NATIONAL ASSN. OF GRADUATE-PROFESSIONAL STUDENTS
PROPOSALS FOR 2003 HIGHER EDUCATION ACT REAUTHORIZATION
Increase Funding for Graduate Fellowship Programs
Statutory Cite: 20 USC 1134 to 1137
Proposed Amendment:
We recommend an increase in authorized appropriation for all three fellowship programs
covered under the cited sections. We suggest a doubling of each authorization, with the
doubled authorized amounts being $60,000,000 for the Jacob Javits Fellowship Program,
$70,000,000 for the Graduate Assistance in Areas of National Need Program, and
$10,000,000 for the Legal Educational Opportunity Program. The American Council on
Education has made similar recommendations, seeking 400 new awards each year for
GAANN and 100 for Javits. At the very least, the existing authorizations must be
increased by the percentage increase in average post-baccalaureate cost of attendance in
the past five years, with an explicit instruction that future-year appropriations include
similar cost-of-living adjustments.
Rationale:
The existing authorized amounts must be updated to reflect increases in the cost of living
and of attendance at graduate school since the last HEA reauthorization. We propose a
doubling to demonstrate a federal commitment to graduate education, and also to remove
any limit on Congress’ ability to support these fellowship programs. It is worth noting
that the Department of Education was unable to award new GAANN fellowships in 2002
due to lack of funds, indicating the dire underfunding of these programs.
Maintain Both Existing Federal Student Loan Programs
Statutory Cite: 20 USC 1071 to 1087
Proposed Amendment:
Specific amendments to individual sub-programs are given in other proposals. In this
proposal, we argue that the existing two-program structure (Federal Direct Student Loan
Program and Federal Family Education Loan Program) should remain intact and that the
two programs should not be consolidated. Moreover, no proposals should be adopted that
would give one program a significant competitive advantage for all classes of students,
since that would eventually lead to elimination of the other.
Rationale:
Various groups have previously argued for consolidation of all Federal loan programs
under a single program for simplification of the student aid system. NAGPS disagrees
and feels that such a change would ultimately harm students. The existing system, with
different rules for different programs, allows student borrowers to more precisely tailor
their obligations to their individual needs and preferences. This flexibility is not to be
sacrificed lightly, given the increasing variety in student backgrounds.
Increase the Borrowing Limit for the Stafford Loan Program
Statutory Cite: 20 USC 1078-8(D)(2)(c)
Proposed Amendment:
It is vital that the borrowing limit for unsubsidized Stafford loans for graduate and
professional students be increased to $30,000. Additionally, this and the other borrowing
limits specified within the HEA should be indexed to increase with the average cost of
attendance at a first-professional program.
Rationale:
The current limit of $10,000 (plus $8,500 in subsidized or unsubsidized Stafford loans) is
not sufficient to cover the cost of attendance at most first-professional programs, and
therefore is limiting professional students’ ability to benefit from the FFEL program. The
Department of Education has previously permitted a comparable borrowing limit increase
for health professional students based on this rationale, and NAGPS encourages
extension of that benefit to all professional students. Inflation indexing is necessary in
order to ensure that the effect of the change is not lost with time.
Eliminate the Single-Lender Rule for Consolidation Loans
Statutory Cite: 20 USC 1078-3(b)(1)(A)
Proposed Amendments:
We suggest removal of this entire paragraph, eliminating the requirement that a student
borrower whose loans originate with a single lender may only obtain a Federal
consolidation loan from that lender. We further endorse the comments of the American
Medical Association on this same issue.
Rationale:
This rule significantly limits the options available to student borrowers and violates freemarket principles. While the rule as written does require lenders to offer an incomesensitive repayment program, the terms of such programs can vary significantly. Students
would benefit far more from consolidation loans if they were able to choose loans
offering the most favorable rates and terms. Moreover, repeal of the rule would stimulate
competition between lenders, since they would no longer have a “locked-in” population
of students. Finally, most students are not clearly informed of this limitation at the time
that their loan is originated, and only discover it when they seek consolidation. This
asymmetry of information could be considered an exploitative practice.
It has been argued during previous re-authorization processes that, were the single-lender
rule repealed, all lenders would choose to be consolidators rather than loan originators.
This is patently false. There will continue to be a demand for student loan origination,
and basic market principles indicate that at least two lenders will seek to profit by
meeting that demand. Even if the originators are not able to make significant profit on
loan interest, loan origination fees will provide a steady stream of income.
Increase the Accessibility of the Income-Contingent Option of the FDLP
Statutory Cite: 20 USC 1087e(d)(1)(D), 20 USC 1087e(e)
Proposed Amendments:
First, the income calculation for married couples, as specified in (e)(2), should be altered
such that a spouse’s income is not included in the borrower’s adjusted gross income.
Second, the maximum repayment period, as specified in (d)(1)(D), should be decreased
to fifteen years, contingent upon the borrower’s employment in a public-service career
for a certain fraction of those fifteen years (we recommend ten out of the fifteen).
NAGPS concurs with and endorses the comments of the American Bar Association and
the Association of American Law Schools on this issue.
Rationale:
The calculation of adjusted gross income (AGI) represents an effective “marriage
penalty” in this legislation. While some spouses are willing to accept responsibility for
their partners’ educational debts, this is hardly something that should be forced upon
them. Moreover, it is clear that the economically rational behavior of a couple will be to
delay marriage until repayment is complete, in order for the borrowing partner to obtain
more favorable repayment terms. There is no logical reason to incentivize this behavior.
The current maximum repayment period is 25 years, after which time the Secretary of
Education forgives the loan. The prospect of being in repayment for a full quarter of
one’s natural life gives any borrower pause. This prospect is driving new professionals
away from public-service careers into less desirable but higher-paying fields. Programs
such as the loan-repayment program of the National Health Service Corps have attempted
to address the problem, but lack sufficient funding and only apply to a limited range of
professions. The legal profession is the most notable uncovered area – law graduates
seeking public-service careers must commit to extreme financial hardship, and there is no
reason to stretch this out over a full quarter-century.
Restore the Tax Exemption for Graduate/Professional Scholarships
Statutory Cite: 26 USC 117
Proposed Amendments:
NAGPS recommends that the existing definition of “qualified educational expenses” be
stricken and be replaced with the definition of “cost of attendance” found in 20 USC
1087LL, allowing the majority of a fellowship or scholarship to be tax-exempt income.
Alternatively, the section could be replaced with a reference to 26 USC 529(e)(3), which
covers state tuition assistance programs and considers room and board to be a qualified
educational expense.
Rationale:
Although this is not an HEA statue, it is directly linked to several fellowship and
scholarship programs authorized in the HEA. Prior to 1986, the entirety of a fellowship or
scholarship was considered tax-exempt income. After the 1986 Internal Revenue Code
overhaul, the exemption was limited to that portion of a scholarship used to pay tuition,
fees, and costs for books and supplies explicitly required by the institution. Graduate and
professional students regularly purchase many educational materials (books, supplies,
and computers) that are not explicitly required by their schools, and that are not covered
as part of this exemption. Moreover, given the generally low (if any) stipend received by
these students, taxation of their scholarships creates economic hardship.
In order to create incentives for graduate education and simplify the tax code (room and
board is considered an educational expense under several other educational credits, for
example), we recommend that the exemption be extended to consider the entire cost of
attendance as an educational expense. This is simple logic – if Congress has previously
determined these expenditures to be part of the cost of getting a graduate education, they
should also be considered educational expenditures for tax purposes.