HEAA: Senate Democrats Propose Elimination of Origination Fee and Other Changes to Loan Programs

 Reauthorization - Masthead 

By Joan Berkes, NASFAA Policy & Federal Relations Staff 

Tom Harkin (D-IA), chairman of the Senate Committee on Health, Education, Labor and Pensions (HELP), introduced a comprehensive Higher Education Act reauthorization bill on June 25. The Higher Education Affordability Act (HEAA), which includes several provisions for which NASFAA has been advocating, takes the form of a discussion draft and marks the HELP Committee’s first step toward reauthorization of the Higher Education Act. This article is the fifth in a series that will examine various provisions proposed by this bill. 

The Harkin discussion draft bill makes numerous changes to the Title IV loan programs. The bill also addresses loan counseling and loan servicing, but those two topics will be examined in a separate article. This article summarizes the following provisions of the Harkin bill:

  • Elimination of Direct Loan origination fees
  • Simplification of repayment plans
  • Military provisions: SCRA protections and Deferment
  • Loan forgiveness for certain American Indian educators
  • Reasonable collection costs and rehabilitation payments
  • Improvements to credit reporting for federal student loans
  • Improved disability determinations
  • Treatment of borrowers falsely certified as eligible to borrow due to identity theft
  • Perkins Loan forgiveness for eligible military service and simplification of military deferment

Elimination of Direct Loan Origination Fees

Loan fees, which have gradually been reduced over the past several years from 4 percent in 2005-06 to 1 percent beginning in July 2010, would be eliminated entirely by the Harkin bill. In addition to allowing students to receive the full amount of their loans, elimination of fees would remove the burdens and inefficiencies due to the Sequestration-related increases in fees we have seen in the past two years.

Simplification of Repayment Plans

The Harkin bill would eliminate the income-sensitive and income contingent repayment (ICR) plans, except for borrowers who had already chosen one of those plans. It would leave the income-based repayment (IBR) plan in place; the Department of Education (ED) would still be allowed to require IBR as the required plan for defaulted borrowers. Thus, for any student FFEL or Direct Loan borrower who has not yet chosen one of the eliminated plans, the repayment options would be standard, graduated, income-based, or extended.

The Harkin bill would change some aspects of the IBR plan. The “partial financial hardship” qualification would be changed from 15 percent of the difference between the borrower’s (and spouse’s) income and 150 percent of the poverty line for the relevant family size, to 10 percent of the difference between the borrower’s (and spouse’s) income and 150 percent the poverty line. In addition, a borrower who is at least 150 days delinquent would also be considered to have a partial financial hardship; enrollment into IBR for such a delinquent borrower would be automatic. 

Interest not covered by monthly IBR payments would accrue but, unlike the current plan, not be capitalized. Loan balances would still be cancelled after 20 years if certain conditions were met. The bill would also change the treatment of married borrowers filing separately; rather than just the borrower’s AGI to calculate payment amounts, the revamped approach would use 50 percent of the borrower’s and spouse’s combined AGIs.

On another topic, the bill would clarify that, for purposes of public service loan forgiveness, a lump sum payment made through the Department of Defense’s education loan repayment program, or a program deemed similar by ED, should be treated as an equivalent number of qualifying monthly payments (based on the amount of the lump sum and the borrower’s scheduled monthly payment amount), up to a maximum of 12.

Military Provisions

SCRA Protections 

The bill would reinforce the fact that student loans (Education Title IV and Public Health Service Titles VII and VIII, and private) incurred before military service are covered by the interest rate limitations of the Servicemembers Civil Relief Act (SCRA). The current limitation to 6 percent interest during military service would be extended for one year after service and would also apply to loans obtained during military service to refinance or consolidate pre-service student loans.

The bill would also direct ED to implement more proactively the current prohibition against charging interest to servicemembers while they are serving in an area of hostilities.


Deferment for military service would be granted for full-time active duty as a member of the regular Armed Forces or as a commissioned officer of the Public Health Service or the National Oceanic and Atmospheric Administration, whether or not that service is, as is now required, performed during a war, military operation, or national emergency. Active duty for training of 30 days or less would still be excluded, as would certain other types of duty for educational purposes. Reserves and National Guards would continue to be eligible for deferment only during certain periods of active duty.

Deferment would also be extended to the spouse of a servicemember for up to 180 days after a permanent change of station.

Loan Forgiveness for Certain American Indian Educators

Up to $17,500 could be forgiven for FFELP and Direct Loan borrowers who are members of an Indian tribe and teach in local educational agencies with a high percentage of American Indian students.

Reasonable Collection Costs and Rehabilitation Payments

Collection costs charged to borrowers would be limited to reasonable bona fide costs that are actually incurred in collecting the debt.

Improvements to Credit Reporting for Federal Student Loans

The Harkin bill would require loans to be reported “in a manner that reflects the unique attributes of a Federal student loan.” Of particular concern is the reporting of loan payments as “paid as agreed” when the payments satisfy the terms of an income-based or income contingent repayment plan. The bill also would require furnishing information about a loan’s delinquency, default, post-default performance, rehabilitation, and post-rehabilitation performance in a manner that ensures the entire loan history is reported as a single open account for the duration of the borrower’s financial obligation.

Improved Disability Determinations

Current law requires ED to accept determinations made by the Department of Veterans Affairs that an individual is unemployable due to a service-connected condition for purposes of discharging federal student loans based on disability. The Harkin bill would expand that provision to include such determinations made by the Department of Defense, as well as disability ratings of 100 percent (including multiple ratings that together total 100 percent or more). The bill would also require ED to accept determinations by the Social Security Administration that a borrower is disabled with no expectation of medical improvement. Loans discharged due to any of these determinations would not be subject to reinstatement.

Treatment of Borrowers Falsely Certified as Eligible to Borrow Due to Identity Theft

Current law allows discharge of a loan that was falsely certified as a result “of a crime of identity theft.” Current regulation therefore requires an individual seeking discharge to provide a copy of a local, State, or Federal court verdict or judgment that conclusively determines that the individual who is named as the borrower of the loan was the victim of a crime of identity theft by a perpetrator named in the verdict or judgment. The Harkin bill would strike the words “of a crime” so that the statutory language would read that the loan was falsely certified as a result of identity theft.

Perkins Loan Forgiveness for Eligible Military Service and Simplification of Military Deferment

The Harkin bill would make the same changes to the Perkins Loan military service deferment as it would to the Direct Loan deferment (described above). It would carry the same change regarding eligible military service (deleting the requirement to serve in an area of hostilities) through to the Perkins loan forgiveness provision.



Comments Disclaimer: NASFAA welcomes and encourages readers to comment and engage in respectful conversation about the content posted here. We value thoughtful, polite, and concise comments that reflect a variety of views. Comments are not moderated by NASFAA but are reviewed periodically by staff. Users should not expect real-time responses from NASFAA. To learn more, please view NASFAA’s complete Comments Policy.