Brief on HR 3221
The Student Aid and Fiscal Responsibility Act
Texas A&M University
Student Government Association
2009-2010
Table of Contents
Background and History………………………………… 3
Direct Lending…………………………………………... 5
Facts and Statistics………………………………………. 7
Effects on Students……………………………………… 8
Economic Implications………………………………….. 9
Sources…………………………………………………. .10
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Background and History
H.R. 3221, The Student Aid and Fiscal Responsibility Act, introduced into the
House by George Miller (D-CA) on July 15, 2009 to amend the Higher Education Act of
1965. [1]
According to the National Association of Student Financial Aid Administrators
(NASFAA), the bill will use savings from the elimination of the Federal Family
Education Loan Program to boost the Pell Grant program, fund a new Direct Lending
program, and increase funding to different higher education programs. By eliminating the
private lender option and placing student loans into federal hands, loans will be protected
from inflation and market fluctuations. Legislators hope this added effectiveness will
cover more tuition and even aid the often overlooked students of moderate incomes.
Not overlooking lower level education, the bill is projected to increase the number of low
income children entering kindergarten by revising state standards and actions taken by
early childhood education providers. School districts will be provided with funds for
modernization, technological advancement, and repair projects in order to create a
healthier, more efficient learning community. [2]
After the bill was introduced on the House floor, the bill was referred to the
House Education and Labor committee and reported out of this committee with changes
to the bill’s text on July 21, 2009. According to the NASFAA, a total of twenty-four
amendments to the legislation were proposed and accepted by House members on
September 16-17, 2009. These amendments include the following:

The Manager’s Amendment submitted by Rep. George Miller (D-CA) allows for
a larger pool of recipients of federal financial aid. Part-time students, students
whose parents or guardians were killed in action in Iraq or Afghanistan after
September 11, 2001 and students whose parents or guardians were killed in the
line of duty as a public safety officer would all receive greater eligibility for
expanded Pell Grants. This amendment also removes the portion of the bill that
would eliminate limitations for borrowers wanting to consolidate FFEL loans into
the Direct Lending program. Additionally, this amendment provides the
Department of Education with $50 million in 2010 to provide schools with funds
and resources to ease the transition into the Direct Lending program.

Financial Literacy Amendment submitted by Rep. Jim Himes (D-CT), Rep.
Carolyn McCarthy (D-NY), and Rep. Allyson Schwartz (D-PA) strengthens the
financial literacy provisions of the State Innovation Completion Grants,
Innovation in College Access and Completion National Activities, and brings
forth requirements related to private student loan services.
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
Guarantor Amendment submitted by Rep. Bob Etheridge (D-NC), Rep. Peter
Welch (D-VT), Rep. David Price (D-NC), Rep. Earl Pomeroy (D-ND), Rep. John
Lewis (D-GA), Rep. David Scott (D-GA), Rep. Chellie Pingree (D-ME), Rep.
Paul Tonko (D-NY) and Rep. Doris Matsui (D-CA) allows borrower services to
use grant funds and authorizes the Department of Education to directly contract
with agencies for funding services.

Direct Loan Outreach Amendment submitted by Rep. Henry Cueller (D-TX)
requires the Secretary of Education to educate students and families on the
transition into Federal Direct Lending.
On September 17, 2009, the bill was passed by the House with 253 favoring and 171
votes opposing the bill.
As of September 23, 2009, the bill has been passed on to the Senate for voting. A
companion bill which has yet to be written will be up for debate in the Senate soon.
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Direct Lending
Background and History
Direct loans are low-interest loans for students and parents paying for higher
education. With the US Department of Education acting as the lender, students will be
able to borrow directly from the federal government. By borrowing from the government,
students have one single contact with the lender and have a choice of various repayment
programs that are designed to accommodate most borrowers.
In President Obama’s Fiscal Year 2010 budget beginning July 1, 2010, all
Stafford, PLUS, and consolidation loans will be made through the direct loan program
and no new loans will be made under the Federal Family Education Loan Program. With
federally backed loans, students will receive more stability, efficiency, and reliability in
regards to funding for education. The government projects that taxpayers will save more
than $4 billion a year in reduced entitlement subsidies.
