Archived Information

Reauthorization of the Higher Education Act

HEA Reauthorization Student Aid Proposals

Pell Grant Program:

• Reintroduce time-limits on student eligibility for Pell Grants to encourage students to complete their education more quickly. Students could receive grants for a time period equal to 150% of the period normally required to complete their course of study, with an overall full time equivalent limit of six years for a student in a four-year program. Part-time students receive proportionately longer, and students with disabilities would be exempted from the time limits.

• Base eligibility of stand-alone English as a Second Language (ESL) only programs on performance of graduates in standardized tests to improve the effectiveness of these programs. At the completion of the course of study, each individual would take an approved language proficiency exam. The institution's continued eligibility to offer ESL-only programs would be based on the percentage of its graduating students passing the proficiency test. This proposal does not affect ESL courses that are part of a larger academic or vocational program.

• Modify the tuition-sensitive Pell Grant award rule to clarify that "fees" are included with tuition in the calculation.

• In the tuition-sensitive Pell Grant award rule, use the amount of the allowances the institution has already determined for inclusion in the total cost of attendance for dependent child care expenses and/or disability-related expenses. This approach provides consistency between the Pell Grant award rules and the general cost of attendance rules.

• Eliminate the statutory requirement that the Department advance 85% of Pell Grant funds to institutions. Administratively, however, the Department will continue to advance 85% of Pell Grant funds to institutions until the alternative "just-in-time" procedures become available.

• Increase flexibility by providing minor changes to the provision on crediting of Pell Grants to students' accounts to reflect current cash management regulations. This would simply specify that the rules on distribution of funds and crediting students' accounts would be established via regulation, rather than law, and allow the Department greater ability to react to institutions' needs.

Student Loan Programs:

• Lower interest rates for students by allowing the scheduled 10 percent reduction in current interest rates to go into effect while moving from a long-term to a short-term instrument to provide lenders with an adequate return. Specifically, the maximum student interest rates would be the 91-day Treasury Bill rate plus 1.7 percentage points during the in-school period, and the 91-day Treasury Bill rate plus 2.3 percentage points during repayment.

• Eliminate the taxation of forgiveness for income-contingent loans that are forgiven after being in repayment for 25 years.

• Transform the guaranty agency system to clarify that the Federal government is the sole guarantor of FFEL loans. Guaranty agencies will act as third-party servicers of Federal guarantees under performance-based agreements. The Department will pay 100 percent of lender default claims and will recall Federal funds held in reserve by guaranty agencies over five years. Under this proposal, standard procedures will be established tht will greatly reduce compliance costs for lenders and schools.

• Adopt other improvements to the FFEL program from the Administration's FY99 budget proposal that would reduce excess profits and federal costs, including reducing the percentage of default collections that guaranty agencies may retain from 27 to 18.5 percent; replacing supplemental/pre-claims assistance payments with performance-based lender payments to guaranty agencies tied to agency success in bringing delinquent loans current; setting the in-school interest rate at the ED borrowing rate; and computing special allowance rates at the same time and in the same manner as student interest rates.

• Improve the terms of FFEL consolidation loans to match those in Direct Loans. FFEL consolidation loans will have a variable interest rate; FFEL borrowers will be able to consolidate while in school; consolidation of consolidation loans will be permitted; and borrowers will not lose their interest subsidy when they consolidate.

• Provide authority for the Secretary to lower interest rates on Direct Loans for students who repay their loans on time or repay their loans through automatic debit if these policies would be cost neutral or would enhance collections.

• Do not accrue interest on unsubsidized loans that are in deferment for economic hardship if the borrower is performing community service. This proposal will allow all young people with college loans to take up to three years to serve their communities without accruing additional interest on their loans.

• Provide authority for the Secretary to develop and implement a multi-year promissory note.

• Require states to share information about their employees who have defaulted on student loans with the Department.

• Provide increased authority for the Secretary to determine through regulation the types of entities that may act as lenders in the FFEL program.

• Allow the Secretary to permit institutions to conduct exit counseling electronically.

