Deficit Reduction Act of 2005 1. State the administrative agency which controls the regulation.

Explain why this agency and your proposed regulation interests you (briefly). Will this proposed regulation affect you or the business in which you are working? If so, how? Submit a copy of the proposed regulation along with your responses to these five questions. The proposed regulation can be submitted as either a separate Word document (.doc) or Adobe file (.pdf). This means you will submit two attachments to the Week 2 Dropbox: (1) a Word doc with the questions and your answers and (2) a copy of the proposed regulation you used for this assignment. (10 points) The Deficit Reduction Act has a direct effect on my future pursing a higher education. If it becomes difficult for me to receive financial aid it will obviously make it really hard to achieve my dream to get my Masters in Business Administration. The Act saves nearly $40 billion over five years from mandatory spending programs through slowing the growth in spending for Medicare, Medicaid and student loans This act was established to concentrate on few key points:

Safeguarding children's eligibility for coverage during and after the transition to Medicaid's new citizenship verification requirements. Configuring Medicaid coverage for children in states that opt to create benchmark plans so that the EPSDT guarantee, including access to developmental services, is preserved.

Applying new cost-sharing flexibility to ensure that the exemption applicable to preventive services includes developmental services.

The Deficit Reduction Act of 2005: An Overview of Key Medicaid Provisions and Their Implications for Early Childhood Development Services, The Commonwealth Fund, October 2006 2. Describe the proposal/change. (10 points) But unfortunately this same Act, cuts $12.6 billion from student financial aid through a mixture of increase revenue and budget reductions that will make it much more expensive for students to pay for college. 3. Write the public comment which you would submit to this proposal. If the proposed regulation deadline has already passed, write the comment you would

have submitted. Explain briefly what you wish to accomplish with your comment. (10 points) My comment is as stated, as the increase in reduction for financial aid for students will incidentally increase equal opportunity for lower income families. By cutting these costs we are cutting opportunity for some of the brightest students in the USA and in turn ultimately keep us paralyzed in global competitions and business affairs. I strongly emphasis that the Deficit Reduction Act of 2005 should be reconsider cutting $12.6 billion from student financial aid. 4. Provide the "deadline" by which the public comment must be made. (If the date has already passed, please provide when the deadline was). (5 points) (Deadline was in December 19, 2005)

5. a. Once you have submitted your comment, what will you be legally entitled to do later in the promulgation process (if you should choose to do so)? (See the textbook's discussion of the Administrative Procedure Act.) (will provide after homework due) b. If the proposal passes, identify and explain the five legal theories you could use in an attempt to have the regulation declared invalid and overturned in court. (will provide after homework due) Arbitrary and capricious means doing something according to ones will or caprice and therefore conveying a notion of a tendency to abuse the possession of power. When the judge or a judgment makes a decision with our adequate reasoning or grounds and or circumstances its said that this to be arbitrary and capricious . No reasonable explanation connecting facts and the final judgment. Substantial evidence is where there is such relevant evidence as reasonable minds might accept as adequate to support a conclusion even if it is possible to draw two inconsistent conclusions from the evidence. - Landes v. Royal, 833 F.2d 1365, 1371 Ultra Vires is the doctrine in the law of corporations that holds that if a corporation enters into a contract that is beyond the scope of its corporate powers, the contract is illegal. http://legal-dictionary.thefreedictionary.com/ultra+vires Sunset Law is a law which will be discontinued, a law which will be eliminated, a statute which automatically ends, a statute which automatically terminates, a statute which expires, a statute which will cease, ending law, exxiring law, statute

with a fixed lifespan, terminating law. http://legaldictionary.thefreedictionary.com/sunset+law Zero-based budgeting- Process of agency budgeting in which the budget starts with a figure of zero rather than at the level of the previous years budget; effect is to require an agency to justify its functions and expenditures for each budget period. (Jennings, Marianne M. . Business: Its Legal, Ethical, and Global Environment, 8th Edition. South Western Educational Publishing, 01/2008. p. G-21). <vbk:9781133614166#outline(37.25)>

c. Which of these challenges would be the best way to challenge the regulation you selected for this assignment if you wanted to have the regulation overturned and why? (will provide after homework due)

Arbitrary and capricious could be argued in favor of my argument if enough evidence was provided that the final decision was based on personal bias or abuse of power. This judgment has not taken into consideration a big population of the American population and how it will affect them.

