Joint Hearing of the Committee on Homeland Security and Governmental Affairs of the U.S. Senate and the Committee on Veterans’ Affairs of the U.S. House of Representatives at 1:00 p.m. CDT.
Witness Testimony of Keith M. Wilson, Veterans Benefit Administration, Director, Education Service, U.S. Department of Veterans Affairs
Good afternoon Chairwoman Herseth-Sandlin, Ranking Member Boozman, and other members of the Subcommittee. I appreciate the opportunity to appear before you today to discuss a number of bills that would, in the main, affect educational assistance programs administered by the Department of Veterans Affairs (VA).
H.R. 1102, the “Total Force Educational Assistance Enhancement and Integration Act of 2007,” would recodify the provisions of chapters 1606 (the Montgomery GI Bill-Selected Reserve (MGIB-SR) program) and 1607 (the Reserve Educational Assistance Program (REAP)) of title 10, United States Code, relating to educational assistance for members of the reserve components of the Armed Forces, in subchapters I and II, respectively, of a new chapter 33 of title 38, United States Code. The bill also would make substantial revisions to such provisions as so recodified. VA opposes H.R. 1102 as drafted for the reasons discussed below.
New section 3302, as proposed by this bill, embodies the provisions of 10 U.S.C. § 16132. This provision would set a program-commencement date of October 1, 2008, and would maintain eligibility based on a six-year commitment in the Selected Reserve.
New section 3302A, as proposed, has no corresponding section in title 10, but would provide that each individual eligible for the MGIB-SR on October 1, 2008, would be eligible for the new chapter 33 program and could carry over to the new program the amount of his or her MGIB-SR entitlement remaining as of September 30, 2008. The current 14-year delimiting date for such individuals to use their educational assistance benefits would no longer apply.
New section 3303, as proposed, would correspond to current section 16131(b) of title 10. This section sets monthly rates for the subchapter I program at the MGIB-SR rates in effect for Fiscal Year (FY) 2007 ($309). This change would result in a rate decrease, however, since the MGIB-SR rates otherwise would be subject to a cost-of-living (CPI) adjustment for FY 2008. We could not support this change since we do not believe recodification should result in a lesser benefit. This section would maintain the CPI adjustment for subsequent fiscal years and future rate increases would be tied to increases in chapter 30 Montgomery GI Bill (MGIB) rates by applying the same percentage increases in the rates.
The bill also would provide that VA and the Department of Defense (DoD) jointly establish the amounts of increased benefit or “kicker” payable to certain individuals to encourage enlistment in military skill or specialty areas in which there is a critical shortage of personnel or for which it is difficult to recruit. We believe such determinations relating to military force needs should remain exclusively with DoD.
Subchapter II of Chapter 33, as established by H.R. 1102, would recodify provisions covering the REAP. New section 3323 would provide for the program under subchapter II to begin on October 1, 2008, with the same threshold 90-day active duty requirement for a participant’s eligibility as for the REAP. VA, rather than DoD, would be required to notify individuals of their eligibility under the program.
Section 3323A, as proposed, would provide that each individual eligible for the REAP on October 1, 2008, would be eligible for the new subchapter II program. These individuals would carry over the number of months of their entitlement remaining on September 20, 2008. Under certain circumstances, if an individual completes a service contract, the individual’s delimiting date for using his or her remaining benefits would be 10 years from the date the individual separates from the Ready Reserve. We defer to DoD on this provision since it could negatively impact Reserve retention policy.
Section 3324 would make the monthly rate payable under subchapter II equal to the three-year MGIB-Active Duty (MGIB-AD) rate. Individuals who qualify for subchapter II through serving the minimum period of active duty that qualified them for the REAP (i.e., 90 days) may receive up to 36 months of a benefit amount equal to that earned by a three-year commitment to the active duty forces. The amount would be adjusted annually by the increase in the CPI. This change would be a significant departure from current law and one that we oppose. Currently, a servicemember gets 40 percent of the MGIB-AD rate if called to active duty for at least 90 days but less than a year; 60 percent of the MGIB-AD rate if called to active duty for at least a year but less than two years; and 80 percent of the MGIB-AD rate if called to active duty for at least two years.
Another change to the REAP involving pursuit of flight training would provide for a substantial increase in such benefit. Individuals pursuing flight training full time under the subchapter II program would be given 60 percent of the established charges for tuition and fees. Individuals pursuing flight training currently under the REAP receive 24, 36, or 48 percent of those fees depending upon length of active-duty service.
