Archived Information

Technical Admendments to the Higher Education Act


EXTENSION OF PHASEOUT OF DEFAULT RATE EXEMPTION FOR CERTAIN MINORITY INSTITUTIONS

SEC. ___. (a) Section 435(a)(5) of the Higher Education Act of 1965 (20 U.S.C. 1085(a)(5)) is amended?

(1) in subparagraph (A)(i), by striking out "July 1, 2002," and inserting in lieu thereof "July 1, 2004,"; and

(2) in subparagraph (B), in the matter preceding clause (i), by striking out "July 1 of 1999, 2000, and 2001," and inserting in lieu thereof "July 1 of 1999, 2000, 2001, 2002, and 2003,".

(b) For each of the fiscal years 2003 and 2004, there shall be deposited in the general fund of the Treasury $772,000 from funds formerly held by the Higher Education Assistance Foundation and currently held in trust.


Rationale:

Section ___(a) would amend section 435(a)(5) of the Higher Education Act of 1965 (20 U.S.C. 1085(a)(5)) to postpone for two years the elimination of the exemption from loss of eligibility to participate in the Federal Family Education Loan, Federal Direct Loan, and Federal Pell Grant programs on the basis of student loan cohort default rates of 25 percent or more for each of the three most recent fiscal years for which data are available. This exemption is currently available to Historically Black Colleges and Universities (HBCUs), tribally controlled community colleges, and Navajo Community Colleges with cohort default rates above that level through July 1, 2002, provided that

they submit an acceptable default management plan to the Department of Education; engage an independent third party to provide technical assistance in implementing the plan; and provide evidence of improvement and successful implementation of the plan.

The elimination of the exemption as of July 1, 2002, does not provide sufficient time for many of the potentially affected institutions to take the actions necessary to reduce their cohort default rates below 25 percent. To illustrate, the first eligibility determinations made after July 1, 2002, will be based on the cohort default rates for fiscal years (FYs) 1997, 1998, and 1999. Because the required default management plans were not due until July 1, 1999, any actions resulting from the plan could have had no effect on the FY 1997 cohort default rate, and a minimal effect on the FY 1998 cohort default rate. In addition, many of the default prevention measures included in these plans and the Department?s new regulations require activity before the borrower enters repayment. Thus, for borrowers included in the FY 1999 cohort default rate, institutions had a limited amount of time (three months) to work with a small number of students before they entered repayment. By continuing the exemption for two additional years, this amendment would provide an institution with the opportunity to make changes that will affect a full three years of cohort default rates (FYs 1999, 2000, and 2001), and will base eligibility determinations on rates that more accurately reflect an institution's ability to comply with the cohort default rate standards.

Section ___(b) would provide an offset for the additional costs associated with extending this exemption for two years by depositing $772,000 in the general fund of the Treasury in each of the fiscal years 2003 and 2004, from funds formerly held by the Higher Education Assistance Foundation and currently held in trust.

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