Since this bill includes only pieces of reauthorization, the House had to pass a bill extending the Higher Education Act of 1965. The House passed HR 4525, the Second Higher Education Extension Act of 2005, on December 17, 2005, to extend the Higher Education Act of 1965 through March 31, 2006. S1932 was passed by the Senate, 51 to 50, but without a waiver of a point of order. This required the bill to be voted on again by the House. The House passed it on February 1, 2006, by a vote of 216 to 214, with 3 abstentions. The provisions of the law changed significantly in conference, and emerged as the Higher Education Reconciliation Act of 2005, part of Public Law 109-171. The rest of this document summarizes the provisions of Public Law 109-171. As noted, this differs from S1932/HR4241, as found at http://www.rules.house.gov/109/text/s1932cr/109s1932_text.pdf pages 482 to 561. The CBO cost estimate for the bill can be found at http://www.cbo.gov/showdoc.cfm?index=7028&sequence=0&from=7 which includes the link to the report at http://www.cbo.gov/ftpdocs/70xx/doc7028/s1932conf.pdf Discussion of student aid appears in the front matter and in the section running from pages 64 to 72. Please note that given the short timeframe in which I reviewed the legislation, it is likely that I missed important changes. In particular, it is very hard to notice what isn't there, so I may have overlooked important omissions. *** WARNING: Because this legislation does not include provisions that are unrelated to reconciliation, there is a serious risk that these provisions may be left out of reauthorization. This may be an intentional approach to enacting legislator priorities that are unpalatable to the general public (i.e., cutting or eliminating certain programs), or at least delaying them until after the midterm elections. The official reason for excluding these provisions is that they do not have a financial impact and therefore are not relevant to budget reconciliation. But this is a specious argument, since S1932 includes many provisions that do not have a measurable financial impact, and excludes several measures relating to authorizations that do have a financial impact but which are not favored by certain legislators. *** 1. Retains the scheduled change of Stafford Loans to a fixed rate of 6.8% starting July 1, 2006. Increases the scheduled change in the PLUS loan interest rate from 7.9% to 8.5%. Note: The legislative language concerning the increase in the PLUS loan interest rate applies only to the FFEL program. Parallel changes to DL were apparently accidentally omitted from the legislation. It is expected that Congress will pass such changes in a separate piece of legislation. Note that the scheduled changes eliminate the lower inschool interest rate, and thereby indirectly eliminate the ability to lock in a

lower rate by consolidating during the grace period. Retains the current consolidation loan interest rate formula, the weighted average of the interest rates on the component loans rounded up to the nearest 1/8th of a point. Since interest rates on the Stafford and PLUS loans will be fixed and not variable, consolidation will no longer be needed to lock in low rates. This removes a significant incentive for borrowers to consolidate. The only remaining incentives for consolidation include - availability of a single monthly payment - access to alternate repayment provisions, such as extended repayment, graduated repayment and income contingent/sensitive repayment. Nothing prevents lenders from offering interest rate reductions, rebates, and other discounts as an incentive to consolidate, and thereby induce borrowers to switch from one lender to another. However, given the economies of scale, smaller lenders will find it more difficult to compete on price than larger lenders. 1b. The final legislation does NOT repeal the single holder rule, nor does it include expanded consumer notices concerning the financial impact of consolidating with a different lender. These provisions were struck from the legislation because of the Byrd Rule, and will have to be passed as part of Reauthorization. 2. Increases loan limits as follows, starting July 1, 2007: Old Limit New Limit ------------------------------------------------ College Freshmen $2,625 $3,500 College Sophomores $3,500 $4,500 College Juniors $5,500 unchanged College Seniors $5,500 unchanged Additional Limit for Indep UGrad Year 1/2 $4,000 unchanged Additional Limit for Indep UGrad Years 3+ $5,000 $7,000 Cumulative Undergrad $23,000 unchanged Graduate Sub Staf. $8,500 unchanged Graduate Unsub Staf. $10,000 $12,000 Cumulative Grad/UGrad $65,500 unchanged These increases are anemic, especially considering that the cumulative limits have not increased. 3. Allows graduate and professional students to borrow PLUS Loans. This means graduate and professional students will be able to borrow up to COA-Aid at 8.5% with repayment commencing 60 days after disbursement. This represents an interesting alternative to private education loans for graduate and professional students. However, the requirement that repayment begin within 60 days may significantly limit graduate and professional student interest in the loans. However, current law allows PLUS borrowers to defer repayment while the student is in school and to capitalize the interest. I expect that more lenders will start offering interest capitalization as a feature of their PLUS loans. 4. Eliminates the floor income guarantee for lenders. This is the excess interest when the annual interest rates exceed the quarterly recalculations of the rates. The savings are retained by the government. 5. Ends the 9.5% loan recycling for some lenders, but allows nonprofit lenders to continue receiving the 9.5% floor through 12/31/2010 (or possibly beyond). 6. Establishes an additional grant for Pell Grant recipients who major in math, science, engineering, computer science, technology and "national security" foreign languages. (Does not include the Senate's ProGap proposal for low income Pell Grant recipients.) For freshmen and sophomores, the requirement is only that they have completed a "rigorous secondary school program of study"; it does not specifically require