Under subchapter II, on-job training (OJT), apprenticeship, and correspondence program pursuit would be treated in a similar manner to such pursuit under the MGIB-AD. Currently, REAP participants pursuing such training receive a smaller percentage of the full-time rate than do their MGIB-AD counterparts. Therefore, this change also would be a rate increase for subchapter II program participants. For instance, a subchapter II participant who qualified for the REAP based on serving 90 days of active duty would receive benefits for on-job training at the initial rate of 75 percent of the full-time MGIB-AD monthly rate for individuals who served a 3-year active duty commitment, rather than the 30 percent rate that otherwise would be payable under the REAP.
Under Section 3325, a Reserve member who becomes eligible for subchapter II benefits after Sept. 30, 2008, generally could not use those benefits after leaving the Reserves if the member leaves before completing his/her contract. Otherwise, if the service contract is fulfilled, the member would be able to use benefits for 10 years after separation from the Ready Reserve. The 10-year limit also would apply if the member is separated early for disability, as is the case under current law. This change would allow everyone who fulfills the service contract to use the benefit after leaving the Reserves. This would be a substantial change from current law and could negatively impact Reserve retention policy. Consequently, we defer to DoD on this provision.
Section 3326 proposes that the educational assistance would end if the individual receives benefits under 10 U.S.C. 2107 or leaves the Reserves without fulfilling the service contract. An exception would be allowed for individuals who left but subsequently reentered the Reserves, provided that the break did not exceed more than 90 days. Again, we would defer to DoD on this provision since it could negatively affect retention policy.
Section 3342 provides that funding for those establishing eligibility after September 30, 2008, would come from VA’s readjustment benefits account. Funding effective October 1, 2008, for those who transfer into the program from the REAP or MGIB-SR would come from DoD. Currently, all funding comes from DoD. The Administration has worked with Congressional Budget and Appropriation Committees to ensure that the true cost of manpower is reflected in the budget of all agencies so that both cost and policy are not separated. Reserve education benefits are mainly recruiting and retention tools and for this reason they were funded on an actuarial basis in the DoD budget at the inception of the MGIB. The Administration does not support dismantling this funding mechanism as it would be contrary to transparent and responsible budgeting.
VA estimates that, if enacted, H R. 1102 would result in an increase to VA’s Readjustment Benefit appropriation request of $844.3 million in the first year, and $8.4 billion over nine years. This increase reflects the change in appropriation structure requiring VA to increase its appropriation to cover the obligations associated with these payments. VA estimates the net impact of H. R. 1102 to the Federal Government would be an increase of $416.1 million in the first year and nearly $4.9 billion over nine years. VA’s General Operating Expenses (GOE) costs are estimated to be $7.3 million over 10 years. In addition to the policy objections stated above, we oppose this legislation because the direct costs involved are not included in the Budget and the legislation does not identify a corresponding offset.
Moreover, in order to ensure effective implementation of the proposed bill, VA would have to significantly enhance or replace existing accounting systems. We estimate approximately 18 months would be needed to complete this process and we have no current estimation on the costs involved.
H.R. 1211, the “Resuming Education After Defense Service Act of 2007,” would amend section 3012 of title 38 to provide entitlement to educational assistance under the MGIB-AD for members of the Selected Reserve who aggregate more than two years of active duty service in any five-year period commencing with the first active duty orders received during the period September 11, 2001 to December 31, 2008. H.R. 1211 would require that the pay of a member be reduced $100 a month for the first 12 months of active duty service, unless the member declines MGIB participation. H.R. 1211 would provide for retroactive credit for active duty service and the payments would be made effective date of enactment.
Under current section 3012, members of the Selected Reserve are eligible for MGIB-AD educational assistance if they serve at least two continuous years of active duty in the Armed Forces after June 30, 1985, followed by four years of service in the Selected Reserves. This bill contains no post-active duty Selected Reserve service requirement for its new category of section 3012 eligibility.
Also, VA has concerns regarding section 2(d) as it is currently written. Under that section, the $1,200 initial contribution is collected during the first 12 months of active duty service instead of at the end of the active duty period. It follows, therefore, that the member would have to make a benefit election at the beginning of deployment when unaware of whether he/she will ever serve the aggregate active duty period required to establish MGIB-AD eligibility.
