------------------------------------------------
Basis of estimate
Student loan consolidations
In the student loan programs, borrowers have the option of
combining their debt from several different federal student
loan programs into one loan, which usually has extended
repayment terms. Guaranteed consolidated student loans are made
by private lenders and are reinsured by the federal government.
Direct consolidated student loans are made directly by the
federal government. The two programs are similar in many but
not all respects. This bill would make three temporary changes
to the guaranteed student loan consolidation program in order
to make it more comparable to the direct student loan
consolidation program. These changes would be in effect for new
consolidated loan applications from the date of enactment of
this bill until October 1, 1998.
Under this bill, borrowers would be eligible to include
direct student loans in their guaranteed consolidated student
loan. Under current statute, borrowers with both guaranteed and
direct student loans can only combine their debt into a direct
consolidated student loan.
This bill would also provide that students retain their
interest subsidy benefits on all subsidized loans included in
the new consolidated loan. This provision is already a feature
of the direct consolidated student loan program. Currently,
borrowers with guaranteed consolidated student loans retain
subsidy benefits only if they combine only subsidized student
loan debt.
Finally, H.R. 2535 would make the interest rate on
guaranteed consolidated loans the same as for direct
consolidated loans. Under current law, the interest rate on a
guaranteed consolidated loan is a fixed rate based on the
weighted average of the interest rates of the loans
consolidated rounded upward to the next whole percent, capped
at 9 percent. Under this bill the interest on the loans would
be a variable interest rate capped at 8.25 percent.
The impact of these changes on the demand for guaranteed
consolidated student loans would be affected by how widely
private lenders market the loans and whether the current
problems that have caused the temporary shutdown of the direct
consolidated student loan program persist. Assuming an
enactment date of November 1, 1997, this cost estimate reflects
the assumption that the proposals would increase guaranteed
consolidated student loan volume by approximately 10 percent in
1998, or by about $400 million, resulting in increased subsidy
costs of $25 million.
Funds for administrative expenses
Under H.R. 2535, the Department of Education's Section 458
capped administrative entitlement fund would be reduced by $25
million in fiscal year 1998. The 1998 limit for this fund would
be lowered from $532 million to $507 million. Outlays savings
would reflect the current program spending pattern.
Student Financial Aid Eligibility Requirements
H.R. 2535 would change the current federal formula for
calculating the expected family contribution (EFC) towards a
student's cost of higher education. The EFC is used to
determine eligibility for federal Pell grants and subsidized
student loans.
This bill would permit families to count any Hope Credit or
Lifetime Learning Credit--enacted as part of the Taxpayer
Relief Act of 1997--as an allowance against their income in
determining the amount of their EFC. Without these changes,
families would be expected to contribute more to their
education in an amount equal to the tax credits, in effect
eliminating any beneficial effects to those families receiving
credits. These changes would be effective for determining Pell
grant and subsidized loan eligibility beginning in academic
year 1999-2000.
CBO is currently unable to estimate the impact of these
provisions on the costs of student loans. While the exclusion
of the Hope and Lifetime Learning Credits from the EFC could
affect the amount of subsidized borrowing, CBO has insufficient
data to provide an estimate.
Under current law, the Pell grant program is not authorized
for academic year 1999-2000 and beyond, the years in which
these tax credits would be in effect. However, if these
provisions were to be in effect for academic year 1998-99 and
the maximum grant award were $3,000, Pell program costs would
increase by about $100 million, subject to appropriation of the
necessary funds.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act of 1985 specifies pay-as-you-go
procedures for legislation affecting direct spending or
receipts. The projected changes in direct spending are shown in
the table below for fiscal years 1998-2007. For purposes of
enforcing pay-as-you-go procedures, however, only the effects
in the budget year and the succeeding four years are counted.
SUMMARY OF PAY-AS-YOU-GO EFFECTS
[By fiscal year, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
----------------------------------------------------------------------------------------------------------------
Changes in outlays.............. 12 -8 -3 -1 0 0 0 0 0 0
Change in receipts..............
