The Student Aid and Fiscal Responsibility Act
of 2009
David P. Smole, Coordinator
Specialist in Education Policy
Shannon M. Mahan
Specialist in Education Policy
Gail McCallion
Specialist in Social Policy
Rebecca R. Skinner
Specialist in Education Policy
David H. Bradley
Analyst in Labor Economics
Cassandria Dortch
Analyst in Education Policy
July 31, 2009
Congressional Research Service
7-5700
www.crs.gov
R40742
CRS Report for Congress
P
repared for Members and Committees of Congress
The Student Aid and Fiscal Responsibility Act of 2009
Summary
The House and the Senate approved H.Rept. 111-89, the conference report to accompany
S.Con.Res. 13, the Concurrent Resolution on the Budget for Fiscal Year 2010, on April 29, 2009.
The FY2010 budget resolution includes reconciliation instructions directing the Senate
Committee on Health, Education, Labor, and Pensions (HELP) and the House Committee on
Education and Labor to report changes in laws within their jurisdictions to reduce the deficit by
$1 billion for the period of fiscal year (FY) 2009 through FY2014. The reconciliation instructions
for the House specifically direct the Committee on Education and Labor to report a bill that
invests in education while reducing the deficit by $1 billion over the FY2009-FY2014 period.
On July 21, 2009, the House Committee on Education and Labor marked up H.R. 3221, the
Student Aid and Fiscal Responsibility Act of 2009; and on July 27, 2009, the committee reported
H.Rept. 111-232 to accompany H.R. 3221.
H.R. 3221 would terminate authority under the Higher Education Act (HEA) of 1965, as
amended, to make loans under the Federal Family Education Loan (FFEL) program after June
2010. The Congressional Budget Office (CBO) estimates that this would reduce mandatory or
direct spending by $41.8 billion over the FY2009-FY2014 period, and by $86.8 billion over the
FY2009-FY2019 period. These savings would be large enough to achieve the $1 billion reduction
in spending specified in S.Con.Res. 13, while offsetting increases in mandatory spending that
would result from the expansion of several existing HEA programs, and the establishment and
funding of several proposed new programs.
Overall, CBO estimates that H.R. 3221 would reduce mandatory spending by $13.3 billion over
the FY2009-FY2014 period, and by $7.8 billion over the FY2009-FY2019 period. CBO also
estimates that enactment of the proposals made in H.R. 3221, if fully funded, would increase
discretionary spending by $3.6 billion over the FY2009-FY2014 period, and by $13.5 billion over
the FY2009-FY2019 period.
In addition to terminating the authority to make loans under the FFEL program, H.R. 3221 would
fund expansions of several existing HEA programs and benefits, including the Federal Pell Grant
program, the William D. Ford Federal Direct Loan (DL) program, programs serving Historically
Black Colleges and Universities (HBCUs) and other Minority-Serving Institutions, and the
College Access Challenge Grant program, and would alter procedures for determining the
eligibility of students for need-based federal student aid. H.R. 3221 also would establish several
new programs under the HEA, including a new Veterans Educational Equity Supplemental Grant
Program, a new Federal Direct Perkins Loan offered through the DL program to replace the
current Federal Perkins Loan program, and a College Access and Completion Innovation Fund.
Several major non-HEA programs would also be established and funded by H.R. 3221. These
include a series of Modernization, Renovation, and Repair grant programs for school facilities, an
Early Learning Challenge Fund to support early childhood education, and an American
Graduation Initiative to support community colleges.
This report reviews and briefly describes the proposals contained in H.R. 3221 to amend
programs authorized under HEA and to establish and fund additional new education programs. It
will be updated as warranted to track legislative developments.
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The Student Aid and Fiscal Responsibility Act of 2009
Contents
Introduction ................................................................................................................................ 1
Amendments to the Higher Education Act ................................................................................... 5
Federal Pell Grant Program ................................................................................................... 5
Proposed Amendments to the Federal Pell Grant Program ............................................... 6
Veterans Educational Equity Supplemental Grant Program .................................................... 8
Federal Student Loan Reform................................................................................................ 8
Amendments to the FFEL Program ............................................................................... 10
Amendments to the Direct Loan Program...................................................................... 11
Federal Direct Perkins Loans ........................................................................................ 13
Loan Forgiveness for Servicemembers Activated for Duty ............................................ 15
Student Financial Aid Form Simplification.......................................................................... 15
Changes to the 90/10 Rule for Institutional Eligibility ......................................................... 18
HBCUs and Other Minority-Serving Institutions ................................................................. 18
College Access and Completion Innovation Fund ................................................................ 19
College Access Challenge Grant Program ..................................................................... 20
State Innovation Completion Grants .............................................................................. 20
Innovation in College Access and Completion National Activities ................................. 20
Evaluation..................................................................................................................... 21
Veterans Resource Officer Grants.................................................................................. 21
Investment in Cooperative Education .................................................................................. 21
Additional Programs ................................................................................................................. 21
School Facilities: Modernization, Renovation, and Repair ................................................... 22
Grants for Modernization, Renovation, or Repair of School Facilities............................ 22
Supplemental Grants for Louisiana, Mississippi, and Alabama ...................................... 22
General Provisions for Elementary and Secondary Education Programs ........................ 22
Federal Assistance for Community College Modernization and Construction................. 23
Early Learning Challenge Fund........................................................................................... 23
Quality Pathway Grants ................................................................................................ 24
Required Uses of Quality Pathways Grants ................................................................... 24
Permissible Uses of Quality Pathways Grants................................................................ 24
Development Grants ..................................................................................................... 24
Research and Evaluation ............................................................................................... 24
American Graduation Initiative ........................................................................................... 25
Grants to Eligible Entities for Community College Reform ........................................... 25
Grants to Eligible States for Community College Programs ........................................... 26
National Activities ........................................................................................................ 26
Tables
Table 1. Mandatory Funding Authorized and Provided for Programs That Would be
Amended or Established Under H.R. 3221: FY2010-FY2019 ................................................... 3
Table 2. Comparison of Selected Terms and Conditions of Current Perkins Loans and
Proposed Federal Direct Perkins Loans .................................................................................. 13
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The Student Aid and Fiscal Responsibility Act of 2009
Contacts
Author Contact Information ...................................................................................................... 27
Congressional Research Service
The Student Aid and Fiscal Responsibility Act of 2009
Introduction
The House and the Senate approved H.Rept. 111-89, the conference report to accompany
S.Con.Res. 13, the Concurrent Resolution on the Budget for Fiscal Year 2010, on April 29, 2009.
The FY2010 budget resolution includes reconciliation instructions directing the Senate HELP
Committee and the House Education and Labor Committee to report changes in laws within their
jurisdictions to reduce the deficit by $1 billion for the period of FY2009 through FY2014. The
instructions for the House specifically direct the Education and Labor Committee to report a bill
that invests in education while reducing the deficit by $1 billion over the FY2009-FY2014 period.
On July 21, 2009, the House Education and Labor Committee marked up H.R. 3221, the Student
Aid and Fiscal Responsibility Act of 2009; and on July 27, 2009, the committee reported H.Rept.
111-232 to accompany H.R. 3221. H.R. 3221 would amend the HEA by making changes to
existing programs and by establishing several new programs and benefits. It would also establish
several new non-HEA programs. Major proposals made in H.R. 3221 include the following.
• The authority to make loans under the FFEL program would be terminated after
June 2010. CBO estimates that this would reduce mandatory spending by $41.8
billion over the FY2009-FY2014 period, and by $86.8 billion over the FY2009-
FY2019 period.1 These savings would be large enough to achieve the spending
reductions specified in S.Con.Res. 13 and to offset increases in mandatory
spending that would result from other proposals in H.R. 3221 (described below).
• Beginning July 1, 2010, all federal student loans made under Title IV of the HEA
would be made under the William D. Ford Federal Direct (DL) program.
Contracts for the servicing of DL program loans would be awarded
competitively, except in states served by not-for-profit servicers where contracts
would be awarded to not-for-profit servicers that meet federal standards and
agree to service loans at competitive market rates.
• Beginning July 1, 2010, a new Federal Direct Perkins Loan would be offered
under the DL program; and authority to make new loans under the current
Federal Perkins Loan program would end. Loan authority totaling $6 billion
would be annually allocated among institutions of higher education (IHEs)
eligible to participate in the DL program.
• Beginning in FY2010, indefinite mandatory appropriations would be provided
for the Federal Pell Grant program. Mandatory appropriations would supplement
annual discretionary appropriations and would provide an increase above the
annual appropriated Pell Grant maximum award. Beginning with award year
(AY) 2011-2012,2 annual increases to the Pell Grant award amount would be
indexed to the percent change in the Consumer Price Index for All Urban
Consumers (CPI-U), plus one percentage point.
1 U.S. Congressional Budget Office, Cost Estimate, H.R. 3221, Student Aid and Fiscal Responsibility Act of 2009, as
ordered reported by the House Committee on Education and Labor on July 21, 2009, July 24, 2009, at
http://www.cbo.gov/ftpdocs/104xx/doc10479/hr3221.pdf.
2 Each Pell Grant award year begins on July 1 and ends the last day of the following June. For example, AY2011-2012
begins on July 1, 2011, and ends June 30, 2012.
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• A new Veterans Educational Equity Supplemental Grant Program would be
established under Title IV, Part A of the HEA. The program would provide
funding for an increased benefit amount under the Veterans’ Administration (VA)
Post-9/11 Educational Assistance Program for program recipients who attend
private IHEs in states with low maximum tuition benefit amounts.