This bill would result in a benefits cost increase to VA of $1.2 million in the first year, $10.2 million for five years, and $16.8 million over 10 years. The additional $1,200-basic-pay reductions would generate approximately $6.8 million in the first year (FY 2008) and $8.2 million over three years to be deposited in the proprietary receipt account at Treasury. (These funds are not transferred to VA; however, they do offset VA outlays for scoring purposes.) Because of the potentially large direct costs without identified offsets, VA opposes this bill.
H.R. 1214, the “Veterans’ Survivors Education Enhancement Act,” would expand and enhance educational assistance under VA’s Survivors’ and Dependents’ Educational Assistance program codified in chapter 35, title 38, United States Code.
Section 2(a). Termination of durational limitation on use of educational assistance and restatement of continuing requirements.
Under current law, section 3511(a)(1), title 38, United States Code, an eligible person may not receive chapter 35 educational assistance for more than 45 months or the equivalent thereof in part-time training. Also, under section 3695(a) of that title, a person may not aggregate more than 48 months of entitlement under chapter 35 and one or more provisions of law listed in that section.
H.R. 1214 would eliminate the 45-month limitation on entitlement under chapter 35 and allow for dependents, spouses, and surviving spouses to receive educational assistance up to a maximum dollar amount. It would also exempt any entitlement received under chapter 35 from the 48-month aggregate maximum entitlement allowed under more than one education benefits program. Thus, for example, an eligible person could receive full entitlement under chapter 35, then go on to receive full entitlement under another program or vice versa.
VA does not support this section for two reasons. First, we do not believe it would be equitable to allow chapter 35 recipients to receive far more benefit dollars up front and overall than veterans, servicemembers, or reservists who are not eligible to receive benefits under chapter 35. There also would be a significant direct cost associated with making chapter 35 entitlement exempt from the 48-month maximum entitlement rule, and no offsets for this cost have been identified.
Section 2(b). Extension of delimiting age of eligibility for dependents.
Under this section, H.R. 1214 would allow an eligible dependent child to receive chapter 35 educational assistance until the child’s thirtieth birthday. Presently, an eligible child may receive educational assistance until age twenty-six (with certain exceptions). This change, of course, would allow more individuals to be eligible for chapter 35 benefits for a longer period of time, generating direct costs for which no offsets have been identified.
One of the purposes of this chapter is to aid eligible children in reaching the educational status they might have obtained but for the disability or death of the veteran parent. VA does not have any evidence to show that this purpose is not being fulfilled with the current age limitation or that it would be better met if the age for the ending date of a child’s period of eligibility were 30.
Section 2(c). Amount of educational assistance.
Under current law, the monthly educational assistance allowance for chapter 35 is computed based on the type of training being pursued and the training time. This section of H.R. 1214 would eliminate any fixed monthly educational assistance allowance. H.R. 1214 does not define in what increments payment should be disbursed. Instead, it would provide for an aggregate educational assistance amount of $80,000 and allow this amount to be paid in any amount for institutional courses, vocational training, apprenticeship or other on-job training, farm cooperative programs, and special educational assistance for the educationally disadvantaged and/or special restorative training. Correspondence training for spouses would also be subject to this limit. Educational assistance, including special training allowance, would be provided to eligible persons at an institution located in the Republic of the Philippines at the rate of $.50 for each dollar. It also specifies that the aggregate educational assistance amount would be increased annually based on the Consumer Price Index.
VA objects to section 2(c) for several reasons. The $80,000 educational assistance amount bears little or no connection to the cost of the education an eligible person might be pursuing. This amount is more than the cost of tuition, fees, room and board charged at a four-year public school according to the National Center for Education Statistics (NCES). It is far, far more than the cost of any correspondence course an eligible person might pursue. Furthermore, payment based on $80,000 would mean that an apprentice or job trainee under chapter 35 would actually receive a sharp decline in income upon completion of training when the journeyman-level wage is attained.
Contrary to the stated purpose of chapter 35, if this provision were enacted, an individual eligible for chapter 35 benefits could receive $80,000 in educational assistance without receiving an education. For example, an eligible individual could ask for and receive $80,000 at the start of the first semester of a college program then drop out after a short time. Under this bill and the provisions of existing statute concerning mitigating circumstances, the claimant could keep the $80,000 even if the claimant never again pursued any education program. This bill would remove the incentive for a student to complete a program of educational training and, in effect, separate the benefit from the whole program.