The proposal, made on February 26, 2009, is a part of HR 3221, a student aid and
funding bill that was recently passed in the House and has now been referred to the
Senate. Upon approval, the latest a loan from FFEL can be made is June 30, 2010.
Taking affect on July 1, 2010, Direct Lending will insure that transactions will be made
solely between the federal government and universities, cutting out the middleman but
raising taxes. [3]
Effects on Students
Students choosing to participate in the Direct Loan program will have a five repayment
plans devised by the Department of Education. [4]
Standard Repayment
With this plan, students will have a fixed amount to pay every month of at least $50 and
have ten years to pay back the government in full. Because students with this plan are
paying the highest amount monthly, they will also receive the lowest interest rates in
hopes of encouraging a quicker repayment.
Extended Repayment
In order to qualify for this plan, a student must have over $30,000 in Direct Loan debt
and not have an outstanding balance on Direct Loans as of October 7, 1998. With this
plan, students will have the choice of fixed or graduated payment options and 25 years to
achieve repayment. Graduated payment options will start low and increase every two
years, while fixed plans remain the same every month. Although students will have to
pay less monthly, they will also have higher interest rates due to the extended amount of
time needed to repay.
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Graduated Repayment
Students with this plan will start with low repayment amounts that will increase every
two years and have up to ten years to repay. Many students expect to have a steady
increase in income, so this option works best for them. For these students, monthly
payments will never be less than the amount of interest that accumulates between
payments and will never be more than three times greater than any other payment.
Income Contingent Repayment
With this plan, a student’s repayment amount will be calculated on the basis of his
adjusted gross income, family size, and total amount of his Direct Loans. Under this plan,
a student will pay the lesser of the amount he would pay if he repaid in twelve years
multiplied by an income percentage factor that varies with annual income, or, 20% of his
monthly income. If payments are not large enough to cover the amount of interest
accumulated on the loans, the unpaid amount will become capitalized once each year, but
this capitalization will not exceed 10% of the original amount due. Students will have up
to 25 years to repay and if repayment has not been achieved within 25 years, the amount
left will be discharged. However, students may be taxed on the amount discharged.
Income-Based Repayment
Students with this plan will have repayment amounts based on their income during any
period of partial personal economic hardship. Repayment amounts will be adjusted every
year and students will have over 10 years to repay. For students meeting certain criteria
over a specified period of time, repayment for outstanding balances may be cancelled.
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Facts and Statistics [5]





The House Committee on Education and Labor believes by investing $40 billion,
the bill is believed to expand federal Pell Grants to $5500 in 2010 and $6900 by
2019.
The federal deficit will allegedly decrease by $87 million over the course of ten
years.
In order to bolster college access and completion, the CEL hopes to invest $3
billion that will hopefully provide students with a greater sense of financial
literacy.
After interest rates increase from 3.4 percent to the projected 6.8 percent by 2012,
the bill will make interest rates variable for lower income students on need-based
funding.
Historically Black Colleges and Universities as well as universities representing
other minorities will receive $2.5 billion in order to provide students with a
greater guarantee of completion.
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Effects on Students
The Student Aid and Fiscal Responsibility Act implements several changes to
current programs as well as proposes new initiatives which all have direct effects on
students, not only in the state of Texas, but all over the United States. Below are
explanations of the most impactful parts of the bill. [6, 7]
Direct Lending
H.R. 3221 changes the current government lending system so that starting July 1, 2010,
students will receive federal education loans directly. Additionally, non-profit state
agencies would receive special considerations and would be granted top priority in
receiving funds. States would receive contracts in which they can guarantee loans to
borrowers. According to financialaid.org, servicers receiving funds will have to meet the
following criteria: “servicing and capacity, default aversion activities and outreach
activities.” Using direct lending for states and borrowers makes lending and loaning
easier. Borrowers will not have to go through third-party lenders or companies which can
cut extra costs and make the lending process more efficient.
Pell Grant Inflation
This bill will also increase the maximum amount received by Pell Grant recipients by 1%
each school year. For the 2009-2010 school year Pell Grants are amounted at $5,350,
2010-2011 grants will be $5,550 and in 2019-2020, Pell Grants will increase to $6,900.