• Effective for AY2011-2012, the HEA, Title IV federal student aid need analysis
methodology would be simplified and requirements for aid applicants to report
certain asset-related financial information on the Free Application for Federal
Student Aid (FAFSA) would be eliminated.
• Mandatory funding for HEA programs serving Historically Black Colleges and
Universities (HBCUs) and other Minority-Serving Institutions would be provided
for FY2010 through FY2019.
• Mandatory funding would be provided for programs in a new HEA College
Access and Completion Innovation Fund (CACIF). CACIF programs would
include the College Access Challenge Grant program, the State Innovation
Completion Grants program, and the Innovation in College Access and
Completion and National Activities program.
• Mandatory funding would be provided to establish and fund three Modernization,
Renovation, and Repair grant programs for school facilities. These would include
a program for the modernization, renovation, and repair of elementary and
secondary school facilities; a program of supplemental grants for Louisiana,
Mississippi, and Alabama; and a program for community college modernization
and construction.
• Mandatory funding would be provided to establish and fund an Early Learning
Challenge Fund under which competitive grants would be awarded to states for
the purpose of improving standards and the quality of state early childhood
education programs.
• Mandatory funding would be provided to establish and fund the American
Graduation Initiative grant program for the purpose of reforming community
colleges, and to improve education and training for workforce development.
CBO estimates the termination of FFEL program lending would reduce mandatory spending by
$41.8 billion over the FY2009-FY2014 period, and by $86.8 billion over the FY2009-FY2019
period. These savings would be large enough to achieve the $1 billion reduction in spending
specified in S.Con.Res. 13, and to offset increases in mandatory spending that would result from
the other new or expanded education programs and benefits proposed under H.R. 3221.
Overall, CBO estimates that H.R. 3221 would reduce mandatory spending by $13.3 billion over
the FY2009-FY2014 period, and by $7.8 billion over the FY2009-FY2019 period. CBO also
estimates that enactment of the proposals in H.R. 3221, if fully funded, would increase
discretionary spending by $3.6 billion over the FY2009-FY2014 period, and by $13.5 billion over
the FY2009-FY2019 period. Most of these discretionary costs would be for the administrative
costs of increased DL program lending and for growth in the discretionary costs of Pell Grant
awards that would increase due to changes in need analysis procedures and eligibility criteria.
Table 1 shows amounts of mandatory funding that would be authorized and provided for
programs that would be amended or newly authorized under H.R. 3221.
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Table 1. Mandatory Funding Authorized and Provided for Programs That Would be Amended or Established Under H.R. 3221:
FY2010-FY2019
(in millions of dollars)
Program
name Authorization FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
HEA Programsa
Federal Pell Grant
HEA,
such sums such sums such sums such sums such sums such sums such sums such sums such sums such sums
Programb
§ 401
Veterans
HEA,
such sums such sums such sums such sums such sums such sums such sums such sums such sums such sums
Educational Equity
§ 401B(f)
Supplemental
Grant Program
Federal Direct
HEA,
6,000
6,000
6,000
6,000
6,000
6,000
6,000
6,000
6,000
6,000
Perkins Loans
§ 462A(b)c
Investment in
HEA,
255
255
255
255
255
255
255
255
255
255
HBCUs and MSIs
§ 371(b)
College Access and HEA,
600
600
600
600
600
—
—
—
—
—
Completion
§ 780(a)
Innovation Fundd
Investment in
H.R. 3221,
10
— — — — — — — — —
Cooperative
§ 104e
Education
New non-HEA programs
Grants for
H.R. 3221,
2,020
2,020 — — — — — — — —
Modernization,
Title III-A-1,
Renovation, or
§ 345(a)
Repair of Public
School Facilities
Supplemental
H.R. 3221,
30
30
—
—
—
—
—
—
—
—
Grants for
Title III-A-2,
Louisiana,
§ 345(b)
Mississippi, and
Alabama
CRS-3
Program
name Authorization FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
Federal Assistance
H.R. 3221,
—
1,000 — — — — — — — —
for Community
Title III-B,
College
§ 351(i)
Modernization and
Construction
Early Learning
H.R. 3221,
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
—
—
Chal enge Fund
Title IV,
§ 409
American
H.R. 3221,
730
730
730
730
680
680
680
680
680
680
Graduation
Title V,
Initiative
§ 501(a)
Source: H.R. 3221; CRS analysis.
Note: “such sums” means such sums as may be necessary.
a. H.R. 3221 would terminate the authority to make new loans under the FFEL program after June 2010 and require al new federal student loans to be made under the
DL program beginning July 1, 2010. Mandatory funding at the amount of such sums as may be necessary is currently provided for both programs and would remain
authorized under H.R. 3221. However, under the FFEL program, funds would only be available for loans first disbursed on or before June 30, 2010.
b. Discretionary funding is also authorized for the Federal Pel Grant program under HEA, § 401(a) through FY2017, at the amount of such sums as may be necessary,
and would remain authorized under H.R. 3221.
c. Loan authority to make Federal Direct Perkins Loans as part of the DL program would be made available on an award year basis, beginning with AY2010-2011. Up to
$6 billion in loan authority would be made available each year.
d. Mandatory funding provided for the College Access and Completion Innovation Fund would be available for the fol owing programs: College Access Challenge Grant
program, State Innovation Completion Grants, Innovation in Col ege Access and Completion National Activities, and Evaluation Activities. H.R. 3221 would provide a
separate discretionary authorization of appropriations for the Veterans Resource Officer Grants program, but would not appropriate funds.
e. The Cooperative Education program is authorized under HEA, Title VIII-N. Discretionary funding is authorized to be appropriated for the program under HEA, § 835
through FY2014. H.R. 3221 would provide mandatory funding for the program for FY2010.
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The remainder of this report provides brief descriptions of the programs that would be amended
or established under H.R. 3221. It begins with a review of changes that would be made to
programs authorized under the HEA. This is followed by a review of new non-HEA programs
that would be established and funded under H.R. 3221. This report will be updated as warranted
to track legislative developments.
Amendments to the Higher Education Act
Federal Pell Grant Program
The Federal Pell Grant program, authorized by Title IV, Part A, Subpart 1 of the HEA, is the
largest source of federal grant aid to low-income students for postsecondary education and is the
foundation for all federal student aid awarded to undergraduate students. The Federal Pell Grant
program is estimated to provide approximately $25 billion in aid to over seven million students
for AY2009-2010.3
Pell Grants are need-based aid and eligibility is limited to undergraduate students. There is no
absolute income threshold that determines who is eligible and who is ineligible for Pell Grants,
although Pell Grant recipients primarily have low incomes. For the most recent award year for
which complete data are available (AY2007-2008), 83% of Pell Grant recipients considered to be
dependent upon their parents for financial support had total parental income below $40,000. Of
Pell Grant recipients considered to be independent of their parents, 84% had total income below
$30,000.4
The Federal Pell Grant program is currently funded with both discretionary and mandatory
appropriations, although the program is primarily funded with annual discretionary
appropriations. The maximum appropriated Pell Grant award amount is specified in annual
appropriations measures. For AY2009-2010, the maximum appropriated Pell Grant award amount
is $4,860. For AY2008-2009 through AY2012-13, an automatic additional increase to the
appropriated Pell Grant award amount is provided through mandatory appropriations.5 For
AY2009-2010, the mandatory add-on is $490. In order to receive the additional mandatory
increase, students must qualify for the minimum appropriated Pell Grant award, which, as defined
for eligibility purposes, is 5% of the annual appropriated maximum Pell Grant award.6 For
AY2009-2010, the total maximum Pell Grant award amount is $5,350 and the effective minimum
award for a full-time student is $976.
3 U.S. Department of Education, Fiscal Year 2010 Budget Summary, p.57.
4 Percentages calculated from U.S. Department of Education, End of Year Report: 2007-2008 Title IV/Federal Pell
Grant Program, Table 11.
5 The College Cost Reduction and Access Act of 2007 (CCRAA; P.L. 110-84), and most recently the American
Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5) amended the HEA to provide mandatory funding for the
Pell Grant program. The CCRAA provided annual mandatory appropriations in each year from FY2008 to FY2017,
whereas the ARRA provided additional mandatory appropriations for FY2009 and FY2010.
6 A so-called “bump” award allows for an additional 5% increase of the appropriated maximum award for those
students who qualify at the 5% minimum level. When the $490 mandatory additional amount is factored in, the
effective minimum award for a full-time student in AY2009-10 is $976, or ($243 +$243 +$490).
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Proposed Amendments to the Federal Pell Grant Program
H.R. 3221 includes provisions that would change the method by which future additional
mandatory Pell Grant award amounts are determined and increases direct spending by providing
permanent mandatory budget authority, while continuing to preserve a larger role for annual
discretionary appropriations in determining the base maximum Pell Grant award to which
additional mandatory amounts are added each year. The CBO baseline for mandatory spending
as it relates to the Pell Grant program includes approximately $30.3 billion in mandatory budget
authority7 from FY2010 to FY2017, as provided in the CCRAA and ARRA, and an additional
$9.8 billion in FY2018 and FY2019.8 According to the CBO, the provisions included in H.R.