Finally, this provision as written would allow any currently eligible person to request a lump-sum payment of $80,000 as soon as the person enrolled in an approved training program. Thus, persons currently receiving chapter 35 benefits could also request a lump-sum payment of $80,000 as soon as this bill is enacted, regardless of how much they already have received in chapter 35 benefits. This would result in significant up-front direct costs for which no offsets have been identified.
Section 2(d). Other conforming amendments.
This section makes conforming amendments.
Section 2(e). Clerical amendments.
The technical amendments in this section make minor editorial changes. We have no objections to the clerical amendments listed in this section.
Section 2(f). Effective dates.
The amendments made by H. R. 1214 would be effective the date of enactment of the Act. Since the bill eliminates the months of entitlement charged for chapter 35 benefits, those persons still within their delimiting date on the day the bill is enacted could request a lump-sum payment of $80,000 even if they previously had exhausted their entitlement under the current law. The bill does not address such transitional issues for current chapter 35 beneficiaries and those eligible persons still within their delimiting date.
For the foregoing reasons, VA opposes H.R. 1214.
H.R. 2247, the “Montgomery GI Bill for Life Act of 2007,” would eliminate time limitations for eligible individuals to use their educational assistance benefits under the Montgomery GI Bill (MGIB) program. Currently such time limitations, in general, are 10 years from an individual’s last discharge or release from active duty for the MGIB-AD program and the earlier of 14 years from the date an individual becomes entitled to educational assistance or the date the individual is separated from the Selected Reserve for the MGIB-SR. The bill would eliminate the time limitation for using education benefits under the REAP for certain eligible individuals who have separated from the Ready Reserve because of disability. Under current law, such individuals have 10 years from the date on which they become entitled to such assistance to use it. Finally, H.R. 2247 would remove the time limitation on the use of entitlement transferred to certain dependents under the MGIB-AD. Under this provision, eligible spouses could use the benefits transferred to them with no time limitation, although eligible children would remain limited in using their transferred entitlement only until they reach the age of 26.
VA cannot support the bill’s proposal to eliminate the current delimiting-date provisions for using MGIB-AD benefits because no cost offsets have been identified to cover the potentially significant cost of the resulting benefit expansion. Furthermore, enabling the use of this benefit such a long time after discharge does not align with the codified purpose of these benefits as a readjustment benefit to help separating servicemembers readjust to civilian life. We defer to DoD in regard to sections 3 and 4 of the bill, which, respectively, would affect the provision of benefits under the MGIB-SR and REAP.
VA is unable to estimate the increased cost resulting from enactment of the provisions of H.R. 2247 pertaining to the MGI Bill-AD because we neither can predict the portion of the population that would elect to use the benefit beyond 10 years following discharge nor forecast when, or the extent to which, such use might occur.
H.R. 2385, the “21st Century GI Bill of Rights,” would establish in a new chapter 33 of title 38, United States Code, a new program of educational assistance for veterans who serve in the Armed Forces after September 11, 2001, and also would provide enhancements in housing and entrepreneur assistance for veterans.
Section 2 of H.R. 2385 would establish an entitlement under the proposed new educational benefit program for individuals who: (1) were deployed overseas on active duty in the Armed Forces after September 11, 2001, (2) served on active duty in the Armed Forces for an aggregate of at least 2 years after September 11, 1001, or (3) were discharged before aggregating 2 years of active duty service for a service-connected disability, a pre-existing medical condition, hardship or a physical or mental condition not resulting from their own willful misconduct but did interfere with their performance of duty. Individuals who received a commission as an officer upon graduation from a service academy would not be eligible for this benefit based on their initial service obligation.
VA opposes H. R. 2385. We believe that the bill’s provisions relating to deployment are vague and overly broad. The bill fails to refer to a specific contingency operation but instead relies on a term (“deployed overseas”) that is both vague and open to multiple interpretations. Allowing all individuals who have been deployed overseas since September 11, 2001, to qualify for the benefit would open up eligibility and a full 36 months of entitlement to anyone who has ever been deployed overseas regardless of location and length of service. This change would make a very substantial number of individuals eligible to receive this benefit. Although we cannot estimate costs at this time, we predict that this bill would lead to significant direct spending for which no offsets are identified. Also, by only allowing individuals deployed overseas to qualify, the bill would disqualify many deployed in support of the Global War on Terror within the United States who aggregate less than two years of active duty. Additionally, basing eligibility on active duty location would create significant administrative burdens that could negatively impact our ability to timely and accurately deliver benefits.
