Senate Report 108-352 - VETERANS' BENEFITS IMPROVEMENTS ACT OF 2004

[Senate Report 108-352]
[From the U.S. Government Publishing Office]

Calendar No. 706
108th Congress Report
SENATE
2d Session 108-352
======================================================================

VETERANS' BENEFITS IMPROVEMENTS ACT OF 2004

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September 20, 2004.--Ordered to be printed

_______

Mr. Specter, from the Committee on Veterans' Affairs, submitted the
following

R E P O R T

[To accompany S. 2486]

The Committee on Veterans' Affairs (hereinafter,
``Committee''), to which was referred the bill S. 2486, to
amend title 38, United States Code, to improve and enhance
education, housing, employment, medical, and other benefits for
veterans and to improve and extend certain authorities relating
to the administration or benefits for veterans, and for other
purposes, having considered the same, reports favorably thereon
with an amendment in the nature of a substitute, and recommends
that the bill, as amended, do pass.

Introduction

On June 1, 2004, Committee Chairman Arlen Specter
introduced S. 2486, a bill to improve and enhance education,
housing, employment, medical, and other benefits for veterans
and to improve and extend certain authorities relating to the
administration of benefits for veterans, and for other
purposes. Committee Member Lisa Murkowski is an original
cosponsor of S. 2486. Committee Member Patty Murray was later
added as a cosponsor. The bill was referred to the Committee on
Veterans' Affairs.
On February 23, 2004, Committee Member Zell Miller
introduced S. 2099, a bill to provide entitlement to
educational assistance under the Montgomery GI Bill for members
of the Selected Reserve who aggregate more than two years of
active duty service in any five-year period, and for other
purposes. Senator Michael DeWine is an original cosponsor of S.
2099. Committee Members Lisa Murkowski and Patty Murray, and
Senators George Allen, Christopher S. Bond, John B. Breaux,
Thad Cochran, Norm Coleman, Michael D. Crapo, Mark Dayton, Mary
Landrieu, Patrick J. Leahy, Blanche Lincoln, Jeff Sessions, and
Gordon Smith were later added as cosponsors. The bill was
referred to the Committee on Veterans' Affairs.
On June 15, 2004, Senator Jon S. Corzine introduced S.
2522, a bill to increase the maximum amount of home loan
guaranty available under the home loan guaranty program of the
Department of Veterans Affairs (hereinafter, ``VA''), and for
other purposes. Committee Members Lisa Murkowski and Patty
Murray, and Senators Bill Nelson, John E. Ensign, and Hillary
Rodham Clinton were later added as cosponsers. The bill was
referred to the Committee on Veterans' Affairs.
On June 16, 2004, Committee Ranking Minority Member Bob
Graham introduced S. 2534, a bill to extend and enhance
benefits under the Montgomery GI Bill, to improve housing
benefits for veterans, and for other purposes. Committee Member
Patty Murray and Senator Bill Nelson were later added as
cosponsors. The bill was referred to the Committee on Veterans'
Affairs.

Committee Hearing

On June 22, 2004, the Committee held a hearing on, among
other bills, S. 2099, S. 2486, S. 2522, and S. 2534. Testimony
was heard from: Senators Kent Conrad, Hillary Rodham Clinton,
and Jon S. Corzine; The Honorable Gordon H. Mansfield, Deputy
Secretary of Veterans Affairs; Mr. Donald L. Mooney, Assistant
Director for Resource Development, Veterans Affairs and
Rehabilitation Commission, The American Legion; Mr. Paul
Hayden, Deputy Director, National Legislative Service, Veterans
of Foreign Wars; Mr. Adrian M. Atizado, Assistant National
Legislative Director, Disabled American Veterans; Mr. Carl
Blake, Associate Legislative Director, Paralyzed Veterans of
America; and Mr. Richard Jones, National Legislative Director,
AMVETS.

Committee Meeting

After carefully reviewing the testimony from the foregoing
hearing, the Committee met in open session on July 20, 2004,
and voted by unanimous voice vote to report favorably S. 2486,
as amended, to include provisions derived from S. 2099, S.
2522, S. 2534, and S. 2486, as introduced.