rigorous math and science preparation. For sophomores, it requires a minimum GPA of 3.0 during the freshman year. For juniors and seniors it requires a minimum GPA of 3.0 in just the coursework that is relevant to the major. The grant amounts are $750 for freshmen, $1,300 for sophomores, and $4,000 for juniors and seniors. The amounts in combination with other aid may not exceed COA. If funding is insufficient then grant amounts will be reduced pro-rata. (Definitions are in terms of first, second, third and fourth year of the programs, so if a student accelerates their program through advance standing or other means, they might miss out on the $4,000 for the fourth year of their program.) The legislation authorizes and appropriates funding of $790 million in FY2006, growing to $1.01 billion in FY2010, after which time it sunsets. Note: Although this has been characterized by some as an increase in the maximum Pell Grant, the wording of the legislation treats it as a separate grant for students who receive the Pell Grant and not as an increase in the maximum Pell. Aside from the restriction of the grant to Pell Grant recipients and the COA cap on student aid funds, there is no means testing inherent in this program. I estimate that this program will be able to support up to 100,000 new recipients per year without requiring a pro-rata reduction in grant amounts. 7. Changes administrative funds for student aid delivery from mandatory to discretionary spending, making them subject to annual appropriations. This gives Congress more control, and may make it easier for Congress to cut certain programs. For example, if Congress cuts administrative funds for a program, it effectively kills the program. This will make it easier for Congress to kill Direct Lending and other programs in the future while maintaining the fiction that they didn't kill the programs. 8. Adds a deferral provision of up to 3 years for military personnel serving on active duty or National Guard duty during a war, military operation or national emergency. 9. Reduces origination fees (FFEL) and loan fees (DL) as follows: FFEL DL Current Law 3.0% + 1.0% guarantee 4.0% 2006-07 2.0% + 1.0% guarantee 3.0% 2007-08 1.5% + 1.0% guarantee 2.5% 2008-09 1.0% + 1.0% guarantee 2.0% 2009-10 0.5% + 1.0% guarantee 1.5% 2010-11 onward 0.0% + 1.0% guarantee 1.0% The legislative language precludes these reductions from applying to Direct PLUS and Direct Consolidation loans. The legislative language precludes these reducations from applying to Federal Consolidation Loans, but does not appear to prevent them from applying to Federal PLUS Loans. This may be due to an apparent technical error in the legislative language, as the FFEL piece excludes "428C and 439(o)" while the DL piece excludes "Federal Direct Consolidation Loans and Federal Direct PLUS loans". I believe that instead of 439(o) the House intended to say 428B. Requires guarantors to pay a 1% guarantee fee to the Federal Student Loan Reserve Fund. Although the legislative language doesn't require guarantors to pass the fee on to the lenders, any such waiver of the fee will come out of the guarantor's funds. This effectively will eliminate most guarantee fee waivers, thereby increasing student costs. Modifies 455(b)(8)(A) to allow DL to reduce fees in addition to interest rates (if cost neutral), although the language inserted refers to "origination fees" and

probably should have been "loan fees", since the former is the language used with FFEL and the latter more appropriate for reference to DL. As a result, any fee reductions offered by DL must be certified as cost neutral by OMB and CBO. 10. If a borrower received a FFEL consolidation loan, they are prohibited from receiving a subsequent DL consolidation except in very limited circumstances (e.g., default aversion loans seeking income contingent repayment or a FFEL lender denied a consolidation loan application). 11. Repeals the early repayment status loophole that enabled continuing students to consolidate while they are still in school. 12. Repeals the ability of married students to consolidate their loans together. 13. The final legislation does NOT include the requirement that education lenders report to all national credit reporting bureaus. This provision will need to be included in reauthorization. 14. Adds restrictions to School as Lender: - no loans to undergraduate students - just Stafford Loans (i.e., no consolidation or PLUS loans) - only to students enrolled at the institution - contracts awarded on a competitive basis requires the loans to include interest rate or origination fee reductions (or both) beyond those authorized. Note that since the law phases out origination fees, ultimately this will require interest rate reductions. - restricts eligible schools to those with a default rate of 10% or less - requires an annual audit - requires all proceeds, including special allowance payments, interest payments from borrowers, interest subsidies from the Department of education, and proceeds from the sale to be used for need-based grant programs. - requires that the proceeds supplement and not supplant nonFederal funds that would otherwise be used for need-based grant programs - requires a school to have made loans under the school as lender program by April 1, 2006 to continue doing so. 15. Adds discharges for loans to students who attended schools that failed to provide a refund, or where the loan was falsely certified as a result of identity theft. 16. Eliminates the sunset on the higher teacher loan forgiveness program benefits. Provides alternate means for private school teachers to qualify. 17. Changes the insurance percentage from 98% to 97%, but retains the 100% insurance percentage for lenders of last resort. Extends the 100% insurance percentage to cases where a student or parent provided false or erroneous information on the loan application without the lender's knowledge. Changes the exceptional performance insurance rate from 100% to 99%. 18. Limits collection costs to 18.5% of the outstanding principal and interest on a loan that is paid off through consolidation, and remits 8.5% to the US Department of Education. After 10/1/09, all 18.5% will be remitted to the US Department of Education for any consolidated defaulted loans that exceed 45% of the guarantee agency's total collections on defaulted loans. This effectively caps the use of consolidation to collect defaulted loans at 45% of the collections, thereby requiring more actual collection of defaulted loans by guarantee agencies. 19. Forbearance agreements no longer need to be approved in writing by the borrower, and instead can be approved by the lender sending a confirmation notice to the borrower. Although this provision is convenient for borrowers, it will also be potentially prone to fraud by lenders when the borrower is no longer receiving mail at their last known address. I strongly

