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Student Aid and Fiscal Responsibility Act (SAFRA)

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The Student Aid and Fiscal Responsibility Act (SAFRA) – Background and FAQs.

It was relatively quiet on The Hill this week, with Lawmakers home for the Spring Break. At the same time, there was activity in the wake of the historic Health-care legislation that recently passed in Congress.

As we mentioned last week, Congress passed health-care legislation and its version of H.R. 4872, the Health Care and Education Affordability Reconciliation Bill of 2010.  House Resolution 4872 included the Student Aid and Fiscal Responsibility Act (SAFRA).  President Obama recently signed both bills into law.

The major provisions of SAFRA are designed to achieve the following:

  • Eliminate the Federal Family Education Loan (FFEL) program and move all federal student loans into the Direct Loan program. Colleges participating in federal student loans will need to move to the Direct Loan program by July 1, 2010.
  • Of the $61 billion the government expects to save by cutting subsidies to banks for student loans, $36 billion will go to Pell grants.  The bill invests $36 billion over 10 years to increase the maximum annual Pell Grant scholarship to $5,550 in 2010, and to $5,975 by 2017. Starting in 2013, the scholarship will be linked to match rising costs-of-living by indexing it to the Consumer Price Index.  The student loans changes will take effect on July 1st, 2010.
  • The legislation excludes the Andrews/Souder 90/10 language that was contained in the House-passed version of SAFRA.
  • The bill eliminates the proposed newly structured Perkins program (meaning that the program continues to function under existing law without change).

Frequently Asked Questions:

Is gainful employment included in SAFRA?

No. The gainful employment proposal that the U.S. Department of Education is considering was not included in the SAFRA language enacted into law.

Was the 90/10 Relief that passed the House as part of the original H.R. 3221 included in the final reconciliation bill?

No, the final language signed by the President did not contain the Andrews/Souder 90/10 Relief language.  The fundamental procedural problem with the 90/10 provision and many others that were stripped from the original SAFRA bill was the so-called Byrd Rule in the Senate. The Byrd Rule stipulates that language in a reconciliation that arguably has no or minimal budget impact is subject to being removed by a point of order.

Although we submitted a detailed memorandum to the appropriate Congressional offices arguing that the Andrews/Souder amendment should not be subject to the Byrd rule, the House stripped the bill of all provisions arguing that they posed a Byrd Rule danger in order to avoid grounds of sending the bill back to the House.  Senate Republicans were successful in a Byrd Rule point of order on the Pell provisions in the reconciliation bill, as explained below, causing the bill to go back to the House for a final vote.  However, the 90/10 Relief language was removed prior to the bill being sent to the Senate.

Is the July 1st, 2010 effective date in the SAFRA legislation for new originations or for disbursements on or after that date?

The legislation states that it is for disbursements after July 1, 2010.  It kills the FFEL program entirely. No new FFEL loans can be made – which means no new guarantees or originations. Lending can only happen through the DL program, whereby the loans are made with federal capital through the COD system to schools.

Effective Dates as Contained in SAFRA – Below please find a short list of the new student lending ‘effective dates’ as contained in H.R. 4872:

Part II—Student Loan Reform

Section 2201. This section terminates the authority to make or insure any additional loans in the Federal Family Education Loan program after June 30, 2010.

Section 2202. This section is a conforming amendment with regard to the termination of the FFEL program, limiting Federal insurance to those loans in the Federal Family Education Loan program for loans first disbursed prior to July 1, 2010.

Section 2203. This section makes a conforming amendment with regard to the termination of the FFEL program limiting interest rate applicability to Stafford, Consolidation, and PLUS loans to those loans made before July 1, 2010.

Section 2204. This section makes a conforming amendment with regard to the termination of the FFEL program by limiting subsidy payments to lenders for those loans for which the first disbursement is made before July 1, 2010.

Section 2205. This section makes a conforming change with regard to the termination of the FFEL program for federal PLUS loans by prohibiting further FFEL origination of loans after July 1, 2010.

Section 2206. This section makes conforming changes with regard to the termination of the FFEL program for federal consolidation loans. This section also provides that, for a one-year period, borrowers who have loans under both the Direct Lending program and the FFEL program, or who have loans under either program as well as loans that have been sold to the Secretary, may consolidate such loans under the Direct Lending program regardless of whether such borrowers have entered repayment on such loans.

Section 2207. This section makes conforming changes with regard to the termination of the FFEL program for Unsubsidized Stafford loans by prohibiting further FFEL origination of loans after July 1, 2010.

Section 2208. This section makes conforming changes with regard to the termination of the FFEL program by limiting special allowance payments to lenders under the FFEL program to loans first disbursed before July 1, 2010.

Section 2212.  Among other things this section authorizes the Secretary to provide payments to loan servicers for retaining jobs at location in the United States where such servicers were operating on January 1, 2010. This section appropriates $25,000,000 for each of fiscal years 2010 and 2011 for such purpose.

Section 2214. The section amends the Income-Based Repayment program to cap student loan payments for new borrowers after July 1, 2014 to 10% of adjusted income, from 15% percent, and to forgive remaining balances after 20 years of repayment, from 25 years.

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