Summary of the Committee Bill as Reported

S. 2486, as reported (hereinafter, ``the Committee bill'')
contains various amendments to title 38, United States Code,
that would:
(a) Index the maximum VA home loan guaranty to 25
percent of the ``conforming loan limit'';
(b) Reinstate and extend through 2011 VA authority to
guarantee adjustable rate mortgage loans;
(c) Extend through 2011 VA authority to guarantee
hybrid adjustable rate mortgage loans and revise
interest rate adjustment cap protections on such loans;
(d) Eliminate the collection of home loan funding
fees from service members rated eligible for VA
compensation due to a pre-discharge medical examination
and rating;
(e) Create flexibility in the timing of the
collection of contributions towards Montgomery GI Bill
eligibility from members of the Selected Reserve called
to active duty;
(f) Permit certain members of the Selected Reserve
called to active duty service for an aggregate of 24
months within a 60-month period to be eligible for
active duty Montgomery GI Bill educational assistance
benefits;
(g) Extend from 10 to 20 the number of years during
which spouses of service members who die while on
active duty may use their entitlement to Survivors' and
Dependents' Educational Assistance benefits;
(h) Allow veterans and service members to use VA
educational assistance benefits to pay for approved
national admissions exams and national exams for credit
at institutions of higher education;
(i) Afford administrative and judicial redress
protections to certain veterans competing for Federal
employment positions;
(j) Extend through 2009 the requirement that the
Advisory Committee on Former Prisoners of War submit to
VA a biennial report; and
(k) Modify the definition of a ``minority group
member'' veteran for purposes of the Advisory Committee
on Minority Veterans.

Discussion

Section 101. Increase maximum amount of home loan guaranty and annual
indexing of amount

Background
Chapter 37 of title 38, United States Code, authorizes VA
to provide a ``guaranty'' of up to $60,000 on a home loan made
by a bank, thrift, or other mortgage lender to eligible VA
beneficiaries (veterans, active duty service members, and
certain survivors of veterans). Since World War II, over 17
million homes have been purchased with a VA guaranty. In 2003,
VA guaranteed nearly 500,000 loans with a total value of almost
$63.3 billion. Most of the loans VA guarantees for original
home purchases are made with no down payment from the
beneficiary. If a lender forecloses on a property secured by
loan guaranteed by VA, VA may either pay to the lender the
guaranty amount or VA may purchase the property from the
foreclosing lender and later resell it.
Lenders who make loans backed by a VA guaranty typically
sell those loans in the secondary mortgage market. It is
customary for such lenders, through intermediaries, to bundle
them for sale as mortgage-backed securities. The Government
National Mortgage Association (hereinafter, ``GNMA'')
guarantees to buyers of these mortgage-backed securities the
timely payment of principal and interest on the underlying
loans. GNMA requires that 25 percent of the loan amount on all
government-backed loans underlying mortgage-backed securities
be covered by either a downpayment, guaranty, or a combination
of the two. Thus, because VA's maximum loan guaranty is
$60,000, and because most VA loan guaranty beneficiaries make
no down payment, the effective limit on a loan a lender is
willing to make to a VA beneficiary is $240,000, or four times
the maximum VA guaranty limit.
The Committee received testimony at its June 22, 2004,
hearing indicating that the $240,000 effective loan limit
available to VA beneficiaries is insufficient to cover median
housing costs in many areas of the country. Citing one example,
Senator Jon S. Corzine of New Jersey testified that ``the
Newark Metropolitan Statistical Area has an average home price
of $331,000, and $240,000 just does not comport with that. * *
*'' According to a July 2004 program evaluation report
(Evaluation of VA's Home Loan Guaranty Program: Final Report)
completed by a contractor at VA's request, the VA loan limit
restricts beneficiaries from using VA loans in high-cost areas.
Currently, Congressional action is required to raise the VA
loan guaranty amount. One out of every two respondents to a
survey conducted for the above-referenced report suggested a
different approach: a statutory ``indexing'' of the maximum
loan amount to local area home prices. Such an ``index'' would
eliminate the need for statutory adjustments to the maximum
home loan guaranty amount. A major recommendation of the above-
referenced report was to index the VA maximum guaranty so that
the effective loan limit would be equal to 100 percent of the
conforming loan limit, an annually-adjusted limit on loans
purchased by the Federal Home Loan Mortgage Corporation
(hereinafter, ``Freddie Mac'') and the Federal National
Mortgage Association.
Committee bill
Consistent with the recommendation of the above-referenced
report, section 101 of the Committee bill would index the
maximum amount of VA's loan guaranty. It would equal 25 percent
of the conforming loan limit for a single-family residence as
set by Freddie Mac. Thus, this section of the Committee bill
would allow VA loan guaranty beneficiaries to use their VA
guaranty entitlement on a loan equal to or less than the amount
of the conforming loan limit which, as of the date of this
report, is set at $333,700.