recommend that the US Department of Education establish regulations requiring lenders to confirm the borrower's current address as part of an oral forbearance agreement and terminating the forbearance if the notice to the borrower is returned as undeliverable by the post office. 20. Makes it easier for loans to be rehabilitated, by allowing 9 out of 10 consecutive payments paid within 20 days of the due date, instead of 12 consecutive payments. allow room and board for less than half-time students for up to 3 semesters, no more than two of which may be consecutive. Also allows colleges to include the cost of obtaining professional credentials/licenses/certification. 22. Changes the Federal need analysis methodology as follows, starting 7/1/07: Changes the 2007-2008 dependent student IPA from $2,200 to $3,000. This increases it by about 36%. - Changes the contribution from assets percentage for independent students with dependents other than a spouse from 12% to 7%. - Changes the contribution from assets percentage for dependent students and for independent students without dependents other than a spouse from 35% to 20%. - Changes the 2007-2008 independent student IPA figures from $5,000 and $8,000 to $6,050 and $9,700, respectively. This increases them by about 21%. - Increases the IPA table figures for independent students with dependents other than a spouse in 2007-08 by the CPI or 5%, whichever is greater. 23. Modifies the simplified needs test and automatic-zero-EFC to allow families to qualify by receiving benefits under certain Federal means-tested benefit programs (e.g., supplemental security income program, food stamps, free/reduced price school lunch program, TANF, WIC). Also increases the threshold for auto-zero-EFC to $20,000 from the current $15,000 threshold. Does not provide for annual adjustment of this threshold, however. 24. The final legislation did NOT add additional examples of special circumstances, such as unemployment of an independent student, student status as a ward of a court prior to age 18, student status as an adopted individual at or after age 13, and student status as a homeless or unaccompanied youth. 25. Adds active duty members of the armed forces to the definition of independent student. 26. Excludes small businesses with 100 or fewer employees that are owned and controlled by the family from the definition of asset. 27. Changes the financial aid treatment of prepaid tuition plans to be an asset instead of a resource. The value of a qualified education benefit asset is defined as the refund value (prepaid tuition plans) or the current balance of the account (section 529 college savings plans). Qualified education benefit is defined to include section 529 college savings plans, prepaid tuition plans, and Coverdell Education Savings Accounts. Qualified education benefits are not considered as student assets for dependent students. (Presumably this means that qualified education benefits for which the student is the account owner are treated as parent assets. But the legislative language is non-specific, identifying what they aren't but not what they are. So one could argue that such qualified education benefits are not reportable at all. This will need to clarified, either by a technical amendment or through the regulations.) 28. Permits the US Department of Education to verify income data with the IRS. (Note that the legislation uses the word "date" instead of "data" in the heading.)

29. The suspension of eligibility for drug offenses is modified to only relate to offenses that occured during a period of enrollment for which the student received federal student aid. 30. Requires guarantee agencies to provide the US Department of Education with a list of state opportunities for the states for which they serve as the designated guarantor. 31. Increases the garnishment limit from 10% to 15%. 32. Modifies the 50/50 rule to restrict "courses by correspondence" to not include courses offered by telecommunications. This makes it easier for a distance education institution to qualify as a Title IV institution. Makes other changes to make it easier for distance education programs to qualify for student aid. 33. Restores the ability of schools with a default rate of under 10% to disburse loans in a single installment and avoid the 30-day delay for first-year first-time borrowers. This goes into effect on the date of enactment of the bill. Mark Kantrowitz Publisher, FinAid