3221 that would affect the future determination of additional mandatory Pell Grant award
amounts are estimated to increase direct spending by $38.7 billion from FY2010 to FY2019.9
Provisions in H.R. 3221 that would affect the future funding and determination of additional
mandatory Pell Grant awards include the following.
Mandatory Funding for Pell Grants
H.R. 3221 would provide indefinite mandatory appropriations for the Pell Grant program
beginning in FY2010. The Federal Pell Grant program would remain authorized through FY2017
under HEA, section 401(a)(1). Mandatory budget authority amounts currently specified for
FY2010 through FY2017 would be eliminated.
Beginning in FY2010, these permanent mandatory appropriations would supplement annual
discretionary appropriations and would provide an additional amount to the annual appropriated
Pell Grant maximum award each year beginning in AY2010-2011.10 Each fiscal year’s mandatory
appropriations level would be determined based on the total obligations required to provide the
additional Pell Grant amount to all eligible students and will be available for use through the end
of September of each succeeding year. For AY2010-2011, the additional mandatory amount
would remain $690.
Mandatory Pell Grant Award Amount Formula
Beginning in AY2011-2012, and for all subsequent years, a new statutorily defined formula
would be established for the purposes of determining the additional mandatory Pell Grant award
amount, as described below.
7 Budget authority is defined as authority provided by law to incur financial obligations that will result in immediate or
future outlays of federal government funds.
8 The CBO, in consultation with and at the direction of the budget committees, extended the baseline mandatory budget
authority for the Pell Grant Program in FY2018 and FY2019 by $4.9 billion in each year.
9 Information on cost estimates for H.R. 3221 is based upon information provided in U.S. Congressional Budget Office,
Cost Estimate, H.R. 3221, Student Aid and Fiscal Responsibility Act of 2009, as ordered reported by the House
Committee on Education and Labor on July 21, 2009, July 24, 2009, at http://www.cbo.gov/ftpdocs/104xx/doc10479/
hr3221.pdf.
10 Each Pell Grant award year begins on July 1 and ends the last day of the following June. For example, AY2011-2012
begins on July 1, 2011 and ends June 30, 2012.
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• For AY2011-2012 only, the formula would arrive at the additional mandatory Pell Grant
award amount according to the four following steps: (1) determine the greater value
between the AY2010-2011 total maximum award (i.e., the FY2010 discretionary
maximum award amount, plus $690) and $5,550; (2) adjust the greater value by the
percentage change in the Consumer Price Index for All Urban Consumers (CPI-U) as
measured from December 2009 to December 2010, plus one additional percentage point;
(3) subtract from this amount the greater of the previous year’s discretionary appropriated
maximum award amount, or $4,860; and (4) round the resulting amount to the nearest $5
increment.
• For AY2012-2013 and all subsequent award years, a new statutorily defined formula
would be established for determining the additional mandatory Pell Grant award amount.
The additional mandatory Pell Grant award amount would be determined according to the
following three steps: (1) adjust the previous year’s total maximum award (i.e., the
discretionary maximum award amount, plus the mandatory additional amount) by the
percentage change in the CPI-U as measured from the most recently completed calendar
year before the start of the award year, plus one additional percentage point; (2) subtract
from this amount the greater of the previous year’s discretionary appropriated maximum
award amount, or $4,860; and (3) round the resulting amount to the nearest $5 increment.
Since the additional Pell Grant award amounts will be determined in the future primarily
by two factors that are not known at the present time—the annual discretionary
appropriated maximum award amount and the annual percentage change in the CPI-U—
future total maximum award levels are not available at this time.
• For AY2012-2013 and all subsequent award years, a new rule would be established
specifying that the additional mandatory Pell Grant award amount cannot be less than the
mandatory award amount for the prior award year.
Pell Grant Eligibility Rules
H.R. 3221 also includes provisions that would change or clarify the award rules for determining
eligibility for a Pell Grant award. These provisions include the following:
• Authorized maximum Pell Grant award amounts specified for AY2009-2010 through
AY2014-2015 would be eliminated, as would the additional mandatory Pell Grant award
amounts of $690 in AY2011-2012 and $1,090 in AY2012-2013. Beginning in AY2010-
2011, total maximum Pell Grant award amounts would be determined according to the
revised formula described above.
• Beginning in AY2010-2012, qualification for Pell Grant awards would be based on the
total maximum Pell Grant award amount. Under current law, through AY2012-2013, in
order to receive the additional mandatory increase students must qualify for the minimum
appropriated Pell Grant award, which, as defined for eligibility purposes, is 5% of the
annual appropriated maximum Pell Grant award. This rule would be eliminated under
H.R. 3221 and the new minimum Pell Grant award would be based on 5% of the total
maximum Pell Grant award. This new rule would lower the effective minimum award
for all students, but expand the qualification parameters of the program, allowing more
students to receive the new minimum Pell Grant award.
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• The requirement for the Secretary of Education (the Secretary) to reduce or increase the
additional mandatory Pell Grant amount in each award year if the budget authority
provided for each year is insufficient or exceeds the amount necessary to fully fund the
prescribed additional mandatory amount in each year would be eliminated. The
elimination of this requirement would affect only AY2009-2010, since H.R. 3221
authorizes permanent indefinite mandatory appropriations beginning in FY2010.
Veterans Educational Equity Supplemental Grant Program
H.R. 3221 would establish a new Veterans Educational Equity Supplemental Grant Program
under HEA, Title IV, Part A, Subpart 1.The program would increase the mandatory funding
entitlement required under the Post-9/11 Educational Assistance Program (Title 38 U.S.C.,
Chapter 33).11 The program would make certain Post-9/11 GI Bill recipients eligible for a greater
fees benefit, which could be used toward tuition charges. Post-9/11 GI Bill recipients attending
private IHEs in a state with a zero,12 or very low,13 maximum amount of undergraduate tuition
charged at the most expensive public institution in the state would be eligible to receive an
additional benefit payment through this program. The additional benefit payment amount would
be equal to the difference between the maximum amount of undergraduate fees charged at the
most expensive public institution in the state in which the recipient is enrolled and the actual fees
charged by the recipient’s IHE.14 There would not be a cap on this additional payment relative to
the actual tuition charged by the recipient’s IHE nor relative to Post-9/11 GI Bill Yellow Ribbon
payments.15 This adjustment makes certain Post-9/11 GI Bill recipients eligible for
reimbursement of some, or in excess, of the tuition charges not covered by the basic program
benefits. The CBO report estimates that this grant program would increase U.S. Department of
Education spending by $2.9 billion for FY2010-2019 and decrease U.S. Department of Veterans
Affairs spending by $1.1 billion for FY2010-2019.
Federal Student Loan Reform
The Department of Education currently administers three major federal student loan programs
that are authorized under Title IV of the HEA: the Federal Family Education Loan (FFEL)
program, the William D. Ford Federal Direct Loan (DL) program, 16 and the Federal Perkins Loan
11 See CRS Report R40723, Educational Assistance Programs Administered by the U.S. Department of Veterans
Affairs, by Cassandria Dortch, pp. 23-32.
12 California’s public colleges and universities do not charge resident undergraduate tuition. They only charge fees.
13 Based on the preliminary figures for the 2009-2010 maximum in-state tuition on the U.S. Department of Veterans
Affairs website, at http://www.gibill.va.gov/GI_Bill_Info/CH33/Tuition_and_fees.htm, as of July 20, 2009, the ten
states with the lowest tuition charges range from $71.50 per credit hour in Massachusetts to $212.58 per credit hour in
New Mexico. The median tuition charge is $407.93 per credit hour.
14 Based on the preliminary figures for the 2009-2010 maximum in-state tuition on the U.S. Department of Veterans
Affairs website, at http://www.gibill.va.gov/GI_Bill_Info/CH33/Tuition_and_fees.htm, as of July 20, 2009, the ten
states with lowest tuition charges have maximum in-state fees that range from $563 per term in the U.S. Virgin Islands
to $17,787 per term in Massachusetts.
15 In cases in which an institution’s tuition and fees are not fully covered by the tuition and fees payment benefits, the
institution may voluntarily enter into a Yellow Ribbon Program agreement with the U.S. Department of Veterans
Affairs to match an equal percentage of some portion of the remaining tuition and fees.
16 For additional information on the FFEL and DL programs, see CRS Report R40122, Federal Student Loans Made
Under the Federal Family Education Loan Program and the William D. Ford Federal Direct Loan Program: Terms
(continued...)
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program.17 These programs are briefly described below. This is followed by descriptions of
changes that would be made to the federal student loan programs under H.R. 3221.
Federal Family Education Loan (FFEL) Program
Under the FFEL program, the capital for making loans is provided by private lenders, and the
federal government guarantees lenders against losses due to borrower default. The federal
government also provides private lenders a variety of subsidies designed to ensure that private
capital will consistently be available to make FFEL program student loans.18 FFEL program loans
are originated, held, and serviced by private lenders; and state and nonprofit guaranty agencies
receive federal funds to administer the federal loan guarantee. Costs of the FFEL program are
mostly mandatory.
Approximately 4,500 IHEs currently participate in the FFEL program. ED estimates that 14.2
million new FFEL program loans (not including Consolidation Loans), averaging $4,510 and
totaling $64 billion, will be made in FY2009. By the end of FY2009, ED estimates that there will
be $471 billion in outstanding FFEL program loans.