Section 102. Extension of authority for guarantee of adjustable rate
mortgages

Background
Public Law 102-547, the Veterans Home Loan Program
Amendments of 1992, authorized a three-year test of a VA-
guaranteed adjustable rate mortgage (hereinafter, ``ARM'')
program modeled after the Federal Housing Administration's
(hereinafter, ``FHA'') ARM program. Under the VA program, which
was in force from fiscal years 1993 to 1995, VA guaranteed
loans that carried an annual interest rate adjustment; the
annual adjustment was required to correspond to a specified
national interest rate index. In addition, to safeguard VA
beneficiaries from overly-burdensome escalations in interest
rates, interest rate cap protections were put into place. These
caps ensured that no single interest rate adjustment would
exceed one percentage point, and that, over the term of the
mortgage, the cumulative escalation in interest rates could be
no greater than five percentage points.
ARM financing offers substantially lower rates of interest
than conventional 30-year mortgage loans. While interest rates
may laterincrease, resulting in higher monthly mortgage
payments, the same risk is assumed by FHA ARM users, a risk the
Congress determined is acceptable to consumers when it made that
program permanent. A fundamental question, then, is whether the VA loan
guaranty program, a program primarily benefitting veterans and active
duty service members, should have the same financing options as the FHA
program, a program for the general public.
Testimony received at the Committee's June 22, 2004,
hearing conveyed widespread support among the veterans' service
organizations for reinstating the VA ARM program. Further, the
Mortgage Bankers Association (hereinafter, ``MBA''), whose
members make the vast majority of VA-guaranteed loans,
submitted the following testimony regarding the VA ARM program:
``MBA believes that it is important to offer veterans as many
mortgage options as other borrowers. Over the past ten years,
underwriting policies and procedures have advanced such that
one-year ARMs can be successfully originated. FHA and the
private sector have proven this.''
Committee bill
Section 102 would reinstate the VA ARM program through
fiscal year 2011. All of the interest rate cap protections that
existed under the pilot program would remain.

Section 103. Extension and improvement of authority for guarantee of
hybrid adjustable rate mortgages

Background
Section 303 of Public Law 107-330 authorized VA, during
fiscal years 2004 and 2005, to guarantee so-called ``hybrid''
adjustable rate mortgage (hereinafter, ``hybrid ARM'') loans,
loans that carry a fixed rate of interest for an initial period
followed by annual interest rate adjustments thereafter. Under
current law, annual interest rate adjustments on hybrid ARM
loans are subject to a maximum increase or decrease of one
percentage point and are limited, over the term of the
mortgage, to a maximum increase of five percentage points above
the initial fixed interest rate.
VA's hybrid ARM home loan program, though it is less than
one year old, has already drawn significant interest among VA
beneficiaries. VA has guaranteed over 35,000 hybrid ARM loans,
representing 16 percent of its entire loan production and 27
percent of its refinancing volume through April 2004. All of
the hybrid ARM loans guaranteed by VA carry a fixed rate of
interest for the first three years with annual adjustments
thereafter.
According to the Mortgage Bankers Association, lenders have
expressed little interest in offering other hybrid ARM
financing options, e.g., hybrid ARM loans with the initial rate
of interest fixed for five, seven, or ten years, due to the
interest rate cap protections associated with the program now
in force. Public Law 108-186 (December 16, 2003) addressed a
similar issue with respect to the FHA hybrid ARM program and
provides FHA with greater flexibility on setting interest rate
cap protections so that additional FHA-insured hybrid ARM
financing options might be made available.
It is clear from the above-cited VA program evaluation
report that beneficiaries are interested in a greater array of
VA financing options. Over one-fourth of the report's survey
respondents indicated that they would have been interested in a
VA ARM or hybrid ARM. It is also clear that VA has lagged
behind FHA in modernizing its home loan program. If the VA home
loan program is to provide a benefit that is distinguishable
from, and more attractive than, commercial or government home
loan benefits available to the general public, VA programs must
be kept apace with evolving mortgage practices and industry
standards.
Committee bill
Section 103 would extend the authority of VA to guarantee
hybrid ARM loans through 2011. In addition, it would put in
place interest rate cap protections similar to those now in
place for FHA's hybrid ARM program. First, section 103 would
retain the annual interest rate adjustment requirements with
respect to hybrid ARM loans with fixed periods of interest of
three years or less. For such loans, the initial and subsequent
annual interest rate adjustments would continue to be limited
to one percentage point. For hybrid ARM loans with an initial
rate of interest fixed for five or more years, section 103
would give VA the authority to set an appropriate interest rate
cap for the initial interest rate adjustment (the current
industry standard is a two percentage point cap). Annual
adjustments thereafter would be subject to a one percentage
point cap. Finally, section 103 would require VA to prescribe
the maximum number of percentage points above the initial fixed
rate of interest that would limit, over the term of a mortgage,
interest rate adjustments (depending on the hybrid ARM loan,
the current industry standard is to apply either a five or six
percentage point cap over the life of a mortgage). Providing VA
flexibility in setting interest rate cap protections would
entice lenders to offer VA beneficiaries a broader array of
hybrid ARM financing options, options similar to those
available under the FHA program.