(9)Not applicable
----------------------------------------------------------------------------------------------------------------
Estimated impact on State, local, and tribal governments:
H.R. 2535 contains no intergovernmental mandates as defined in
UMRA and would not affect the budgets of state, local, or
tribal governments.
Estimated impact on the private sector: Enactment of this
bill would impose no private-sector mandates as defined under
UMRA.
Estimate prepared by: Federal Cost: Deborah Kalcevic and
Justin Latus; Impact on State, Local, and Tribal Governments:
Marc Nicole; Impact on Private Sector: Bruce Vavrichek.
Estimate approved by: Paul N. Van de Water, Assistant
Director for Budget Analysis.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3 of rule XIII of the Rules of the
House of Representatives, changes in existing law made by the
bill, as reported, are shown as follows (existing law proposed
to be omitted is enclosed in black brackets, new matter is
printed in italic, existing law in which no change is proposed
is shown in roman):
HIGHER EDUCATION ACT OF 1965
* * * * * * *
TITLE IV--STUDENT ASSISTANCE
* * * * * * *
Part B--Federal Family Education Loan Program
* * * * * * *
SEC. 428C. FEDERAL CONSOLIDATION LOANS.
(a) Agreements With Eligible Lenders.--
(1) * * *
* * * * * * *
(4) Definition of eligible student loans.--For the
purpose of paragraph (1), the term ``eligible student
loans'' means loans--
(A) * * *
* * * * * * *
(C) made under part D of this title, except
that loans made under such part shall be
eligible student loans only for consolidation
loans for which the application is received by
an eligible lender during the period beginning
on the date of enactment of the Emergency
Student Loan Consolidation Act of 1997 and
ending on October 1, 1998;
[(C)] (D) made under subpart II of part A of
title VII of the Public Health Service Act; or
[(D)] (E) made under subpart II of part B of
title VIII of the Public Health Service Act.
(b) Contents of Agreements, Certificates of Insurance, and
Loan Notes.--
(1) * * *
* * * * * * *
(4) Terms and conditions of loans.--A consolidation
loan made pursuant to this section shall be insurable
by the Secretary or a guaranty agency pursuant to
paragraph (2) only if the loan is made to an eligible
borrower who has agreed to notify the holder of the
loan promptly concerning any change of address and the
loan is evidenced by a note or other written agreement
which--
(A) * * *
* * * * * * *
(C)(i) * * *
(ii) provides that interest shall accrue and
be paid--
(I) by the Secretary, in the case of
a consolidation loan for which the
application is received by an eligible
lender before the date of enactment of
the Emergency Student Loan
Consolidation Act of 1997, or on or
after October 1, 1998, that
consolidated only Federal Stafford
Loans for which the student borrower
received an interest subsidy under
section 428; [or]
(II) by the Secretary, in the case of
a consolidation loan for which the
application is received by an eligible
lender on or after the date of
enactment of the Emergency Student Loan
Consolidation Act of 1997 and before
October 1, 1998, except that the
Secretary shall pay such interest only
on that portion of the loan that repays
Federal Stafford Loans for which the
student borrower received an interest
subsidy under section 428 or Federal
Direct Stafford Loans for which the
borrower received an interest subsidy
under section 455; or
[(II)] (III) by the borrower, or
capitalized, in the case of a
consolidation loan other than a loan
described in subclause (I) or (II);
* * * * * * *
(c) Payment of Principal and Interest.--
(1) Interest rates.--(A) Consolidation loans made
under this section shall bear interest at rates
determined under subparagraph [(B) or (C)] (B), (C), or
(D). For the purposes of payment of special allowances
under section 438(b)(2), the interest rate required by
this subsection is the applicable interest rate with
respect to a consolidation loan.
* * * * * * *
(D) A consolidation loan for which the application is
received by an eligible lender on or after the date of
enactment of the Emergency Student Loan Consolidation
Act of 1997 and before October 1, 1998, shall bear
interest at an annual rate on the unpaid principal
balance of the loan that is equal to the rate specified
in section 427A(f).
* * * * * * *
PART D--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
* * * * * * *
SEC. 458. FUNDS FOR ADMINISTRATIVE EXPENSES.
