Helen Giddings

Rep. Helen Giddings (D-DeSoto) filed a bill, HB 700, that would eliminate the state’s B-On-Time student loan program.

The B-On-Time loan is a state forgivable loan funded by 5 percent of student tuition, according to Thomas Melecki, the University’s director of student financial services. Students on the loan receive $4000 per semester. The loan requires students graduate in four years with no more than six credit hours than needed by their degree plan.

The House Higher Education committee left the bill pending after a public hearing held Wednesday. The bill would stop enrollment for the loan in September 2015, but current borrowers would be eligible for continued funding.

Under HB 700, funds previously used for the loan would be granted directly to the institution from which they were collected to establish other aid programs, such as grants, loans or work-study programs.

“In many cases, it’s virtually impossible for students to get out in four years,” Giddings said. “We believe that a better outcome will be received if universities are able to structure a financial aid program from these dollars that will meet the needs of students at their institutions.”

Portions of the funds go unused statewide, and universities are not allocated the full value collected from student tuition. Giddings said these factors motivated her to file the bill. In 2014, more than $11 million of the B-On-Time fund were not used.

Melecki said part of the discrepancy is because of universities’ inability to advertise the loan. B-On-Time is classified as a private loan, preventing universities from prompting the funding, Melecki said. Student’s must know about the loan and ask for it to be considered.

“The B-On-Time loan program is a fabulous program from a student’s point of view,” Melecki said. “But, with that gag-rule, there are too many students who don’t know about it, and, with the way the legislature has been sitting on B-On-Time money that is collected by the state, we send money down that our students spend in tuition that we never get back to help our students.” 

Roshni Varghese, applied learning and development senior and one of 716 students at UT using B-On-Time loans, said most people do not know about the loan.

“I actually told one of my friends about it when she was a senior in college, and she had never even heard of it,” Varghese said. “I’ve only had one other friend who has ever tried or gotten it, ever.

The House budget, as currently written, would cut B-On-Time funding by $25.3 million. The Senate budget would decrease it by $12.2 million.

“The Appropriations Committee does anticipate, in the House anyway, that the B-On-Time loan is just going to fund renewals,” said Giddings, a member of the Appropriations Committee. “If someone has already enrolled, we’re not going to jerk the rug out from under them.”

Varghese said the loan is beneficial for students, such as herself, who do not qualify for need-based loans and grants because of their parents’ incomes but are essentially paying their way through school.

“The good thing about the B-On-Time loan was that it didn’t matter if you technically needed it or not; it was still there for you to get,” Varghese said.

Under a new formula for the state’s B-On-Time Loan program, UT-Austin is estimated to receive $5.4 million from the state next year to help needy students — an almost $2 million increase from 2013 — while other UT System schools are set to see their funding decline.

For almost a decade, the B-On-Time Loan program has provided financial relief to students, but the schools participating in the program have not had an equal share of its funds. Every year, 5 percent of a Texas student’s tuition is set aside for the program. Students who apply for the program are granted a no-interest loan that is forgiven if the student graduates within four years with at least a 3.0 GPA.

According to the Legislative Budget Board, UT-Austin put up $31.4 million for the program but only received $27 million from 2007 to 2012. During that same time period, smaller schools, such as The University of Texas-Pan American in Edinburg, put up $5.4 million but received $7.3 million.

For the 2013-2014 school year, 715 UT-Austin students requested the loan but the school only had enough money to award 460, UT officials said. UT-Austin students borrow an average of $7,400 per year under the program.

The Texas Legislature changed the B-On-Time distribution this session and now requires universities to receive an amount proportional to what they have put into the program and restricts the program to two- and four-year universities.

Up until now, universities such as UT have essentially been donating money to other schools, said state Rep. Helen Giddings, D-Desoto, who advocated strongly for the program’s reform. 

The Texas Higher Education Coordinating Board, which oversees the program, will begin using this formula beginning in the 2014-2015 school year. Board officials repeatedly stated the current funding estimates are still preliminary.

Legislators also approved rules allowing UT to control the amount provided by a loan. Previously, B-On-Time loans had to amount to the average amount of state tuition, fees, books and class supplies per student, said Thomas Melecki, director of UT’s Office of Student Financial Services.

Melecki said these new rules will allow UT to provide more loans to students and bring significant benefits to students in the B-On-Time program if they fulfill graduation and GPA requirements.

“And even if student borrowers do not qualify for loan forgiveness of their B-On-Time loans, the loans have a zero percent interest rate, so the students repay only the amount they borrowed,” Melecki said.

However, the new funding formula is also decreasing B-On-Time funds for other smaller UT System schools. The University of Texas at Brownsville, which received $289,000 for the 2013-2014 school year, is estimated to receive $160,000 next year. Also, The University of Texas of the Permian Basin could see its funds decrease from $236,050 to $182,600, according to the Higher Education Board.

It is not clear whether this could create a crunch at these institutions, where tuition is less expensive than at Austin. At some institutions, such as The University of Texas at San Antonio, loans are under-utilized because students do not request loans. Federal law also prevents institutions from recommending loans not provided by the U.S. government.

At UT-San Antonio, about $100,000 for the program went unused in 2011, according to Lisa Blazer, associate vice president for UT-San Antonio’s Financial Aid and Enrollment Services.

“We’re not allowed to advertise these funds due to restrictions on alternative lending,” Blazer said. “They have to request it from us. That will explain why a small amount will not be spent.”

Statewide, about 36 percent of B-On-Time Loan funds went unused in 2011, according to the Higher Education Board.