We cannot support this provision in the absence of more specific language regarding contingency operations and/or location of deployment.
As proposed in H. R. 2385, individuals eligible under this program would be able to receive up to 36 months of educational assistance. Eligible individuals would be able to enroll in an approved program of education under current chapter 30 provisions, with the exception of programs to obtain a graduate degree. Chapter 33 recipients could receive educational assistance consisting of the established charges for the program (including tuition, fees, required supplies, books and equipment) and an amount equal to room and board. The payments for established charges could not exceed the national average amount of tuition regularly charged for full-time pursuit of a 4-year program of education at a public or private college or university. The amount of the room and board payment could not exceed the standard dormitory fee, as established by VA through regulations.
VA opposes this provision because it would require VA to maintain established charges for programs and room-and-board costs.
The bill provides no guidance on how to determine a “standard” dormitory fee. For example, it is unclear whether the standard should be a national standard or a standard specific to each state. The development of regulations and procedures for making an annual determination of standard fees would be an overwhelming administrative burden to VA. In general, VA opposes the establishment of a benefit that is based on the cost of programs and room and board.
In addition, we note that many individuals enter military service today with at least some amount of post-secondary education. By disallowing graduate training, H.R. 2385 would unfairly limit the eligible person’s choices and the ability to use the maximum entitlement earned, as well as create an inequity among those eligible to receive the benefit. There is no compelling reason to favor one type of degree over another.
The bill would provide for VA to determine the timing and frequency of payments to chapter 33 recipients. Educational assistance payments could be made in the form of a lump-sum amount for the entire term at its commencement, but payments may not be made before the individual’s date of enrollment.
The provision to pay for terms of enrollment in a lump sum after the commencement of the enrollment period would have significant consequences. Currently, payments generally are made only after attendance begins. Payment of benefits following “enrollment” would result in significant amounts being provided prior to actual attendance. These payments could be based solely on how long prior to actual attendance an institution allows students to enroll. The use of the terms “enrollment” and “attendance” must be carefully applied.
Additionally, a heavy potential overpayment burden could be placed on veterans who terminate their enrollment prior to completing the term for which they have been paid. Presently, claimants must verify their attendance and are then paid on a monthly basis. This basically limits their liability for repayment of benefits due to course withdrawals to a single month. Payment of an entire term up-front would cause a repayment liability on the part of the claimant for potentially many thousands of dollars.
New section 3313(e), as proposed, would establish the manner in which payments would be made to individuals who are pursuing a program of education while serving on active duty. Individuals on active duty would receive the lesser of the established charges or the amount of the institution’s charges. VA would be required to issue the chapter 33 benefit amount to such individuals in a lump-sum payment before the start of the term. Entitlement would be charged at a rate of one month for each month covered by the payment.
Individuals pursuing training on a less than half-time basis would receive payments in a lump-sum no later than the last day of the month following the month in which their enrollment certification was received. Their entitlement would be charged at a percentage of a month equal to the number of hours undertaken divided by the number of hours for full-time study (actual hours/full-time hours).
Individuals eligible for the new chapter 33 benefits could also receive tutorial assistance up to $100 per month for 12 months as outlined in 38 U.S.C. § 3492 without accruing any charge to their entitlement.
Under the proposed chapter 33 program, individuals could also receive payments for licensing and certification tests, as defined in 38 U.S.C. §3452(b), without incurring any charge to their entitlement.
New section 3313 (g), as proposed would offer specialized training and certification programs for veterans with service-connected disabilities. It is unclear if this portion of the bill would authorize an additional benefit under the new chapter 33 or an additional benefit under VA’s chapter 31 Vocational Rehabilitation and Employment program for veterans with service-connected disabilities. H. R. 2385 would also provide for the payment of licensing and certification tests without incurrence of any entitlement charges. This change would make the 10-year delimiting date the only factor in determining at what point a claimant could no longer receive such payment.
New section 3321, as proposed, would establish a 10-year delimiting period in which an individual may use his or her benefits. This period would begin on the date of the individual’s last discharge or release from active duty. If an individual’s entitlement were to expire during the course of a term or a program of study, it would be extended until the end of the term/course or for 12 weeks, whichever is shorter.
New section 3322, as proposed, would specify that individuals receiving educational assistance benefits under chapter 33 may not receive assistance under chapter 30, 31, 32, or 35 of title 38 U.S.C. or chapter 107, 1606 or 1607 of title 10 U.S.C. simultaneously. In addition, section 3322(b) would provide that periods of service counted under an educational loan repayment may not be counted as a period of service to establish eligibility for the chapter 33 program.
