The Higher Education Act (HEA) of 1965 is due for reauthorization later this year, once the Congress reauthorizes the Elementary and Secondary Education Act (ESEA). The HEA is the legislation that typically controls most federal student aid programs. In the past, the authorities have made several major changes to federal student aid programs during each reauthorization. That trend seems likely to continue this year as well.
The Higher Education Act (HEA) of 1965
Ever since the government created the HEA back in 1965, the authorities have rewritten the legislations governing federal financial aid programs eight times. The current HEA was set to expire at the end of 2013. However, an extension saw it continue through to 2015.
Mark Kantrowitz writes that Senator Lamar Alexander (R-TN) will be the new chair of the Senate Health, Education, Labor and Pensions committee. As such, the former US Secretary of Education will be controlling the reauthorization process of the HEA.
Recently, President Obama had announced a proposal aimed at giving students access to free community college tuition. However, Kantrowitz mentions that the Congress is unlikely either to allocate new funds or to shift funds from the Federal Pell Grant program and the American Opportunity Tax Credit to fund President Obama’s latest proposal. As such, President Obama’s proposal might remain just that.
The First Salvo – Simplifying Existing Financial Aid Programs
Senator Alexander introduced the Financial Aid Simplification and Transparency Act of 2015 (FAST Act) within hours of the opening of the 114th Congress. The FAST Act aims to simplify the Free Application for Federal Student Aid (FAFSA). It also seeks to establish one grant and one loan program for federal student aid, in addition to restoring year-round Pell Grants. It is worth highlighting that unlike President Obama’s proposal, this legislation has bipartisan support.
Simplifying the FAFSA might make it less tedious a process than it currently is. Completing the FAFSA enables students to access hundreds of billions of dollars given by the federal government in college grants and loans. For many families, the FAFSA is probably the sole way of obtaining federal college aid.
Complex FAFSA Nothing Less Than a Roadblock for Students Wanting to Attend College
However, research reveals that the inherent complexity of the FAFSA often makes it difficult for people to complete the application. Instead, many people avoid completing it, resulting in lower enrollments for federal college aid each year. Gianna Sen-Gupta highlights the results of a survey conducted by the higher education team at NerdWallet. The survey revealed that:
- Graduating high school seniors, who were eligible for Pell grants in 2013, but did not complete the FAFSA left about $2,955,475,413 unused in terms of potential Pell Grant aid
- In California alone, over 100,000 seniors could have been eligible for receiving Pell grants had they completed the FAFSA. Instead, they left $396,401,205 worth of potential Pell Grant aid unused
- In Utah, about 40 percent of graduating high school seniors, who were eligible for Pell grants, did not bother completing the FAFSA
The Repay Act of 2015 – A Simplified Income-Driven Repayment Plan
In conjunction with Senator Alexander, Senator King (Ind-ME) has introduced the Repay Act of 2015. This Act proposes a simplified income-driven repayment plan for new borrowers. It bases the monthly loan payment on 10 percent of discretionary income up to a specified threshold of about $25,000. Borrowers that exceed the threshold would need to pay 15 percent of their discretionary incomes. This threshold will undergo annual adjustments to account for inflation.
In addition, the authorities propose canceling the remaining debt of a borrower after 20 years, if the borrowers had an initial balance of less than $57,500. This amount denotes the cumulative Federal Stafford loan limit for independent undergraduate students. For borrowers having higher levels of debt, the authorities would cancel the remaining debt after 25 years.
For new borrowers as of July 01, 2015, the loan forgiveness will take place after 10 years, once they work on a fulltime basis in a public service job for the 10-year duration. This is similar to the existing public service loan forgiveness program. In addition, the Act will render all three types of loan forgiveness as being tax-free. Therefore, new borrowers would only be able to choose between this repayment plan and the standard 10-year repayment plan.
Other Likely Changes in the HEA Reauthorization
Another proposal from President Obama that might take a hit in the reauthorization of the HEA could be the proposal that seeks to expand the eligibility for the Pay-As-You-Earn Repayment (PAYER) plan. Implementing this proposal would require funds covered by savings elsewhere in the student loan program. Therefore, the Congress might only approve a limited expansion of eligibility.
However, Kantrowitz mentions that the Congress might decide to replace all the existing repayment plans based on income with a single new income-dependent repayment plan during the HEA reauthorization. If this takes place, then borrowers might only have two repayment plans to choose from i.e. the standard 10-year repayment plan and an income-dependent repayment plan.
Kantrowitz also states that interest rates on new federal education loans could increase by 80 – 120 basis points from July 01, 2015. As unemployment rates are under six percent at present, the Federal Reserve Board might decide to increase the Federal FUNDS rate in 2015.
In her article, Susannah Snider also highlights that federal student loan rates will change sometime in May 2015. However, these changes would only apply to loans disbursed between July 01, 2015 and June 30, 2016. Other changes that Snider anticipates include:
- An increase of $100 in federal Pell Grant aid, raising it to $5,830 in the 2015-2016 academic year
- PLUS loans could become more accessible as lenders might ease up on the criteria used for determining whether a borrower has a sufficiently clean credit record for becoming eligible for PLUS loans
Senator Alexander had mentioned that the reauthorization of the HEA would “start from scratch” with the Republicans taking control of the US Senate. Given its aversion to new high-cost programs, the Congress will probably not approve a major increase in funding for student aid programs either.
Instead, the Congress might focus on simplifying and streamlining student aid programs, whilst adopting various measures for improving consumer disclosures. Even this approach however, might be beneficial for the several students who rely on federal financial aid to pay for college.