Giddings said there are many issues with the program that have yet to be resolved. For instance, Giddings said $100 million collected for the program has gone untouched.

With the challenges faced by today’s students, Giddings said it is important for the Texas Legislature to responsibly work to make college education affordable and to continue resolving problems to ensure students graduate within four years.

“That’s a meaningful goal, and a goal we all ought to be focused on trying to achieve,” Giddings said.

Students who receive forgivable loans under the B-On-Time program receive something in addition — an income tax form.

Under federal law, forgivable loans such as the B-On-Time loan count as taxable income if the loan is forgiven under the program’s criteria.

Although the information is not new and is available on the Texas Higher Education Coordinating Board’s website, the provision has provoked concern from some Texas lawmakers, such as state Rep. Helen Giddings, D-DeSoto. Giddings, who serves on a subcommittee of the House Appropriations Committee, said she and other members sent letters to Texas’ congressional delegation in Washington informing them that lawmakers at home hope to see changes.

“I think when you sign up for the B-On-Time loan and you’re 17 or 18 years old, even 19, you’re not thinking about the end game,” Giddings said. “If you said to an 18-year-old that it is a forgivable loan, I’m not sure that they understand that that means it becomes taxable income once it’s forgiven.”

The program, established by the Texas Legislature in 2003, administers zero-interest loans to students who complete their degrees within four years for a four-year degree and five years for a five-year degree, maintain a 3.0 grade point average and do not exceed their degree plan by more than six credit hours.

Giddings said concern within the committee crosses partisan lines and found the support of state Rep. John Otto, R-Dayton, the subcommittee’s chairman.

Thomas Melecki, Office of Student Financial Services director, said discussion in Washington concerning whether to pass legislation making forgivable loans non-taxable income has died down.

“That’s pretty much ground to a halt given the current financial situation,” Melecki said.

Melecki said students pay taxes on the loan the year it is forgiven and suggested students participating in the program set aside money to try to offset the impact of increased tax payments.

“Let’s say that you get out of school and you are earning $25,000 a year and then you get your B-On-Time loan forgiven,” Melecki said. “That would add on $12,000 [if you received the loan for four years], which takes you up to $37,000 in taxable income before deductions.”

Melecki said his office does not advise students regarding the taxability of forgiven loans but said the office would consider doing so in the future.

“We do try to be straightforward about loans, but every once in a while, we miss something and shame on us when that happens,” Melecki said.

There are 384 UT students who receive an average annual loan of about $6,855 under the program, according to data provided by the Office of Student Financial Services.

Isaac Crone, Italian and liberal arts honors junior, participates in the program and said he does not mind paying taxes on the forgiven loan because the cost incurred by the tax outweighs paying back the cost of the loan.

“If they could reform the program without the tax, I think it’d be great,” Crone said. “However, if they kept the tax, I wouldn’t drop the loan.”

82nd Legislature

The Texas House Appropriations Committee passed the 2012-13 biennium House budget bill, which will now head to the floor. The vote took under 20 minutes, without any debate among members, and resulted in 18-7 in favor. The House budget proposes reductions in two major areas: public education funding by $8.8 billion and health care by $16 billion. For the 2010-11 biennium, public education received $50 billion and health care received $65 billion. Appropriations committee chairman and author of the bill Rep. Jim Pitts, R-Waxahachie, said budget writers tried to minimize cuts, but they were inevitable because education and health care comprise a large portion of the budget. Former House member and LBJ School lecturer Sherri Greenberg said the cuts of both areas are so high because they make up more than half of the budget combined. “If the desire of the leadership is to have a bill with no new revenue, you need to [cut] where the big dollars are,” Greenberg said. “Forty percent of that is public education and another 30 percent is health and human services, and a bulk of that is Medicaid. That’s the math.” Higher education also suffers under the bill, with more than $60 million in cuts to UT alone. Rep. Helen Giddings, D-DeSoto, voted against the bill and said the current House budget, which eliminates TEXAS Grants for future students, will take away opportunities for incoming students. “We set ourselves up to have a generation of children who are lost and perhaps will not be as well-educated as the parents,” she said. If future TEXAS Grants are eliminated, Giddings said the state will have failed in its commitment to help students afford higher education. She said a part of the solution will have to be using at least $8 billion from the Rainy Day Fund — a fund lawmakers can use in times of financial emergency. Last week, Perry approved using $3.1 billion from the fund to help resolve the immediate deficit. The TEXAS Grants will be gone away [and] colleges and universities, in many cases, will increase tuition, putting a heavier burden on young people,” she said. Giddings said balancing this session’s budget signals a defining moment for Texas, and that if the current version passes, it could mean dark days ahead for the state. “If that bill continues on as it is and passes the House, it will be a defining moment in that we will have moved toward putting our state in a decline,” Giddings said. “We will have a lost generation of young people who will not have the educational opportunities they need.” Student lobbying group Invest In Texas held a lobbying day Tuesday to encourage legislators to prioritize higher education. The group’s spokesman Michael Morton said legislators responded positively to hearing from students. “We know this is an uphill battle, but it’s a battle we believe we can make strides in,” Morton said. “What we’re hoping is that amendments will be brought on the floor and that the number [of cuts] will be reduced.” The group will continue to urge lawmakers to consider the value of education for the state, he said. “Funding education is an investment — it’s not a waste by any means,” Morton said. “For every $1 the state invests in UT, $18 comes back to the Texas economy. We understand cuts are going to be made and that every part of the state budget is going to be affected. When those cuts are made, we want to make sure they are not disproportional for higher education.”