• Ensure continued access to FFEL loan funds by applying lender of last resort provisions to unsubsidized as well as subsidized loans; by allowing the Secretary to make advances directly to lenders for lender of last resort loans, rather than having to use guaranty agencies as intermediaries; and by allowing the Secretary to make institutions automatically eligible to participate in the Direct Loan program if they are eligible to participate in the FFEL program but their students do not have access to FFEL loans. These schools could enter the Direct Loan program at any time during the academic year and could participate in both the FFEL and Direct Loan programs simultaneously.

• Reduce burden on institutions by simplifying proration of loan amounts.

Campus-Based Flexibility Proposals:

• Gradually increase the portion of campus-based funds allocated based on "fair share" to reflect more accurately the current distribution of needy students.

• Reduce institutional burden and increase flexibility by eliminating the requirement that institutions provide at least 5% of funds for each campus-based program to independent and less-than-half-time students. For most institutions this is an unnecessary administrative burden.

• Reduce institutional burden by simplifying the requirement that institutions award FSEOGs first to Pell Grant recipients taking into consideration their need, instead of the complicated EFC ordering requirement in the law.

• Modify the campus-based provisions to give the Secretary authority to determine an institution's need by using either the current method of delivering the Expected Family Contribution (EFC) data for students at the institutions based on income categories or actual EFC data. This will provide flexibility so that the Department can continue to collect the income information that is not available anywhere else at this time and derive EFCs for the allocation formula. However, as Project EASI develops, the Department should be able to have both the actual EFCs and the actual income for each student by institution. At that time, the Department could use actual EFCs to determine the institutional need.

• Eliminate the date for a capital distribution of the Federal Perkins Loan funds at each institution and maintain the current statutory language requiring the Secretary to recapture the Federal share of the Perkins Loan revolving funds.

• Combine all returned campus-based funds from all programs and reallocate them according to the current reallocation rules for the Federal Work Study program. That is, schools will only receive reallocated funds if they spend at least 10% of their Federal Work Study allocation on community service. Additionally, schools must spend all of the reallocated funds for community service.

• Allow schools to carry back to the previous award year or forward to the upcoming award year, up to 10% of its FSEOG allocation.

Need Analysis and Delivery System:

• Modify the income offsets for single independent students and married independent students with no other dependents. Specifically, raise the income offset for a single independent student to $6,000 and to $9,000 for a married couple, if only one is enrolled in postsecondary education, or $6,000, if both are enrolled. These amounts will be inflated in the out years. The income protection allowance levels would be subject to adjustment in annual appropriations acts.

• Provide an incentive for increased student earnings for postsecondary education by increasing the dependent student income protection allowance from $1,750 to $3,500. This increase would protect $3,500 of student earnings, with the amount earned above that amount assessed at 50 percent. This allowance would be subject to adjustment in annual appropriations acts.

• Provide authority to the Secretary to implement use of other than the base year income to determine student need after consultation with relevant parties.

• Encourage further savings and simplify the aid application process by allowing the Secretary, after consultation with relevant parties, to change the asset calculation in the determination of need, with protections for low-income applicants. This would ensure that those who save for college are not penalized.

• Provide authority for the Secretary to approve use of forms that include at least the same data elements as the FAFSA, including electronic versions, for determination of student need. The federal forms application process would continue to be free and this would be clearly communicated to the student on any such form.

• Modify the provision that specifies that no more than eight nonfinancial data elements needed by the states may be included on the FAFSA by eliminating the specification of only eight data elements and the requirement that the elements be nonfinancial.

• Provide professional judgment authority to adjust a student's expected family contribution by altering the EFC methodology and the final amount due to extraordinary circumstances, as defined by the Secretary, and provide authority for the Secretary to regulate in this area. Appropriate documentation would be required to use this authority. Currently, the statute restricts a financial aid administrator's authority to use professional judgement to adjust only data elements used in calculating the EFC due to special circumstances. This proposal would allow schools to make adjustments that more accurately reflect a student's circumstances.

• Provide authority and flexibility to the Secretary to use the FAFSA as the loan application for the FFEL program. This change will reduce burden for students and streamline the application process for schools, lenders, and the Department.