Individuals could elect to receive educational assistance benefits under chapter 33, if, at the date of this bill’s enactment, they have remaining unused entitlement under chapter 30 of title 38 or under chapters 1606, 1607, or 107 of title 10 and otherwise meet the requirements or are making progress toward meeting the requirements for entitlement under the proposed chapter 33. Individuals could also receive chapter 33 benefits if they opted out of the chapter 30 program through an election under section 3011(c)(1) or §3012(d)(1) of title 38, but are otherwise eligible under chapter 33 eligibility requirements.
New section 3324(c)(3)(B), as proposed, would permit individuals enrolled in chapter 30 to elect chapter 33 for the number of months of entitlement they have remaining. However, there is no provision regarding the manner in which individuals enrolled in the chapter 1606 or chapter 1607 program would elect benefits under chapter 33 or how their remaining entitlement should be applied to chapter 33 usage.
The bill would provide that, if an individual who is eligible under chapter 33 has previously elected to transfer his or her educational benefits to a dependent(s) under the provisions outlined in 38 U.S.C. § 3020, he or she may elect to revoke some or all of the remaining entitlement so transferred. If an individual were to revoke his or her transfer of entitlement, the educational assistance would no longer be available to the dependent. In such case, the entitlement would instead be available to the servicemember or veteran for chapter 33 purposes. Any previously transferred entitlement that is not revoked would remain available to the eligible dependent in accordance with current transfer of entitlement provisions under 38 U.S.C. § 3020.
Further, the bill would provide that, if an individual elects to participate in the chapter 33 program, he or she may receive the number of unused months of entitlement he or she had under chapter 30. An election to receive benefits under chapter 33 would be irrevocable. In the case of an individual who has made an election, the bill would provide that, effective as of the first month following the election, the obligation of the individual to make contributions under the MGIB-AD or the MGIB-SR program shall cease.
We believe enactment of this bill would impose a tremendous administrative burden on VA, largely because it would make over 2 million veterans and servicemembers immediately eligible to receive the chapter 33 benefits upon the date of its enactment. Further, the entire combined population of current chapter 30, chapter 1606, and chapter 1607 participants would be eligible for the new (more advantageous) chapter 33 benefits and could request an immediate re-adjudication of their present claims. For reasons previously mentioned, which involve requirements for development of regulations or procedures, as well as extensive system changes that could include total development of new computer payment systems, VA would not be capable of effective administration of this benefit for an unacceptably long period of time following enactment. The combined effect would be to severely impact claims processing and cause a huge spike of indefinite duration in current waiting times for receiving education benefits.
Section 3 of H.R. 2385 in subsection (a) would increase the maximum guaranty amount for certain residences of a particular size located in any area for which the median price for such size residence exceeds the dollar amount, to 25 percent of the median price for such a residence in such area.
VA cannot support subsection (a), as drafted, because its intended application is unclear. By its terms, it applies specifically to “certain residences of a particular size located in any area . . . .” It provides no further explication of or guidance on how to determine the pertinent size residence or the area of its location. Moreover, as written, the provision could produce conflicting and, presumably, unintended consequences: a maximum guaranty that would, on the one hand, be substantially lower under certain circumstances than under existing law, and on the other, authorize guaranty amounts so large as to be wholly unrelated to the conforming loan limit.
For instance, under existing law, the maximum guaranty for a VA loan is 25% of the Freddie Mac conforming loan limit (currently $417,000). For 2007, that maximum guaranty dollar amount is $104,250. Thus, if a veteran were to purchase a four-bedroom home for $400,000, VA would issue to a lender a guaranty certificate for $100,000. Under the proposed legislation, however, VA would first have to determine the median price of similarly sized homes in a particular area. If the median price for a four-bedroom home was $300,000 (exceeding the “dollar amount” of $104,250), VA only could issue a guaranty for $75,000, essentially reducing the veteran’s purchasing power by $100,000. In contrast, if a veteran were to purchase a seven-bedroom home for $4 million, where the median price for a similarly sized home was $4.24 million, VA would be required to issue a guaranty certificate for $1.06 million. VA finds both of these outcomes objectionable and, therefore, cannot support this subsection.
VA is unable to estimate the costs of this provision without additional guidance as to its meaning and intended objective.