Students who qualify for Pell Grants will be able to receive more money each year they
are in school which can be used for tuition, books, housing, etc.
Perkins Loan Changes
The new Federal Direct Perkins Loans will be similar to the unsubsidized Stafford loan
except for a few differences. Eligible recipients must demonstrate financial need, colleges
reserve the right to decide who receives loans, funding will be increased to $6 billion per
year and there is the possibility for loan matching. Loans would be disbursed through
school financial aid offices and interested rates will decrease. Students will be able to
receive loans more efficiently, will receive more money at lower interest rates which will
make it easier to pay back after graduation.
College Access and Completion Innovation Fund
H.R. 3221 designates $600 million per year for five years to establish the College Access
and Completion Innovation Fund. This fund is designed to “improve college access,
retention and completion, provide financial literacy training to students, encourage
students to reduce loan debt, expand [agreements] between [2- and 4-year] institutions,
and facilitate post-completion employment.” Through this program, students will have
more opportunities, a better quality of education, and an increased investment in student
success.
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Economic Implications
The Student Aid and Fiscal Responsibility Act creates several economic effects
for the federal and state governments. Recently, the Congressional Budget Office
analyzed the bill and provided a cost estimate report for the House Committee on
Education and Labor. A breakdown and explanation of several parts of the bill are listed
below. CBO estimates H.R. 3221 will reduce spending by $13.3 billion over the four year
period between 2009 and 2013 and $7.8 billion between 2009 and 2019. However,
discretionary spending will increase by at least $13.5 billion. [8]
Direct Lending
The direct lending changes made it the Perkins Loans and Pell Grants would led to a
decrease direct spending by $13.3 billion over 2009 to 2014. From 2009 to 2019, direct
spending would decrease by $7.8 billion.
Pell Grant Inflation
The CBO found that direct spending will increase by $10.4 billion between 2010 and
2014 and $39.4 billion from 2010 to 2019. The report also notes that this may affect
discretionary spending. An appropriations act establishing a “discretionary maximum
award at a level greater than $4,860,” would increase costs. Additionally, changes in
eligibility and “needs analysis formulas” would increase direct spending.
Perkins Loan Changes
Under the new Perkins Loans, states would have to return the government’s share of their
“revolving funds” to the Department of Treasury. The other changes would decrease
spending by $1.6 billion over the 2010 to 2014 time period and increase direct spending
by $1.3 billion from 2010 to 2019.
College Access and Completion Innovation Fund
H.R. 3221 calls for an appropriation of $3.0 billion for the College Access and
Completion Innovation Fund. After comparing this proposed program to other programs,
it is estimated that this initiative will increase direct spending by $3.0 billion from 2010
to 2019.
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Sources
[1] http://thomas.loc.gov/cgi-bin/query/D?c111:4:./temp/~c111bGy5ht
[2] http://www.nasfaa.org/publications/2009/ln3221summary092209.html
[3] http://www.whitehouse.gov/blog/09/04/24/Student-Loans-Cutting-Out-the-MiddleMan/
[4] http://www.ed.gov/offices/OSFAP/DirectLoan/student.html
[5] http://www.thedailycougar.com/student-bill-clears-hurdle-1.2028383
[6] http://edlabor.house.gov/blog/2009/07/student-aid-and-fiscal-respons.shtml
[7] http://www.finaid.org/educators/20090715hr3221.phtml
[8] http://www.cbo.gov/ftpdocs/104xx/doc10479/hr3221.pdf
[9] http://www.govtrack.us/congress/bill.xpd?bill=h111-3221
Compiled by Kate Putman & Audrey Ritcheson, Legislative Relations
Commission, Texas A&M University Student Government Association. This document
may not be copied, reproduced or distributed without the written consent from the
Legislative Relations Director. The Positions within this document do not necessarily
reflect the views of the Texas A&M Student Body.
Texas A&M University Legislative Relations Commission
Prepared by Audrey Ritcheson and Kate Putman
Texas A&M University Legislative Relations
kmputman@tamu.edu
Texas A&M University Legislative Relations Commission