• Provide authority for the Secretary to pay entities for providing data essential to Title IV programs. This authority is needed to provide flexibility to pursue reengineering and integrating the student aid delivery system.

• Provide authority for the Secretary, through the rulemaking process, to modify any requirement concerning applying for aid and delivery of funds to take into account innovations in technology and business processes if those modifications would better meet the needs of delivering aid to students. This authority will facilitate the Secretary's efforts to reengineer the student aid delivery system.

• Revise the master calendar provisions applying to the regulatory process to provide more flexibility for institutions and the Department. Specifically, any final regulation affecting the calculation of awards and delivery of aid to students that has not been published in final form by November 1 prior to the start of the award year shall not become effective until the beginning of the second award year after November 1. However, the Secretary may designate specific provisions that an institution can choose to implement prior to the delayed effective date.

Gatekeeping and Oversight:

• Provide authority to the Secretary to develop a performance-based approach to statutory and regulatory requirements whereby the Secretary would exempt institutions from selected requirements provided they meet specific performance criteria.

• Broaden the statutory authority for the Quality Assurance (QA) program to include the processing and disbursement of student financial aid, related student services, and verification of student financial aid application data.

• Repeal State Postsecondary Review Entity program.

• Repeal State share of default costs provision.

• Extend the current cohort default rate threshold exemption that currently applies to Historically Black Colleges and Universities, Tribally Controlled Community Colleges, and Navajo Community Colleges until the year 2000. Beginning in 2000, continue to exempt those institutions from the default rate penalties as long as they are showing improvement in their default rates.

• Limit required unannounced reviews by accrediting agencies at schools offering vocational programs to those agencies at which at least 10 percent of the institutions they accredit have cohort default rates for the most recent year of 20 percent or higher. Allow the option for all accrediting agencies to conduct unannounced site visits when they are deemed necessary by the agency.

• Make the cohort default rate threshold provisions in the Perkins Loan program consistent with FFEL and Direct Lending, including terminating an institution's participation in the Perkins program if its Perkins default rate exceeds 25% for the three most recent years. Retain the provision that prohibits schools from obtaining new capital contributions if their default rates are 15 percent or higher.

• Require institutions that appeal high cohort default rates to post surety. If the appeal is unsuccessful, the institution will be liable for loans and related costs that are incurred during the appeal process.

• Clarify that loans which the Department determines were improperly serviced are eliminated from both the numerator and denominator in the calculation of cohort default rate.

• Repeal the provision in 498(f) that requires the Department to conduct site visits at institutions for each certification or recertification. Repeal the provision in 498(f) that allows the Department to charge institutions for costs associated with these site visits.

• Allow the Secretary to use administrative subpoenas in pursuing termination actions against institutions.

• Impose the existing 85/15 requirement on institutions that switch from for-profit to non-profit status during a two-year transition period.

• Terminate any foreign institution from participating in the FFEL program if its cohort default rate is five percent or more for each of the three most recent years; in addition, allow the Secretary, through regulation, to determine the frequency for which foreign institutions with low loan volumes are to be recertified and all foreign institutions are to submit compliance and financial statement audits.

• Make changes that would allow a school undergoing a change of ownership to apply for temporary eligibility to participate in Title IV programs while the school is applying for permanent eligibility.

• Extend the 70/70 completion and placement requirement to vocational programs of one-year in length (or less) at all proprietary institutions. Also, allow institutions to meet the requirement if 70 percent of their students are placed in jobs for which they are trained regardless of whether they complete the program. The Secretary would be authorized to prescribe in regulation performance measures similar to the types of performance measures under consideration by Congress in the job training context.

• Simplify the refund policy.

• Broaden Title IV opportunities for distance learners by expanding eligibility for students in distance learning programs at degree-granting institutions. Eliminate the differences in cost of attendance treatments between distance learners and on-campus learners. Ensure accountability of distance programs through accreditation and, to assist the Department in evaluating accrediting agency activities, authorize an independent study to examine the effectiveness with which accrediting agencies are developing and enforcing outcome measures for distance learning programs.

• Terminate institutions with high student loan default rates from all federal student financial assistance programs.

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