[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).
          * * * * * * *

                                
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