June 7, 2005

Honorable Richard B. Cheney
President of the Senate
Washington, DC 20510

Dear Mr. President:

I am pleased to submit for your consideration the enclosed legislative proposal entitled the "Higher Education Act Reform Amendments of 2005." This proposal would amend the Higher Education Act of 1965 (HEA) to implement changes proposed in the President's Fiscal Year (FY) 2006 Budget. An identical letter is being sent to the Speaker of the House of Representatives.

The proposed legislation is a comprehensive package of reforms that would make the student loan programs more efficient, cost-effective vehicles for helping students finance their postsecondary education and would produce $7.2 billion in mandatory spending savings over the five-year period FY 2006-2010. In addition, the Administration’s proposal would restore the Federal Pell Grant program to a firm financial footing and pave the way for future expansion by eliminating the $4.3 billion shortfall and increasing the maximum Federal Pell Grant award by $100 in each of the next five years. The proposal would provide mandatory funding for these purposes, while keeping the base funding for the Federal Pell Grant program discretionary.

On April 28, Congress adopted the FY 2006 budget resolution that would produce $35 billion in mandatory savings over five years, including savings from reforming the student loan programs. In addition, the budget resolution accommodates the elimination of the $4.3 billion shortfall, includes a mechanism to prevent the creation of a future shortfall, and assumes a $100 increase in the maximum award for FY 2006 funded with discretionary appropriations. The Administration supports this approach to retiring the shortfall, as well as the resolution’s commitment to fund a $100 increase in the maximum Pell Grant in FY 2006. We look forward to working with Congress to provide the Budget’s proposed $4,150 maximum award in FY 2006 within the context of the budget resolution, as well as to provide the remaining $400 increase by FY 2010.

The legislative proposal would significantly restructure the student loan programs to increase student benefits, reduce costs through expanded risk-sharing, and revise the consolidation loan program to ensure all borrowers, whether in school or in the workplace, have access to a common set of benefits.

Taken together, these proposals address two key Administration objectives: (1) to help achieve the House Education and the Workforce Committee and the Senate Health, Education, Labor, and Pensions Committee mandatory spending reductions set forth in the budget resolution; and (2) to increase the Pell Grant maximum award and other benefits for student loan borrowers, including increased Stafford loan limits, maintaining low-cost variable interest rate loans, and expanding borrower repayment options. The Administration looks forward to working with the Congress to enact legislation this year that achieves both these objectives.

Over the next five years, we project these Higher Education Act Reform Amendments will save $11.8 billion in the student loan programs, and will increase Federal Pell Grant outlays by nearly $4.6 billion to increase the maximum award. Overall, these amendments would produce over $7.2 billion in net outlay savings from the student aid programs.

(in millions of dollars)

We look forward to working with you and your colleagues to ensure that these reforms are enacted quickly to achieve the spending restraint called for in the President’s Budget and the budget resolution and so that postsecondary students can begin to benefit from these proposals in the fall of 2006.

The Office of Management and Budget advises that there is no objection to the submission of this proposal to the Congress, and that its enactment would be in accord with the program of the President.

Sincerely,

Margaret Spellings

Proposed Bill Language MS Word (190K) | PDF (252K)
Section-by-Section Analysis MS Word (115K) | PDF (183K)