Subsection (b) of section 3 would repeal the housing loan fee currently prescribed by 38 U.S.C. § 3729.
VA strongly opposes this proposed elimination of the loan fee. Loan fees are largely responsible for the financial viability of VA’s housing loan benefits. VA believes that repealing the loan fee will have far-reaching consequences, both in short-term costs and in preparing to accept long-term risk. We also note that, by striking existing section 3703(e), the bill would remove protection for veterans against personal liability for any loss resulting from defaults on their VA-guaranteed loans.
VA estimates the cost of this provision to be $583 million in the first year and $4.8 billion over ten years.
Section 4 of H.R. 2385 would amend the Small Business Act relating to the Microloan Program, under section 7(m) of that Act, to authorize small business loans to veterans in amounts up to $100,000 at an interest rate of no more than 2.5 percent. Further, VA, acting through its Veterans Health Administration’s Vet Centers would provide technical assistance, outreach and counseling to veterans regarding the Microloan Program. Finally, Congress would authorize to be appropriated to VA and the Administrator of the Small Business Administration the sums necessary to carry out this section.
VA has an extensive history of promoting business ownership for veterans. We began establishing goals for our procurement program in 1984. Veterans may use their GI Bill to complete small business courses. We include information about business ownership in the GI pocket guide, referring personnel to both the Small Business Administration and to our own Center for Veterans Enterprise. Additionally, VA is unique in government in that we have special buying authority to contract with veterans and with service-connected disabled veterans in business.
The Small Business Administration (SBA) advises that it strongly opposes the proposed Veterans Microloan program. Currently, Microloans are available up to $35,000, and the average loan size is $13,000. Therefore, micro-lending intermediaries have little experience making these larger loans. Also, with an interest rate cap of 2.5%, and no collateral required from borrowers, this would be an expensive program.
We recommend deleting the provision that SBA establish a database of intermediaries. This database already exists. It was established to comply with requirements of Public Law 106-50. VA’s Center for Veterans Enterprise manages this database, known as the Assistance Program Pages, on its web portal, www.VetBiz.gov.
We are concerned about the appropriation provision as the Department has not had an opportunity to consider the costs associated with all aspects of this bill. Also, this summer, SBA established the Patriot Express Loan program. Patriot Express provides loans up to $500,000 to veterans and reservists, with streamlined documentation and expedited processing, and a 75 to 85 percent Federal guarantee. The response to the new program from SBA lenders has been very good, and this program has proven to be beneficial to military personnel and to veterans. SBA believes Patriot Express is a significant step towards improving access to SBA’s business loan programs to veterans and reservists, and, therefore, SBA believes the proposed veterans Microloan program is duplicative and unnecessary.
We estimate enactment of H.R. 2385 would result in total benefit costs to VA of $4.5 billion during the first year and $68.8 billion over 10 years, for which no offsets have been identified. We currently are unable to estimate the resulting additional administrative costs associated with this bill.
H.R. 2702, the “Post-9/11 Veterans Educational Assistance Act of 2007,” would add a new chapter 33 to title 38, United States Code, that would, in general, require an individual to serve at least 2 years of active duty, with a least some period of active duty time served beginning on or after September 11, 2001, to be eligible for educational assistance under the new program. It would, for most individuals, link the number of months of educational assistance to the individual’s months of service that occurred after September 11, 2001, but, in general, not provide for more than 36 months of benefits, with the educational assistance to cover the established charges of the program of education (subject to certain limitations), room and board (subject to certain limitations), and a monthly stipend of $1,000.
Under H.R. 2702, chapter 33 would provide for educational assistance for less-than-half time education, apprenticeships, on-job training, correspondence courses, and flight training. Chapter 33 also would provide payment for tutorial assistance, not to exceed $100 per month for a maximum of 12 months, and one licensing or certification test, not to exceed the lesser of $2,000 or the test fee. Generally, individuals would have 15 years to use their educational entitlement beginning on the date of their last discharge or release from active duty. VA would administer this program with payments of assistance made from funds made available to VA for the payment of readjustment benefits. In general, individuals eligible for benefits under chapter 30 of title 38, United States Code, or chapters 107, 1606, or 1607 of title 10, United States Code, could irrevocably elect, instead, to receive educational assistance under chapter 33.