Section 104. Termination of collection of loan fees from veterans rated
eligible for compensation based on pre-discharge rating
examinations

Background
In general, beneficiaries who utilize their VA home loan
guaranty benefit must pay a ``funding fee'' to VA. The funding
fee amount, which may be financed along with the principal of
the loan, is based on two factors: the size of the loan being
guaranteed by VA and the downpayment amount being paid by a
beneficiary. By law, however, VA may not collect a funding fee
from a veteran who is in receipt of VA service-connected
disability compensation (or who, but for the receipt of retired
pay, would be entitled to receive disability compensation).
Veterans are not entitled to receive disability
compensation until they have been discharged or released from
active duty service under conditions other than dishonorable.
Thus, beneficiaries of the VA loan guaranty program who are on
active duty in the military may notsecure a funding fee waiver,
irrespective of whether they have suffered a service-connected
disability. VA currently provides pre-discharge disability
examinations, and it awards disability ratings, to active duty service
members at over 136 military installations worldwide. However, as
mentioned above, the law proscribes the payment of compensation to
service members on the basis of those examinations and ratings until
they are released from active duty service. The lag between the time
examinations and ratings occur and the time a service member is
officially discharged from service can be quite long. During the time
lag, many disabled service members utilize their VA home loan benefit
but are required to pay the requisite funding fee.
Testifying in support of waiving the fee requirements at
the Committee's June 22, 2004, hearing VA Deputy Secretary
Gordon Mansfield stated that VA ``believe[s] waiving the fee
for a veteran or service member who has been rated eligible for
compensation but who purchases a home before payment of the
benefit has begun * * * [would be] a logical extension of
existing law.''
Committee bill
Section 104 would allow a service member who is rated
eligible to receive compensation as a result of a pre-discharge
medical examination to qualify for waiver of the VA home loan
funding fee.

Section 201. Collection of contributions for educational assistance
under Montgomery GI Bill from members of the Selected Reserve
called to active duty

Background
Eligibility for Montgomery GI Bill educational assistance
benefits based on active duty service (hereinafter, ``MGIB-
AD'') is predicated on, among other things, a service member's
active duty pay being ``reduced by $100 for each of the first
12 months that such individual is entitled to such pay,'' 38
U.S.C. Sec. Sec. 3011(b) and 3012(c), and by a service member's
completion of two consecutive years of active duty service. The
$1,200 contribution is not refundable. Members of the Selected
Reserve called to active duty service may become eligible for
MGIB-AD by complying with the $1,200 contribution and minimum
years of consecutive service requirements. There are two
practical difficulties, however, concerning the ability of
Selected Reserve members to fulfill these eligibility
requirements.
The first difficulty arises from the impossibility of a
Selected Reserve member knowing whether he or she will be
activated for two consecutive years, a prerequisite for MGIB-AD
eligibility. The Department of Defense (hereinafter, ``DOD'')
has a ``judicious use'' policy with respect to activated
Selected Reserve members. It will only retain reservists on
active duty for as long as is necessary to accomplish the
mission at hand. It is possible, then, for an activated
Selected Reserve member to make the non-refundable $1,200
contribution upon activation, but then be deactivated prior to
serving two consecutive years on active duty. In such a case,
the Selected Reserve member would forfeit his or her $1,200
contribution. It is also possible to have a situation where a
Selected Reserve member fulfilled the requirement of serving
two continuous years of active duty but, because of the
impossibility of knowing in advance the length of the active
duty call-up period, failed to make the $1,200 contribution.
The second practical difficulty arises from the manner in
which active duty components receive their pay compared to
Selected Reserve members. The Defense Joint Military System for
Active Component (hereinafter, ``DJMS-AC) is the payment system
for all active duty service members. It contains a
functionality that allows for the collection of the $1,200
MGIB-AD contribution. By contrast, the Defense Joint Military
System for Reserve Component (hereinafter, ``DJMS-RC''), the
pay system for members of the Selected Reserve, does not
contain a functionality that allows for the $1,200 collection,
even though Guard and Reserve personnel continue to be paid
under the DJMS-RC after they are called to active duty. Thus, a
large number of activated Selected Reserve members cannot make
the $1,200 contribution automatically from their pay checks--
thereby legally jeopardizing their entitlement to MGIB-AD--due
to a lack of a compliant pay system.
In recognition of these practical difficulties, it has been
DOD and VA practice to allow Selected Reserve members who are
extended after their first year of active duty to begin making
required monthly contributions or to make a full contribution
upon completion of the two years required to become eligible
for educational assistance benefits. Because of the lack of
pay-system functionality, DOD has even set up a special cash
collection voucher system to facilitate payment of the $1,200
contribution.
Committee bill
Section 201 would permit the Secretary of Defense (or, in
cases involving the activation of Reserve Coast Guard
personnel, the Secretary of Homeland Security) to collect an
activated Selected Reserve member's $1,200 contribution before
the service member commences use of educational assistance
benefits. It would then explicitly authorize the practice
already adopted by the services for facilitating eligibility
for MGIB-AD educational assistance benefits.

