HESC Colleague NewsletterMarch 15, 2007  

Student Loan Legislative Proposals in 2007

Steve Bomeisl

Changes in the political landscape that occurred after the November elections have resulted in a flurry of legislative proposals that will affect the student loan industry.


Although many bills are being proposed, here is a brief summary of the more important legislative proposals made in the last few months and their affect if passed.

College Student Relief Act (H.R.5)

  • Will cut several subsidies the federal government pays to banks, guaranty agencies, and other participants in the FFEL Program. The money from the cuts to the lending industry will be used to increase funding to the Pell Grant Program.
  • Will make prorated cuts (over the next five years) in the interest rate by cutting it in half from 6.8 percent to 3.4 percent for subsidized undergraduate student loans. The first interest rate reduction will be effective on 7/1/07.

Student Debt Relief Act (S.359)
  • The Senate’s “companion bill” to H.R.5. Contains similar cuts to the FFELP lending community and increases to Pell Grants.
  • Will provide new loan forgiveness options to borrowers in specific public service jobs who are in repayment for ten years.
  • Consolidation loan borrowers will be able to “reconsolidate” their consolidation loans and will again become eligible to consolidate while enrolled in school.

Student Loan Sunshine Act (Bills have been proposed in the House and Senate)
  • Will restrict gift-giving from lenders to college employees who participate in the FFELP
  • Will require lenders to disclose to borrowers the terms of their lending arrangements with schools.
  • Will encourage borrowers to first borrow from federal student loan programs and, once those benefits are exhausted, then take out private (“alternative”) loans

President‘s FY08 Budget Proposal (proposed in February 2007)
  • Includes language that contains similar reductions to the FFELP as in the bills noted above.
  • Will increase the loan limits for subsidized Stafford Loans from $5,500 to $7,500 for third and fourth year students; will increase aggregate loan limits too.
  • Will increase the funding amounts provided to first year students from $750 to $1,125 and to second year undergraduates from $1,300 to $1,950 for the Academic Competitiveness Grants.
  • Proposes the elimination of the SEOG and Perkins Loan programs.

A complete listing of all the details of these bills can be downloaded from the National Council of Higher Education Loan Programs (NCHELP).