William D. Ford Federal Direct Loan (DL) Program
Under the DL program, the federal government essentially serves as the banker and makes loans
to students and their families using federal capital (i.e., funds from the U.S. Treasury), and owns
the loans. Schools may serve as direct loan originators or the loans may be originated by a
Department of Education contractor. Loan servicing and collections are also performed by
contractors. DL program subsidy costs are mostly mandatory, and administrative costs are mostly
discretionary.
Approximately 1,500 IHEs currently participate in the DL program. ED estimates that 4.5 million
new DL program loans (not including Consolidation Loans), averaging $4,813 and totaling $21.8
billion, will be made in FY2009. By the end of FY2009, ED estimates that there will be $146
billion in outstanding DL program loans.
While the FFEL and DL programs rely on different sources of capital and different administrative
structures, they make available essentially the same set of loans: Subsidized Stafford Loans and
Unsubsidized Stafford Loans for undergraduate and graduate students; PLUS Loans for graduate
students and the parents of dependent undergraduate students; and Consolidation Loans through
which borrowers may combine their loans into a single loan.
(...continued)
and Conditions for Borrowers, by David P. Smole.
17 For additional information on the Federal Perkins Loan program, see CRS Report RL31618, Campus-Based Student
Financial Aid Programs Under the Higher Education Act, by David P. Smole.
18 One such incentive is the special allowance payment (SAP), a market-indexed loan subsidy payment that is made by
the government and is designed to compensate lenders for the difference between the statutorily set interest rate
charged to borrowers and a different statutorily set lender interest rate.
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Federal Perkins Loan Program
The Federal Perkins Loan program is one of three campus-based student financial aid programs
under which funds are awarded to IHEs for purposes of providing federal student aid to students
who attend participating institutions. Under the Perkins Loan program, federal capital
contributions are authorized to be awarded to IHEs to assist them in capitalizing revolving loan
funds from which 5% interest rate loans may be made to students with exceptional financial need.
Institutions capitalize their revolving loan funds with a combination of federal and institutional
capital contributions. After making loans, institutions recapitalize their loan funds by depositing
the principal and interest repaid by students who borrowed under the program, as well as any
other charges or earnings associated with the operation of the program.
More than 1,600 IHEs currently participate in the Federal Perkins Loan program. ED estimates
that these institutions will make 495 thousand new Perkins Loans, averaging $2,231 and totaling
$1.1 billion, in FY2009.
Amendments to the FFEL Program
H.R. 3221 would make the following amendments to the FFEL program.
Termination of Lending Under the FFEL Program
H.R. 3221 would terminate the authority for new loans to be made or insured under the FFEL
program after June 30, 2010. Beginning with AY2010-2011, all new Subsidized and
Unsubsidized Stafford Loans, PLUS Loans, and Consolidation Loans would be made under the
DL program. Existing FFEL program loans would continue to be serviced by the eligible lenders
holding the loans, and guaranty agencies would continue to administer the federal loan insurance.
CBO projects that the termination of lending under the FFEL program and the shift to all federal
student loans being made under the DL program would result in a reduction of $40.7 billion in
mandatory spending over the period from FY2009 through FY2014, and $74.8 billion in
mandatory spending over the period from FY2009 through FY2019. These savings in mandatory
spending result in part due to the shifting of approximately $7.2 billion in administrative costs
from mandatory spending under the FFEL program to discretionary spending under the DL
program over the period from FY2009 through FY2019.
Change SAP Index to 1-Month LIBOR Rate
H.R. 3221 would also change the index used in determining the SAP paid quarterly to lenders
under the FFEL program from the bond equivalent rate of the 3-month commercial paper (CP)
(financial) rate, to the bond equivalent rate of the 1-month London Inter Bank Offered Rate
(LIBOR) for United States dollars in effect for the applicable quarters. This change would more
closely align the index used in determining the subsidy rates for holders of FFEL program loans
with the indices on which their short-term borrowing costs are often based. CBO projects a
negligible impact on spending as a result of this change.
The 1-month LIBOR-based SAP rate would apply to new loans made between the date of
enactment and the termination of FFEL lending; and would apply, if a lender waives all rights to
receive special allowance payments based on the 3-month CP rate, to all loans disbursed between
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January 1, 2000, and the date of enactment that are held or subsequently acquired by the holder.
The 1-month LIBOR-based SAP rate would also apply to the participant yield paid to the
Secretary on all FFEL program loans held by a lender that has sold any participation interest in
the applicable loan to the Secretary according to programs enacted under the Ensuring Continued
Access to Student Loans Act (ECASLA).19
Consolidation Loans
Currently, borrowers of FFEL Consolidation Loans may only obtain a subsequent Consolidation
Loan under the DL program in certain limited circumstances, such as if their loan is in default or
default aversion, or if they wish to take advantage of the DL Loan Forgiveness for Public Service
Employees program. H.R. 3221 would permit a borrower of a FFEL Consolidation Loan who
does not also have a DL Consolidation Loan to subsequently consolidate that loan into a DL
Consolidation Loan without restriction.
Amendments to the Direct Loan Program
H.R. 3221 would amend the HEA to provide that, effective July 1, 2010, all new Subsidized and
Unsubsidized Stafford Loans, Federal Direct Perkins Loans (described below), PLUS Loans, and
Consolidation Loans would be made under the DL program. In addition, H.R. 3221 would make
the following changes to the DL program.
Variable Interest Rates on Subsidized Stafford Loans to Undergraduate Students
Under current law, Subsidized Stafford Loans to undergraduate borrowers have fixed interest
rates, and the applicable fixed interest rate depends on the year in which the loan is first
disbursed. Interest rates on Subsidized Stafford Loans were most recently amended under the
CCRAA. Interest rates were reduced from 6.8% to 6.0% for loans made for AY2008-2009, and to
5.6% for loans made for AY2009-2010. Interest rates are scheduled to be reduced further to 4.5%
for loans made for AY2010-2011, and to 3.4% for loans made for AY2011-2012. Interest rates on
Subsidized Stafford Loans to undergraduate students are scheduled to revert back to 6.8% for
loans made for AY2012-2013 and later years.20
H.R. 3221 would make Subsidized Stafford Loans to undergraduate students made for AY2012-
2013 and later years (i.e., loans first disbursed on or after July 1, 2012) variable rate loans. The
interest rate on these loans would adjust annually each July 1; and the interest rate for the next
year would be equal to the bond equivalent rate of 91-day Treasury bills auctioned at the final
auction prior to June 1, plus 2.5 percentage points, but not to exceed 6.8%.
19 For additional information on ECASLA, see CRS Report RL34452, The Ensuring Continued Access to Student
Loans Act of 2008, by David P. Smole.
20 Historical data on borrower interest rates on FFEL and DL program loans are presented in Table B-4 and Table B-5
in CRS Report R40122, Federal Student Loans Made Under the Federal Family Education Loan Program and the
William D. Ford Federal Direct Loan Program: Terms and Conditions for Borrowers, by David P. Smole.
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Direct Loan Servicing Contracts
Under current law, origination, servicing, and collections on DL program loans are contracted out
by ED according to procedures designed to ensure that these services are performed by qualified
entities at competitive prices. ED recently awarded performance-based contracts to four entities
to service its portfolio of more than $550 billion in federal student loans, including those made
under the Direct Loan program.21 H.R. 3221 would amend the procedures to be used by the
Secretary in awarding contracts to entities to service loans made under the DL program.
Not-for-profit servicer set-asides
The proposed new contracting requirements would specify that in states in which at least one not-
for-profit servicer has its primary place of business, the Secretary would be required to contract
with that not-for-profit servicer (or servicers) to service the loans of students attending IHEs
located in those states—provided they meet the Secretary’s standards for servicing student loans
and agree to do so at a competitive market rate, as determined by the Secretary. In states with
only one eligible not-for-profit servicer, that servicer would be entitled, on an annual basis, to the
servicing rights of the lesser of (1) the loans of 100,000 borrowers, or (2) the loans of all
borrowers attending IHEs in the state. In states with more than one eligible not-for-profit servicer,
those servicers would be entitled, on an annual basis, to the servicing rights of the lesser of (1) the
loans of 100,000 borrowers, or (2) an equal share of the loans of all borrowers attending IHEs in
the state.
Servicing in general; and job retention incentive payment
For purposes of servicing loans made to borrowers attending IHEs in other states and foreign
IHEs, the Secretary would be required to award multiple contracts through a competitive bidding
process to eligible servicers, including not-for-profit servicers. The competitive bidding process
would be required to take into account price, servicing capacity, and capability; and would be
permitted to take into account the ability to provide default aversion activities, and outreach
service programs that encourage college completion, the minimization of borrowing, and the
delivery of financial literacy and counseling tools.
H.R. 3221 would also require the Secretary to provide a job retention incentive payment to
servicers that agree to give priority in hiring for positions created as a result of the award of a
Direct Loan servicing contract to geographical locations at which the entity performed FFEL
program loan origination or servicing activities prior to the date of enactment. The Secretary
would also be required to consider the retention of highly qualified employees by the servicer in
determining the allocation of the number of loans to be serviced.
Extension of DL Program to Foreign IHEs
Currently, the only form of federal student aid available under HEA, Title IV to eligible students
enrolled in foreign schools is loans made under the FFEL program. Effective July 1, 2010, and
21 For additional information on these serving contracts, see U.S. Department of Education, “Announcement of Title IV
Student Loan Management/Servicing Contract,” Jun. 17, 2009, at http://www.ifap.ed.gov/eannouncements/
061709TitleIVStudentLoanMgmt.html.