Section 202. Educational assistance under Montgomery GI Bill for
members of the Selected Reserve who aggregate two or more years
of active duty service during any five-year period

Background
In general, individuals who enlist in the Armed Forces
after June 30, 1985, and who serve at least two consecutive
years of active duty are currently entitled to MGIB-AD
educational assistance benefits of $800 per month for full-time
study (and reduced amounts for less than full-time study).
Individuals who serve at least three consecutive years are
entitled to MGIB-AD benefits of $985 monthly for full-time
study (and reduced amounts for less than full-time study). The
maximum duration of monthly benefits is 36 months (or the
equivalent if study is less than full-time). Individuals who
fail to complete their enlistment periods due to service-
connected disability or for theconvenience of the government
may receive a lesser duration of monthly benefits. A $1,200
contribution is required by the service member during the first 12
months of active duty service, and benefits must be used within ten
years of discharge.
Individuals who enlist in the Armed Forces after June 30,
1985, and who serve at least two consecutive years of active
duty, followed by four consecutive years of Selected Reserve
service, are also entitled to MGIB-AD of $985 per month for
full-time study (and reduced amounts for less-than-full-time
study). The duration of monthly benefits is equal to the number
of months an individual served on active duty, plus one month
for every four months an individual served in the Selected
Reserve, but in no case may the duration of entitlement exceed
36 months (or the equivalent thereof if study is less-than-
full-time). A $1,200 contribution is required by the service
member during the first 12 months of active duty service, and
benefits must be used within ten years of discharge.
A member of a reserve component who agrees to serve in the
Selected Reserve for a minimum of six years is entitled to a
monthly benefit of $282 per month for full-time study (and
reduced amounts for less-than-full-time study) under the
Montgomery GI Bill for Selected Reserve (hereinafter, ``MGIB-
SR'') program. There is no contribution required for MGIB-SR,
and benefits must be used within 14 years of the individual
first joining the Selected Reserve or prior to an individual's
separation from the Selected Reserve, whichever occurs first.
The maximum duration of assistance is 36 months (or the
equivalent thereof if study is less-than-full-time).
There is a large discrepancy between the benefit provided
under MGIB-AD and MGIB-SR. The discrepancy exists despite the
fact that, over the past decade, members of the Selected
Reserve have been called to active duty service with greater
frequency, and for longer durations, than had heretofore been
the norm. As stated by Richard Jones of AMVETS at the
Committee's June 22, 2004, hearing, ``[i]n the four decades of
the Cold War, Reserves faced only two Presidential
activations--once during the 1948 Berlin airlift and once again
for a limited call-up during the Vietnam War. The upward spiral
of mobilization and deployment since 1990 stands in stark
contrast to the previous period. Reserves have participated in
the Persian Gulf War, Bosnia, Kosovo, Afghanistan, Iraq and
elsewhere around the globe. While some units have been called
up more often than others, overall operations have dramatically
transformed the Reserves as an essential part of combat
operations.''
The duration of a Selected Reserve member's activation can
vary by mission. Because of the increased operational demands
of the Global War on Terrorism, it is common for Selected
Reserve members to be called to active duty for 12 to 18
months, then called to active duty again after a brief
demobilization period. Thus, while Selected Reserve member
service on active duty may, in the aggregate, exceed two years,
because such service is not continuous, it does not give rise
to eligibility for MGIB-AD benefits.
The United States Commission on National Security/21st
Century, chaired by former Senators Gary Hart and Warren
Rudman, has recommended that the Congress enhance education
benefits, on a sliding scale, for Guard and Reserve personnel
called to active duty for overseas contingency operations. See
Road Map for National Security: Imperative for Change at 107.
Committee bill
Section 202 would grant an individual in the Selected
Reserve who, during any five-year period beginning on or after
September 11, 2001, serves an aggregate of two years of active
duty service entitlement to $800 of monthly educational
assistance for full-time study (and a reduced amount for less-
than-full-time study). The two years of aggregate active duty
service would have to be completed in the period beginning on
or after September 11, 2001, and ending on June 30, 2008. A
member of the Selected Reserve would be required to make a
$1,200 contribution within one year of completing his or her
second year of aggregate active duty service in order to gain
eligibility for this enhanced educational assistance benefit.
The duration of educational assistance would be equal to the
number of months the individual served on active duty, plus one
month for every four months he or she served in the Selected
Reserve after such active duty service, but in no case would
the duration of entitlement exceed 36 months (or the equivalent
thereof if study is less than full time). Section 202 would
also charge the Secretaries of Defense and Homeland Security
with informing Selected Reserve members of this new benefit.

