Outgoing Senate Committee Chairman Releases Bill Reauthorizing Perkins Loan Program

Prepared by:  Harrison Wadsworth  (hwadsworth@wpllc.net) 

November 20, 2014

Senator Tom Harkin (D-IA), the chairman of the Health, Education, Labor and Pensions Committee, today introduced a massive bill for reauthorization of the Higher Education Act (HEA).  The bill includes provisions reauthorizing the traditional Perkins Loan Program through 2021, including pushing back the sunset provision until then.  The 875-page bill, which is not yet numbered, is the first comprehensive legislation in the current reauthorization process, covering every part of the HEA.  The text can be found here:  http://www.help.senate.gov/imo/media/doc/HEAA%20-%20Bill%20Text.pdf .

The bill apparently does not have any cosponsors at this time, but we believe it does reflect the priorities of the Democratic members of the HELP Committee.  Harkin is retiring at the end of this Congress, and this bill like all others that have been introduced but not become law will die when the Congress adjourns.  The new HELP Committee chairman in January 2015 will be a Republican, probably Sen. Lamar Alexander (R-TN), who has a different point of view on many issues, but almost all of the Democrats currently serving on the HELP Committee are returning and will still have a major say in the HEA reauthorization process.  Current Committee member Sen. Patty Murray (D-WA) is planning to assume Harkins position as the top Democrat on the Committee.

COHEAO has worked hard to support reauthorization of the Perkins Loan Program, so it is good news that Harkin’s bill reflects that.  It gives us something to point to as the work continues next year.  COHEAO representatives have met with Sen. Alexander’s staff and will continue to do so.

The bill proposes the following for Part E, the Perkins specific provisions:

• Authorizes “such sums as may be necessary” for the program through 2021.  (There is no guaranty that funds will actually be appropriated, however.)
• Raises the required institutional match to the federal capital contribution (FCC) from 33 percent to 50 percent.  This increased match requirement would also apply to the SEOG And Work Study programs.
• Changes the allocation formula and the “self help need” rules used to determine FCC allocations. The current allocation rules are replaced by a much simpler methodology for FCC that says a school’s allocation has to be between 90 and 110 percent of its previous year’s allocation, ratably reduced if insufficient funds are available.  Importantly, in addition it requires the Education Department to come up with new rules that require consideration in the allocation for new institutions the number of low- and moderate income students that an eligible institution serves.  The same changes are made to the SEOG and Work Study programs.
• Simplifies military deferment eligibility rules and extends the deferment to 180 days after demobilization.
• Expands military service forgiveness by removing the requirement that service be in a combat zone.
• Changes the sunset of the program – the date when schools would start sending federal funds to the Treasury – from Oct. 1, 2012 to, like the authorization for funding, Oct. 1, 2021.  This conforms to what Congress has repeatedly done in the past.

The bill proposes numerous changes to other programs.  Here are a few highlights. The bill would:

• Restore year-round Pell Grants.
  • Eliminate origination fees for Direct Loans.
  • Make private student loans dischargeable in bankruptcy.
  • Require school certification of private loans
  • Limit private loan lending to what the school certifies is needed.
  • Clarify that HHS student loans are not covered by the Truth in Lending Act disclosure requirements for private loans.
  • Require private loan lenders (there is no exception for institutional loans) provide for posting on the internet the contracts with all private loan borrowers.
  • Imposes a number of new requirements on student loan servicers, including third-party Perkins loan servicers.  Schools servicing their own loans and the Department itself are exempted.  These extensive proposals are in Chapter 6 of the legislation.  They include prescriptive requirements for dealing with borrowers in all respects, many of which reflect Consumer Financial Protection Bureau recommendations on servicing.
  • Restrict collection costs on defaulted Direct Loans and FFELs to the “bona fide collection costs associated with such student loan that are actually incurred in collecting the debt against the borrower.”
  • Requires a study from the Department of Education with a determination that private collection agencies (PCAs) “are an efficient and effective way of recouping  defaulted federal student loan debt.”
  • Requires the Department of Education to report any PCA violations of the FDCPA to the CFPB.
  • Three reports from Department of Education studying:
• The feasibility of specialty servicing contracts;
• Servicer compensation
• Increasing transparency and performance for FFELP servicing.

Chairman Harkin’s summary of the legislation is attached: Harkin Nov 2014 Bill summary.