(a) Administrative Expenses.--
(1) In general.--Each fiscal year, there shall be
available to the Secretary from funds not otherwise
appropriated, funds to be obligated for--
(A) administrative costs under this part and
part B, including the costs of the direct
student loan programs under this part, and
(B) administrative cost allowances payable to
guaranty agencies under part B and calculated
in accordance with paragraph (2),
not to exceed (from such funds not otherwise
appropriated) [$532,000,000] $507,000,000 in fiscal
year 1998, $610,000,000 in fiscal year 1999,
$705,000,000 in fiscal year 2000, $750,000,000 in
fiscal year 2001, and $750,000,000 in fiscal year 2002.
Administrative cost allowances under subparagraph (B)
of this paragraph shall be paid quarterly and used in
accordance with section 428(f). The Secretary may carry
over funds available under this section to a subsequent
fiscal year.
* * * * * * *
PART F--NEED ANALYSIS
* * * * * * *
SEC. 475. FAMILY CONTRIBUTION FOR DEPENDENT STUDENTS.
(a) * * *
* * * * * * *
(c) Parents' Available Income.--
(1) In general.--The parents' available income is
determined by deducting from total income (as defined
in section 480)--
(A) * * *
* * * * * * *
(D) an income protection allowance,
determined in accordance with paragraph (4);
[and]
(E) an employment expense allowance,
determined in accordance with paragraph (5)[.];
and
(F) the amount of any tax credit taken by the
parents under section 25A of the Internal
Revenue Code of 1986.
* * * * * * *
(g) Student Contribution From Available Income.--
(1) * * *
(2) Adjustment to student income.--The adjustment to
student income is equal to the sum of--
(A) * * *
* * * * * * *
(C) an allowance for social security taxes
determined in accordance with paragraph (4);
[and]
(D) an income protection allowance of
$1,750[.]; and
(E) the amount of any tax credit taken by the
student under section 25A of the Internal
Revenue Code of 1986.
* * * * * * *
SEC. 476. FAMILY CONTRIBUTION FOR INDEPENDENT STUDENTS WITHOUT
DEPENDENTS OTHER THAN A SPOUSE.
(a) * * *
(b) Family's Contribution From Available Income.--
(1) In general.--The family's contribution from
income is determined by--
(A) deducting from total income (as defined
in section 480)--
(i) * * *
* * * * * * *
(iv) an income protection allowance
of--
(I) * * *
* * * * * * *
(III) $6,000 for married
students where one is enrolled
pursuant to subsection (a)(2);
[and]
(v) in the case where a spouse is
present, an employment expense
allowance, as determined in accordance
with paragraph (4); and
(vi) the amount of any tax credit
taken under section 25A of the Internal
Revenue Code of 1986; and
* * * * * * *
SEC. 477. FAMILY CONTRIBUTION FOR INDEPENDENT STUDENTS WITH DEPENDENTS
OTHER THAN A SPOUSE.
(a) * * *
(b) Family's Available Income.--
(1) In general.--The family's available income is
determined by deducting from total income (as defined
in section 480)--
(A) * * *
* * * * * * *
(D) an income protection allowance,
determined in accordance with paragraph (4);
[and]
(E) an employment expense allowance,
determined in accordance with paragraph (5)[.];
and
(F) the amount of any tax credit taken under
section 25A of the Internal Revenue Code of
1986.
* * * * * * *
SEC. 480. DEFINITIONS.
As used in this part:
(a) Total Income.--(1) * * *
(2) No portion of any student financial assistance received
from any program by an individual, [and] no portion of a
national service educational award or post-service benefit
received by an individual under title I of the National and
Community Service Act of 1990 (42 U.S.C. 12571 et seq.), and no
portion of any tax credit taken under section 25A of the
Internal Revenue Code of 1986, shall be included as income or
assets in the computation of expected family contribution for
any program funded in whole or in part under this Act.
* * * * * * *
(j) Other Financial Assistance; Tuition Prepayment Plans.--
(1) * * *
* * * * * * *
(4) Notwithstanding paragraph (1), a tax credit taken under
section 25A of the Internal Revenue Code of 1986 shall not be
treated as estimated financial assistance for purposes of
section 471(3).
* * * * * * *