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concurrent with the termination of lending under the FFEL program, H.R. 3221 would extend the
availability of DL program loans to eligible students enrolled in foreign schools.
Federal Direct Perkins Loans
H.R. 3221 would terminate the authority to make new Perkins Loans under Part E of the HEA
effective June 30, 2010, and would establish Federal Direct Perkins Loans as a new type of need-
based federal student loan to be made available to borrowers under the Direct Loan program.
Loan Terms and Conditions
Interest rates and loan limits on new Federal Direct Perkins Loans would remain the same as for
loans currently made under the Federal Perkins Loan program. All other terms and conditions for
new Federal Direct Perkins Loan would be the same as for Unsubsidized Stafford Loans made
under the DL program. Selected terms and conditions of current Perkins Loans and proposed
Federal Direct Perkins Loans are presented in Table 2, below.22
Table 2. Comparison of Selected Terms and Conditions of Current Perkins Loans
and Proposed Federal Direct Perkins Loans
Loan terms and conditions
Perkins Loans
Federal Direct Perkins Loans
(current law)
(H.R. 3221)
Interest rate
5% fixed rate
5% fixed rate
Accrual of interest during in-school,
No Yes
grace, and deferment periods
Loan origination fee
None
1% of loan amounta
Annual loan limits:
Undergraduate students
$5,500
$5,500
Graduate and professional students
$8,000
$8,000
Aggregate loan limits:
Undergraduate: 1st or 2nd year
$11,000
$11,000d
Undergraduate: 3rd year or above
$27,500
$27,500d
Graduate and professional students
$60,000
$60,000d
Available to students enrolled less than
Yes No
half-time
Grace period
9 months
6 months
22 The terms and conditions currently available on Unsubsidized Stafford Loans are discussed in CRS Report R40122,
Federal Student Loans Made Under the Federal Family Education Loan Program and the William D. Ford Federal
Direct Loan Program: Terms and Conditions for Borrowers, by David P. Smole.
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Perkins Loans
Federal Direct Perkins Loans
Loan terms and conditions
(current law)
(H.R. 3221)
Loan cancellation, loan forgiveness, and
Yes; up to 100% of Perkins Loan
Yes; to the extent available under
loan repayment benefits
balance may be cancel ed after five
applicable loan forgiveness and
years of service in specified public
loan repayment programs for DL
service occupations.b
program Unsubsidized Stafford
Loans.c
Source: CRS analysis.
a. ED currently offers an up-front interest rebate on DL program loans. For DL program loans disbursed on
or after July 1, 2009, and before July 1, 2010, the loan origination fee is 1.5% and the up-front interest
rebate is 1.0%. For DL program loans disbursed on or after July 1, 2010, the loan origination fee will be 1%.
The amount of any up-front interest rebate that would be offered on DL program loans disbursed on or
after July 1, 2010, has not yet been determined by ED.
b. Current loan cancel ation benefits for Perkins Loans are presented in Table 2 of CRS Report RL31618,
Campus-Based Student Financial Aid Programs Under the Higher Education Act, by David P. Smole.
c. Loan forgiveness and loan repayment benefits for DL program loans are described in CRS Report R40122,
Federal Student Loans Made Under the Federal Family Education Loan Program and the William D. Ford Federal
Direct Loan Program: Terms and Conditions for Borrowers, by David P. Smole, pp. 35-38.
d. Aggregate loan limits on loans made under the Federal Direct Perkins Loan program would include loans
previously made under the current Federal Perkins Loan program.
Allocation of Federal Direct Perkins Loan Authority to IHEs
Beginning with AY2010-2011, the authority to make $6 billion in Federal Direct Perkins Loan aid
would be allocated annually among IHEs that participate in the Direct Loan program and that
enter into participation agreements with the Secretary to make Federal Direct Perkins Loans.
Participation agreements would contain a requirement that IHEs pay matching funds on a
quarterly basis, in an amount agreed to by the institution and the Secretary, to an escrow account
for purposes of providing loan benefits to borrowers.
Loan authority to make Federal Direct Perkins Loans would be allocated to IHEs according to a
three-part formula. First, one half of loan authority would be allocated to IHEs according to the
adjusted self-help need of the IHE. Self-help need would be determined for each IHE based on
the difference between the costs of attendance (COA) and the expected family contributions
(EFC) of its students. However, notwithstanding the self-help need provision, each IHE that
previously participated in the Federal Perkins Loan program would receive a minimum Federal
Direct Perkins Loan authority amount equal to the average amount of Perkins Loans it awarded to
students for the most recent five years. Second, one quarter of loan authority would be allocated
according to a low-tuition incentive amount, based on the relationship between the IHE’s tuition
and fees relative to the average tuition and fees for its sector. Third, one-quarter of loan authority
would be allocated based on the number of degree recipients at the IHE who ever received a Pell
Grant relative to the number of degree recipients at all participating IHEs who ever received a
Pell Grant.
For the past several years, no new federal capital contributions have been made to institutions
under the Federal Perkins Loan program. However, in years when federal capital contributions
were provided, as required under the current statutory allocation formula, most funds were
allocated to IHEs on the basis of amounts received in prior years for “base guarantees,” as
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opposed to being allocated according to “fair share” procedures based on aggregate student
financial need.23 In allocating the loan authority to make new Federal Direct Perkins Loans, the
procedures proposed in H.R. 3221 would place greater emphasis on the financial need of an
institution’s students, the institution’s efforts at keeping tuition low or at providing need-based
grant aid, and its success at graduating Pell Grant recipients, than the current procedures for
allocating federal capital contributions, which largely rely on base guarantees. Nonetheless, IHEs
that previously participated in the Federal Perkins Loan program would be entitled to new loan
authority at least equal to the average annual amount of Perkins Loans they made over the most
recent five years.
Distribution of Assets from Perkins Loan Funds
Upon ceasing to participate in the Perkins Loan program or when authorization of the program
expires, institutions are required to begin a distribution of assets from their revolving loan funds
(i.e., institutions must repay the Secretary a portion of the balance of their loan funds proportional
to the amount constituted by federal capital contributions). H.R. 3221 would amend the current
Perkins Loan program to require a capital distribution of the balance of each participating
institution’s Perkins Loan fund beginning July 1, 2010.
H.R. 3221 would also authorize institutions, beginning July 1, 2010, to assign all the loans they
made under the Federal Perkins Loan program to the Secretary. Upon assignment, the Secretary
would assume responsibility for servicing and collecting these Perkins Loans, and would refund
to institutions an amount equal to the proportion of the loan amount that was made from
institutional capital contributions to the revolving loan fund.
Loan Forgiveness for Servicemembers Activated for Duty
H.R. 3221 would amend provisions of the HEA relating to the return of Title IV funds to require
the Secretary to provide loan forgiveness to students who withdraw from a program funded by
federal student loans when their withdrawal is necessitated by service in the uniformed services.
This provision would be applicable to federal student loans made under the FFEL, DL, and
Federal Perkins Loan programs.
Student Financial Aid Form Simplification
A federal “need analysis” system underlies the annual allocation of billions of dollars in student
financial aid supported by Title IV of the HEA. Annually, this system involves millions of current
and potential students who apply for federal aid by providing detailed financial and other
information on the Free Application for Federal Student Aid (FAFSA). FAFSA data are used in
statutorily defined formulas to determine the amount of financial resources students and their
families are expected to direct toward postsecondary education expenses—the expected family
contribution. Financial need for need-based federal student aid programs is determined by the
EFC and its relationship to students’ cost of attendance. Relying on the calculation of need,
23 For additional information on the current procedures used to allocate funds to IHEs under the Federal Perkins Loan
program, see CRS Report RL32775, The Campus-Based Financial Aid Programs: A Review and Analysis of the
Allocation of Funds to Institutions and the Distribution of Aid to Students, by David P. Smole.
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financial aid administrators (FAAs) in postsecondary institutions package federal, state, and
institutional aid for aid applicants.
For many years, the Congress, policymakers, and student aid advocates have expressed interest in
simplifying the process by which students apply for federal student aid. Such interest centers
primarily on the belief that the complexity of the process poses a barrier to college access,
particularly for low-income students. Most recently, the Higher Education and Opportunity Act
(HEOA, P.L. 110-315) amended the HEA to authorize the EZ-FAFSA for students qualifying
under either Simplified Needs Test or Automatic Zero EFC provisions, effectively reducing the
number of questions on the FAFSA for these applicants. The HEOA also requires the Secretary to
pursue a process of streamlining the FAFSA for reapplications and to ultimately reduce the
number of data elements required from all applicants by a goal amount of 50%. Under the HEOA
amendments, the Secretary is tasked with determining how Internal Revenue Service (IRS) data
may be used to pre-populate the FAFSA in order to reduce income and asset questions on the
form and is also given authority to obtain such data from the IRS.
H.R. 3221 includes provisions that would simplify the need analysis methodology and remove the
requirement for students to provide certain information on the FAFSA. These provisions would
increase both direct spending for loan and grant aid and discretionary spending for grant aid by a
combined estimated total of $7.1 billion from FY2011 to FY2019.24 Provisions that would result
in new or enhanced grant aid or adjustments to need analysis calculations include the following.