We have serious concerns about certain provisions of H.R. 2702 and, therefore, must oppose it. The complexity of the proposed eligibility requirements, the anticipated high benefit cost (with no apparent offsets), and the anticipated excessive administrative burden associated with this bill are all problematic. As currently written, eligibility criteria for the proposed chapter 33 are far more complex than the current Montgomery GI Bill. Entitlement determinations factoring in length of service and previous benefit usage would also be highly complex and difficult for individuals to understand.
The increased amount of benefits payable at varying levels for different institutions would make administration of this program cumbersome. The requirement that the benefit be paid at the beginning of the term would further complicate administration and would tax existing VA resources.
New section 3313(j)(2) of title 38, United States Code, as proposed under H.R. 2702, would require VA to annually determine which public schools in each state have the highest in-state tuition rate and set the maximum established charges for each state accordingly. This labor-intensive process would need to be completed annually in sufficient time to prepare for issuance of payments in advance of the term. Further, as written, this bill would be effective on the date of enactment. It would be necessary to prescribe regulations, make systems changes, and make other key adjustments to support the components of this bill. It is also likely that other sections within title 38, United States Code, may need to be amended to address potential overpayments of the monthly stipend. For the above reasons, it would not be feasible for VA to begin making payments under the proposed chapter 33 benefit immediately.
It also appears that, if enacted, the bill might have some unintended consequences. For example, the stipend of $1,000 per month would be payable to individuals attending degree and non-degree programs and also to those who are completing internships and on-the-job training programs. This seems inequitable, as it would treat an individual in an apprenticeship program who is earning wages the same as a college student who is incurring expenses. It is also unclear what effect this benefit would have on recruiting and retention. While we defer to the Department of Defense on this point, we acknowledge that this may lead to lower reenlistments.
VA estimates that, if enacted, H.R. 2702 would result in benefit costs of $5.4 billion during Fiscal Year 2008, $32.2 billion for fiscal years 2008 through 2012, and $74.7 billion over the 10-year period from Fiscal Year 2008 through 2017.
Significant administrative costs would also be incurred. As previously noted, proposed new section 3313(j)(2) would require VA, through a labor-intensive process, to annually determine which public schools in each state have the highest in-state tuition rate and set the established charges for each state accordingly. Further, since VA’s obligation is to ensure that veterans and servicemembers receive the most advantageous benefit, VA would be obligated to reevaluate all pending claims and award the greater chapter 33 benefits, as appropriate. We are concerned that these new and very complex administrative burdens would significantly impact the current level of service and responsiveness we give to current education program beneficiaries. Based on these factors, we would anticipate substantial administrative costs, but cannot fully estimate them without further research.
H.R. 2910, the “Veterans Education Tuition Support Act of 2007” or “VETS Act of 2007,” would add a new section to Title VII of the Servicemembers Civil Relief Act to require an institution of higher education, whenever a servicemember is called, activated, or ordered to military service and therefore withdraws or takes a leave of absence from such institution, to: (1) refund to the servicemember tuition and other fees paid for the portion of the program of education for which the servicemember did not receive academic credit after such withdrawal or leave; and (2) provide the servicemember an opportunity to reenroll at the institution with the same educational and academic status that the servicemember had when ordered to military service.
Further, H.R. 2910 would require a provider of a student loan with respect to such a servicemember: (1) if the servicemember reenrolls in the program of education (or a comparable program) within 13 months following the period of military service, to disregard the entire period that the education was discontinued in determining the date on which student loan repayment is to begin; or (2) if the servicemember does not reenroll, to not require loan repayment to begin before the later of the last day of such 13-month period or the date the repayment was otherwise required to begin.
Finally, H.R. 2910 would amend section 207 of the Servicemember’s Civil Relief Act by prohibiting a court from granting a creditor relief from the 6% limit on interest charged against the indebtedness of a servicemember during a period of military service in the case of an obligation or liability incurred by a servicemember who is a student at an institution of higher education at the time of the call to service.
VA appreciates the congressional interest shown in this area. The Department of Education advises this proposal is duplicative of recently enacted laws. The HEROES Act (recently made permanent in P.L. 110-93) provides the Secretary of Education waiver authority over return of student aid similar to the waiver mandated in H.R. 2910; in addition, the College Cost Reduction and Access Act signed into law in September provides 13 months of loan deferment for borrowers called to active duty. However, since the proposed new relief would not affect the provision of VA benefits, VA defers to the DoD and the Department of Education concerning this bill.
Madam Chairwoman, this concludes my statement. I would be pleased to respond to any questions you or other Members of the Subcommittee may have.