Asset Cap for Recipients of Need-Based Federal Student Aid
H.R. 3221 would amend HEA need analysis provisions to limit eligibility for most need-based
federal student aid programs to students and families who meet a statutorily defined level of net
assets. This provision would, effective July 1, 2011, limit eligibility for Pell Grants, Subsidized
Stafford Loans, and Federal Work-Study (FWS) assistance under Title IV to students and families
with a combined total of net assets25 valued at $150,000 or less. For dependent students, the
combined total would include the assets of both the parents and the student. For independent
students, the combined total would include the assets of both the student and, if married, the
student’s spouse. For each subsequent year after AY2011-2012, the Secretary would be required
to publish a revised net asset cap level, indexed to the change in the Consumer Price Index (CPI),
and rounded to the nearest $5 increment, in the Federal Register before each award year.
It’s important to note that, in conjunction with establishing an asset cap for federal student aid
programs, H.R. 3221 would also eliminate the requirement for students to report asset-related
information by excluding the consideration of assets in the federal need analysis calculation (as
discussed below). It is unclear at this time how asset-related information will be verified to
determine eligibility for need-based federal student aid programs.
24 Please see U.S. Congressional Budget Office, Cost Estimate, H.R. 3221, Student Aid and Fiscal Responsibility Act of
2009, as ordered reported by the House Committee on Education and Labor on July 21, 2009, July 24, 2009, at
http://www.cbo.gov/ftpdocs/104xx/doc10479/hr3221.pdf.
25 The terms “assets” and “net assets” are defined in sections 480(f) and 480(g) of the HEA, respectively. The value of
one’s principle residence and the value of most family-owned small businesses and family farms is excluded from
consideration as assets.
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Exclusion of Assets in Determining Eligibility for Federal Student Aid
Effective July 1, 2011, the consideration of assets would be eliminated for all students in the
federal need analysis calculation when determining eligibility for federal student aid programs.
Students and parents would no longer be required to report asset-related financial information on
the FAFSA when applying for aid. The removal of assets in the need analysis calculation could
eliminate up to six questions from the current FAFSA26 and corresponding sections of lengthy
instructions aimed at assisting applicants with generating asset-related entries.
Changes to Definitions of Untaxed Income and Assets
Effective July 1, 2011, the definition of untaxed income and benefits used in determining the EFC
for need analysis would be revised. The definition of untaxed income would be reduced to three
elements: (1) interest on tax-free bonds, (2) untaxed portions of pensions, and (3) payments or
contributions to individual retirement accounts and Keogh accounts that are excluded from
income for federal income tax purposes. The following elements would be eliminated from the
definition of untaxed income and benefits, and students and parents would no longer be required
to report this financial information on the FAFSA: (1) child support received; (2) workman’s
compensation; (3) veteran’s benefits27 such as death pension, dependency, and indemnity
compensation; (4) housing, food, and other allowances for military, clergy, and others;28 (5) cash
support or any money paid on the student’s behalf;29 and (6) any other untaxed income and
benefits.30 The new definition would eliminate up to nine questions from the current FAFSA. In
addition, the new definition of untaxed income and benefits would result in a lower EFC for
many applicants, and consequently, lead to additional federal student aid. 31
H.R. 3221 also includes a provision that clarifies current regulatory interpretation of the need
analysis calculation. This provision, effective July 1, 2011, would clarify in need analysis that the
definition of assets does not include an employee pension benefit plan as defined in section 3(2)
of the Employee Retirement Income Security Act of 1974 (ERISA; 29 U.S.C. § 1002(2)).
Changes to Suspension of Eligibility for Drug-Related Offenses
Effective July 1, 2011, periods of ineligibility for federal student aid for students convicted of a
drug-related offense involving the possession of a controlled substance while enrolled in college
and receiving federal student aid would be eliminated. Periods of ineligibility and terms for
regaining eligibility would remain for students convicted of selling controlled substances under
26 As of July 1, 2009, the most recent FAFSA available to students for submission is for AY2009-2010, available at
http://www.ifap.ed.gov/eannouncements/attachments/121608FOTWKShtsEnglish.pdf.
27 Veteran’s education benefits are already excluded.
28 Effective July 1, 2010, the value of on-base military housing or the value of basic allowance for housing for military
members is excluded from the definition of untaxed income and benefits.
29 For dependent students, funds provided by the student’s parents are not reported as untaxed income and benefits.
30 This broad category of untaxed income includes, but is not limited to, Black Lung Benefits, Refugee Assistance,
railroad retirement benefits, or benefits received through participation in employment and training activities under title
I of the Workforce Investment Act of 1998.
31 Applicants who already qualify for an Automatic Zero EFC, or have a calculated EFC value of zero, or would not
report data that pertain to the proposed deleted elements of untaxed income and benefits would not see a reduction in
their EFC as a result of the new definition of untaxed income and benefits.
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federal and state laws while receiving federal student aid. Revising this question on the FAFSA to
address only those students who have been convicted of selling a controlled substance while
receiving student aid would reduce the additional follow-up correspondence required by the
federal government and aid applicants necessary for determining eligibility for some students.32
Changes to the 90/10 Rule for Institutional Eligibility
H.R. 3221 would make changes to institutional eligibility requirements for IHEs to participate in
Title IV programs. Several temporary changes relating to compliance with the 90/10 rule33 would
become effective on the date of enactment, and would expire July 1, 2012. Proposed changes
include the following.
• The period during which proprietary institutions may count toward the 10%
requirement the proceeds of Unsubsidized Stafford Loans in excess of the loan
limits that existed the day before the enactment of the ECASLA would be
extended. The HEOA provided for a period from July 1, 2009, to July 1, 2011;
whereas, H.R. 3221 would extend the period by one year to July 1, 2012.
• Funds received through the proposed new Federal Direct Perkins Loan program
would be allowed to be counted toward the 10% requirement of non-Title IV
funds for compliance with the 90/10 rule from July 1, 2010, to July 1, 2012.
• Proprietary institutions would be provided an additional year to comply with the
requirements of the 90/10 rule before being placed on a provisional status for two
years. Currently, proprietary institutions that violate the 90/10 rule in a given year
are placed on provisional eligibility status. H.R. 3221 would allow proprietary
institutions two consecutive years of noncompliance before being placed on
provisional eligibility status.
• Proprietary institutions would be provided an additional year to comply with the
requirements of the 90/10 rule—increasing from two consecutive years to three
consecutive years—before losing Title IV eligibility for at least two years,
dependent upon further requirements to regain eligibility.
HBCUs and Other Minority-Serving Institutions
H.R. 3221 would amend HEA, Title III, Part F to annually provide $255 million in mandatory
funding for historically Black colleges and universities (HBCUs) and other minority-serving
institutions (MSIs) for FY2010 through FY2019. Mandatory funding of $255 million for each of
FY2008 and FY2009 was first provided for HBCUs and MSIs under the CCRAA in 2008.
Allocation procedures and program requirements would remain the same except as described
below.
32 Currently, if a FAFSA applicant answers “yes” to confirm any drug-related conviction while receiving federal
student aid, the application is accepted by the U.S. Department of Education, but a worksheet is then sent in the mail to
further determine if the conviction affects the applicant’s eligibility for aid.
33 The “90/10 Rule” requires for-profit IHEs to derive at least 10% of their revenues from non-Title IV sources. For
additional information, see CRS Report RL32182, Institutional Eligibility and the Higher Education Act: Legislative
History of the 90/10 Rule and Its Current Status, by Rebecca R. Skinner.
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Hispanic Serving Institutions and the Yes Partnership Grants Program
H.R. 3221 would annually provide $100 million in mandatory funding for HSIs and the Yes
Partnership Grants Program for FY2010 through FY2019.34 (In each of FY2008 and FY2009,
Hispanic-Serving Institutions (HSIs) were appropriated $100 million in mandatory funding under
HEA, Title III-F.) Ninety percent of the funds would be allocated to HSIs, and 10% would be
allocated to the Yes Partnership Grants Program. The list of authorized activities for HSIs would
be expanded to include those listed under the Promoting Postbaccalaureate Opportunities for
Hispanic Americans program, authorized under HEA, Title V-B. HSI applicants that proposed to
increase science, technology, engineering, and mathematics (STEM) degree completion and
develop two- to four-year articulation agreements would still be given priority in the selection
process.
The Yes Partnership Grants Program was enacted under the HEOA to encourage elementary and
secondary minority and low-income students to pursue careers in STEM fields. The program
provides matching, competitive grants to partnerships of at least one HSI or eligible IHE, at least
one high-need LEA, and at least two other organizations. Funds have not yet been appropriated
for the Yes Partnership Grants Program.
Predominately Black Institutions, Asian American and Native American Pacific
Islander-Serving Institutions, and Native American-Serving Nontribal
Institutions
ED would be instructed to add the allocation for predominantly Black institutions (PBIs), Asian
American and Native American Pacific Islander-serving institutions (AANAPIs), and Native
American-serving Nontribal institutions (NASNTIs) under HEA, Title III-F to any discretionary
appropriation for each of the programs under HEA, Title III-A so as to administer for each type of
MSI a single grant competition and program. The PBI program supports improvements in
educational quality, capacity, and financial ability by providing matching formula grants to IHEs
that meet the basic eligibility criteria under HEA, Title III, § 312(b) and that serve an enrollment
of at least 40% Black American students. The AANAPI and NASNTI programs support
institutional capacity building by providing competitive grants to IHEs that meet the basic
eligibility criteria under HEA, Title III, § 312(b). In addition to the basic eligibility requirement,
AANAPI program recipients must serve an enrollment of at least 10% Asian Americans and
Native American Pacific Islanders, while NASNTI program recipients must serve an enrollment
of at least 10% Native American students and must not be Tribal Colleges or Universities (as
defined in HEA, § 316).
College Access and Completion Innovation Fund
H.R. 3221 would amend Part E of Title VII of the HEA to establish the College Access and
Completion Innovation Fund (CACIF).The fund would include the College Access Challenge
34 The remaining $155 million of the $255 million mandatory appropriation for HBCUs and other MSIs is allocated as
currently authorized in HEA, Title III, Part F: $85 million HBCUs, $15 million to Predominately Black Institutions,
$30 million to Tribal Colleges or Universities, $15 million to Alaska Native- or Native Hawaiian-serving institutions,
$5 million to Asian American and Native American Pacific Islander-serving institutions, and $5 million to Native
American-serving nontribal institutions.
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Grant Program (CACG) that was enacted under the CCRAA in 2008, three other programs, and
an evaluation. The purpose of the CACIF would be to promote success in postsecondary
education, improve employment outcomes for individuals after the completion of a postsecondary
program, and to assist states in developing longitudinal data systems, common metrics, and
reporting systems for postsecondary education and associated post-completion employment
outcomes.
For each of FY2010 through FY2014, $600 million in mandatory funds would be authorized and
appropriated for the CACIF. Of the funds made available each year, 25% would be provided for
the CACG program, 50% would be provided for the State Innovation Completion Grant program,
23% would be provided for the Innovation in College Access and Completion National Activities
program, and 2% would be provided for evaluation activities. No mandatory funding would be
provided for the Veterans Resource Officer Grants program. The programs that would be
authorized under the CACIF are briefly described below.
College Access Challenge Grant Program
The CACG program fosters partnerships between federal, state, and local governments and
philanthropic organizations through matching formula grants that are intended to increase the
number of low-income students who are prepared to enter and succeed in postsecondary
education. H.R. 3221 would make no changes to the CACG program except to increase its
funding above the 2009 mandatory appropriation of $66 million to $150 million for each of the
fiscal years 2010 through 2014.
State Innovation Completion Grants
H.R. 3221 would create a new program entitled State Innovation Completion Grants, which
would provide matching competitive grants to states to increase persistence and completion rates
at public, private for-profit, and private not-for-profit postsecondary institutions in the various
states and to develop statewide, publicly available longitudinal data systems of postsecondary
educational information and employment outcomes. The program would emphasize the provision
of grant aid to students by giving priority to applicants that partner with organizations that either
provide student grant aid or reduce student loan interest costs for students. States would be
required to provide matching funds equal to at least one-half of the federal funds received. At
least one-third of the federal and matching funds would have to be expended on students enrolled
in pre-baccalaureate programs of postsecondary education. States would also be required to
submit an Access and Completion Plan stating their annual and long-term goals for increasing
postsecondary persistence and completion rates, disaggregated by income, race, ethnicity, gender,
disability, and age of students; goals for addressing labor market needs; and goals for improving
coordination between two- and four-year institutions.
Innovation in College Access and Completion National Activities
H.R. 3221 would create a second new Innovation in College Access and Completion National
Activities program, which would provide competitive grants to states, IHEs, TRIO grantees,35
35 TRIO grantees are recipients of grants under Chapter 1 of Subpart 2 of Part A of HEA, Title IV. The TRIO programs
support academic achievement of predominantly low-income and first-generation students through the education
(continued...)
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eligible organizations, and consortia of the preceding entities. Grantees would be able to conduct
programs that advance knowledge about, and the adoption of, policies and practices that increase
the number of individuals with postsecondary degrees or certificates. Grantees would also be able
to provide supplemental grant or loan aid to students. The minimum grant award would be $1
million.
Evaluation
The Department of Education, Institute for Education Sciences (IES) would be required to
complete an evaluation of the three aforementioned CACIF programs by January 30, 2016.
Veterans Resource Officer Grants
H.R. 3221 would also establish the Veterans Resource Officer Grants program, which would
make available competitive grants to IHEs that enroll at least 100 full-time equivalent veterans.
The program would provide funding for grantees to hire one or two veterans resource officers,
depending on the number of enrolled veteran students, for the purpose of increasing the
postsecondary completion rates of veterans. Veterans would be given preference in the process of
hiring a veterans resource officer. No funding would be provided for the program under H.R.
3221.
Investment in Cooperative Education
H.R. 3221 would appropriate $10 million for FY2010 for the Cooperative Education Program
authorized under the HEA, Title VIII, Part N, as added by the HEOA. The program awards
matching, competitive grants to IHEs or consortia of IHEs to develop work experiences
integrated with the academic program. It also supports cooperative education demonstration
projects, training centers, and research. No funds have been provided for the Cooperative
Education program since its authorization as an HEA program.
Additional Programs
In addition to making changes to the Higher Education Act, H.R. 3221 would authorize and
appropriate funding for three categories of programs. Title III of the SAFRA would establish and
fund Modernization, Renovation, and Repair programs for elementary and secondary education,
and higher education facilities. Title IV of the SAFRA would establish and provide funding for
the Early Learning Challenge Fund, focusing on early childhood education. Title V of the SAFRA
would establish and provide funding for the American Graduation Initiative, which would focus
on improving community colleges.
(...continued)
pipeline—secondary school, undergraduate, and graduate school preparation. For more information, see CRS Report
RL31622, Trio and GEAR UP Programs: Status and Issues, by Jeffrey J. Kuenzi.
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School Facilities: Modernization, Renovation, and Repair
H.R. 3221 would authorize three new grant programs for the modernization, renovation, and
repair of education facilities. Title III, Part A of the bill would authorize two new elementary and
secondary education school facilities grant programs: Grants for Modernization, Renovation, or
Repair of School Facilities; and Supplemental Grants for Louisiana, Mississippi, and Alabama.
Title III, Part B of the bill would authorize a new grant program of federal assistance for
community college modernization and construction.
Grants for Modernization, Renovation, or Repair of School Facilities
H.R. 3221 would annually provide $2.020 billion for FY2010 and FY2011 for the Grants for
Modernization, Renovation, or Repair program. The majority of funds would be distributed
through formula grants to states made in proportion to the amount received by all local
educational agencies (LEAs) in the state in the previous fiscal year under the Elementary and
Secondary Education Act (ESEA), Title I-A Grants to LEAs program, relative to the total amount
received by all LEAs in all states under the Title I-A program. After reserving up to 1% of their
grants for administration, states, in turn, would award subgrants to LEAs in proportion to the
amount received by each LEA in the previous fiscal year under the Title I-A program relative to
the amount received by all LEAs in the state.
Supplemental Grants for Louisiana, Mississippi, and Alabama
H.R. 3221 would annually provide $30 million for FY2010 and FY2011 for Supplemental Grants
for Louisiana, Mississippi, and Alabama. Supplemental Grants would be provided to LEAs in
proportion to the amount of infrastructure damage inflicted upon LEA public school facilities by
Hurricanes Katrina or Rita, relative to the overall damage done to public school facilities in all
relevant LEAs combined. Supplemental Grant funds could be used for new construction as well
as for modernization, renovation, or repair.
General Provisions for Elementary and Secondary Education Programs
A series of general provisions would apply to both elementary and secondary education grant
programs. Examples of key provisions are included below.
• All iron, steel, and manufactured goods used by the LEAs under these grant
programs must be manufactured in the United States.36
• LEAs must adhere to the wage rates in the Davis-Bacon Act, as amended.37
36 This requirement could be waived if it was found to be inconsistent with public interest, insufficient quantity or
quality of materials was available, or the use of goods produced in the U.S. would increase the overall cost of a project
by more than 25%.
37The Davis-Bacon Act, as amended, requires that workers employed on public buildings and public works of the
federal government and of the District of Columbia must be paid at least the locally prevailing wage as determined by
the Secretary of Labor. See CRS Report RL34526, The Davis-Bacon Act: Issues and Legislation During the 110th
Congress, by William G. Whittaker.
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• LEAs must use, at a minimum, a specified percentage of funds for projects that
meet specific green building/energy rating standards (50% for FY2010 and 75%
for FY2011).
• The Secretaries of Education and the Secretary of Labor are required to
collaborate to provide opportunities for participants of the Youth Build and Job
Corps programs and community college students in green building/energy rating
certificate/degree programs to work on projects funded under these two
programs.
Federal Assistance for Community College Modernization and Construction
H.R. 3221 would also establish a new higher education Federal Assistance for Community
College Modernization and Construction program. This program would be a new formula grant
program to states38 for the purpose of constructing, modernizing, renovating, and repairing (1)
facilities at community colleges that award associate’s degrees in engineering, mathematics, or
biological or physical sciences, and (2) facilities used by students seeking pre-baccalaureate
degrees or certificates at public four-year IHEs that award a significant number of pre-
baccalaureate degrees and certificates. The funds would be allocated to states based on the
number of students in eligible institutions seeking a pre-baccalaureate degree or certificate, but
the amount could not exceed 25% of the principle on loans whose financing costs would be
reduced by the grant and could not exceed 25% of the private donations raised in the capital
campaign for which grant funds provide a match.
For FY2011, $2.5 billion would be appropriated and would remain available until expended. The
funds could be used to (1) reduce the financing costs of loans for construction, modernization,
renovation, and repair; (2) provide matching funds for capital campaigns for construction,
modernization, renovation, and repair; or (3) capitalize a revolving loan fund to finance
construction, modernization, renovation, and repair of facilities at eligible institutions. Funds
could only be used for facilities primarily used for instruction, student housing, or research, and
50% of the funds would have to meet specific green building/energy rating standards. Projects
would be required to adhere to the wage rates in the Davis-Bacon Act, as amended.
Early Learning Challenge Fund
H.R. 3221 would authorize a new Early Learning Challenge Fund to be jointly administered by
the Secretary of Education and the Secretary of Health and Human Services. This program would
provide competitive grants to states to improve the standards and quality of state early learning
programs serving children from birth to age five. One billion dollars in mandatory funding would
be appropriated annually for this program for FY2010-FY2017. Grants would be distributed as
Quality Pathways Grants and as Development Grants. Quality Pathway Grants would be provided
to states that have demonstrated significant progress in early childhood education. These grants
would be for a five-year term and would be renewable. Development Grants would be for states
not currently able to meet the criteria for Quality Pathway Grants. Grants would be for a three-
year nonrenewable term. States receiving grants would be required to submit an annual report to
38 The states are defined in HEA, Section 103 as the 50 states, the Commonwealth of Puerto Rico, the District of
Columbia, Guam, American Samoa, the U. S. Virgin Islands, the Commonwealth of the Northern Mariana Islands, the
Republic of the Marshall Islands, the Federated States of Micronesia, and the Republic of Palau.
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the Secretary, and would be required to meet maintenance of effort and matching requirements.
From the total appropriated for this program, 2% would be reserved for program administration
and 3% for research and evaluations. From amounts remaining after these reservations, 0.25%
would be reserved for competitive grants to Indian tribes. All remaining funds would be allocated
as competitive grants to states as Quality Pathways Grants and Development Grants.
Quality Pathway Grants
For FY2010 through FY2012, no more than 65% of funds could be used for Quality Pathways
Grants. Beginning with FY2013, the percentage for Quality Pathways Grants would increase to
no more than 85%. States would be required to prioritize the use of Quality Pathways Grants for
improving the quality of early learning programs serving low-income children. Beginning with
the second year of a Quality Pathways Grant, a state making sufficient progress (as determined by
the Secretary), would be permitted to reserve up to 25% of their grant to “expand access for low-
income children to the highest quality early learning programs that offer full-day services ... ”
Required Uses of Quality Pathways Grants
Not less than 65% of the grant would be used to implement at least two of the following quality
initiatives intended to increase the number of disadvantaged children in high-quality early
learning programs: improve early learning program quality; provide financial incentives to
undertake and sustain quality improvements; implement evidence-based standards; provide high-
quality, comprehensive professional development; improve the credentials of early learning
providers; integrate state early learning and development standards into local programs; and
encourage family involvement and enhance parent knowledge of state early learning programs
and ratings.
Permissible Uses of Quality Pathways Grants
The remainder of a state’s grant could be used for one or more of the following activities:
implement or enhance the state’s data system or its oversight system, including implementation of
a quality rating system; develop and implement measures of school readiness; increase the
capacity of early learning programs to facilitate screening, referral, and provision of services for
physical and mental health, disabilities, and family support; and adopt innovative programs
(agreed to in advance by the Secretary) to improve quality.
Development Grants
Development Grants would be awarded competitively to states that demonstrate a commitment to
a system of early learning, but are not eligible, or are not awarded, a Quality Pathways Grant.
States would use these grants to develop the components of an early learning system that would
allow the state to become eligible for Quality Pathways Grants. Priority would be given to
improving the quality of early learning programs serving low-income children.
Research and Evaluation
The Secretary of Education and the Secretary of Health and Human Services would jointly carry
out the following activities: establish a national commission to review and recommend
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benchmarks to improve state and federal early learning program quality; conduct a national
evaluation of funded grants; and support a research collaborative made up of appropriate federal
agencies and entities to support detailed research into early learning that will facilitate
improvements in early learning standards and licensing requirements.
American Graduation Initiative
H.R. 3221 would establish two major grant programs to provide funding for community colleges,
states, and related consortia to reform the community college system to improve education and
training for workforce development. The first program, Grants to Eligible Entities for Community
College Reform, would annually provide $630 million in competitive grants for FY2010 through
FY2013 to fund community college programs that improve completion rates and train workers for
skilled occupations. The second program, Grants to Eligible States for Community College
Programs, would annually provide $630 million in competitive grants for FY2014 through
FY2019 to states to implement the reforms with demonstrated effectiveness from the first
program of grants. In addition to the two major grant programs, $50 million would be provided
annually for FY2010 through FY2019 to fund online education programs (Open Online
Education); and $50 million would be provided annually for FY2010 through FY2013 to fund
research, evaluation, and data system programs (Learning and Earning Research Center; and State
Systems).
The Secretary of Education would have responsibility for obligating and disbursing the funds for
these grant programs but would be required to jointly administer these funds with the Secretary of
Labor, based on an interagency agreement. In general, the legislation would instruct the Secretary
to give priority to applications that focus on serving low-income, nontraditional students who do
not have a bachelor’s degree.39
Grants to Eligible Entities for Community College Reform
H.R. 3221 would annually provide $630 million in mandatory funds for FY2010-FY2013 to fund
Grants to Eligible Entities for Community College Reform. Under the program, grants would be
awarded competitively, each at a minimum of $750,000 and for a four-year period, to eligible
entities to carry out “innovative programs” or programs with “demonstrated effectiveness” that
lead to the completion of a postsecondary degree, certificate, or industry-recognized credential
leading to a “skilled occupation” in a “high-demand industry.”40 Eligible entities would include
community colleges or districts, area career and technical education schools, public four-year
institutions offering two-year degrees, public four-year institutions in partnership with any of the
aforementioned entities, a state in partnership with any of the aforementioned entities, or a
consortium of at least two of these entities.41
39 Although “nontraditional” is not defined, students in this category of priority should have one of the following
characteristics: they are the first generation in their family to attend college, have delayed enrollment in postsecondary
education, have dependents, are independent, work at least 25 hours per week, or are out-of-school youth without a
high school diploma.
40 The non-Federal share of program costs must be at least 50% of total costs of implementing programs carried out
under the grant. The terms “skilled occupation” and “high-demand industry” are not defined in the legislation.
41 The amount of funding awarded to a state or a consortia including a state would be limited to a maximum of 50% of
the $630 million appropriated each fiscal year and would prohibit the Secretary of Education from awarding funds to an
eligible entity for the same activities that are supported by other Federal funds.
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Grantees would be required to carry out at least two of the following seven activities:
• implement programs to increase the attainment of bachelor’s degrees;
• create programs with sector partnerships or employers to provide training for
skilled occupations in high-demand industries;
• provide support services to students;
• enact programs to provide a sequence of training courses leading to attainment of
industry-recognized credentials;
• strengthen linkages between secondary education and community colleges;
• implement policies to increase degree and certificate completion rates; and
• improve the timeliness of the process to create degree and credential programs
that are responsive to local and regional workforce needs.
Priority for awards under this program would be for collaborative partnerships and for institutions
of higher education eligible for assistance under Title III or Title V of the HEA (i.e., HBCUs and
other minority serving institutions). Grantees would be required to develop quantifiable
benchmarks to measure progress on program effectiveness. Finally, the Secretary would be
directed to allocate a maximum of 2% of the funds in this section to the Institute of Education
Sciences to conduct program evaluations.
Grants to Eligible States for Community College Programs
H.R. 3221 would annually provide $630 million in mandatory funds for FY2014-FY2019 to fund
Grants to Eligible States for Community College Programs. These grants would be awarded
competitively, each for a six-year period, to eligible states to implement the “systematic reform”
of community colleges by carrying out programs and policies that were shown to be effective in
the evaluation of programs implemented under the Grants for Community College Reform (see
previous section). Grantees would be required to develop quantifiable benchmarks to measure
progress on program effectiveness.
National Activities
H.R. 3221 would annually provide $50 million in mandatory funds for FY2010-FY2019 for the
Grants for the Open Online Education program. The grants would be awarded competitively, each
for a six-year period, to institutions of higher education, philanthropic organizations, or other
entities to develop, disseminate, and evaluate “freely-available high-quality” online education and
training courses.42
H.R. 3221 also would annually provide $50 million in mandatory funds for FY2010-FY2013 for
the Grants for the Learning and Earning Research Center and the State Systems programs. These
grants would be awarded for two purposes. First, the IES Director would award a grant, for a
maximum of four years, to a nonprofit organization to evaluate the effectiveness of community
colleges, to measure outcomes of community college students, and to assist states in sharing
42 The term “high-quality” is not defined in the legislation.
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information and best practices. In addition, grants under this section would be awarded to states
to establish cooperative agreements with other states, build data systems, and track outcome data
from community colleges over time.
Author Contact Information
David P. Smole, Coordinator
Rebecca R. Skinner
Specialist in Education Policy
Specialist in Education Policy
dsmole@crs.loc.gov, 7-0624
rskinner@crs.loc.gov, 7-6600
Shannon M. Mahan
David H. Bradley
Specialist in Education Policy
Analyst in Labor Economics
smahan@crs.loc.gov, 7-7759
dbradley@crs.loc.gov, 7-7352
Gail McCallion
Cassandria Dortch
Specialist in Social Policy
Analyst in Education Policy
gmccallion@crs.loc.gov, 7-7758
cdortch@crs.loc.gov, 7-0376
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