Section 203. Ten-year extension of delimiting period for survivors' and
dependents' educational assistance for spouses of members who
die on active duty

Background
Survivors' and Dependents' Educational Assistance
(hereinafter, ``DEA'') is available to spouses and dependents
of the following persons: veterans who are totally and
permanently disabled due to service-connected causes; veterans
who died as a result of service-related injuries; and service
members who died while on active duty. DEA benefits are paid at
a rate of $788 per month for a maximum duration of 45 months.
They will be paid to eligible beneficiaries who are pursuing
approved programs of education, farm cooperative programs,
correspondence courses, special restorative training programs,
or programs of apprenticeship or approved on-the-job training
programs. Survivors and dependents must use their DEA
entitlement within a prescribed period of time, commonly
referred to as a ``delimiting period.'' For spouses of veterans
with ``total and permanent'' disability ratings, a ten-year
delimiting period begins on the date VA assigns that rating.
Another ten-year delimiting period begins on the date a veteran
with a total and permanent disability rating dies and is
survived by his or her spouse. It is possible for a surviving
spouse to have more than one delimiting period during which to
use DEA benefits.
The delimiting period for spouses of service members who
die while on active duty generally begins on the date of the
service member's death. If physical or mental disability
prevents the survivingspouse from initiating or completing a
chosen program of study, the delimiting period may be extended.
For spouses with children, especially young children, using
DEA benefits within the delimiting period may be difficult.
Single parents face tremendous challenges in raising their
children; greater flexibility in the application of the
delimiting period for these spouses is needed. Greater
flexibility is also needed for surviving spouses without
children. A host of factors may preclude the use of DEA
benefits during the ten-year period following a service
member's death, such as an extended grieving process, job
demands, or simply the lack of an immediate need for education
or training. Most Americans would likely affirm that the
Nation's responsibility to ensure adequate education and
training for surviving spouses is no different 11 years after a
service member's death than it is immediately following it.
Committee bill
Section 203 would extend the delimiting period from ten to
20 years for the surviving spouses of service members who die
while on active duty. Surviving spouses who are within their
ten-year delimiting period as of the date this section is
enacted into law would qualify for the extended 20-year
delimiting period.

Section 204. Availability of education benefits for payment for
national admissions exams and national exams for credit at
institutions of higher education

Background
Generally, beneficiaries of VA's educational assistance
programs may use their benefits for the pursuit of approved
programs of education that are necessary for the attainment of
an identified educational, professional, or vocational
objective. Beneficiaries may also use their benefits to pay for
licensing or certification tests required to enter, maintain,
or advance in a vocation or profession.
In 1999, section 701 of Public Law 106-117 authorized
beneficiaries of the Montgomery GI Bill educational assistance
program to use their benefits to pay for preparatory courses
for tests required for admission to an institution of higher
learning or to a graduate school. No authorization was given,
however, to allow beneficiaries to use their educational
assistance benefits to pay for the actual fees for tests
required for admission, e.g., SAT, ACT, LSAT, GRE, GMAT, MCAT,
and other national tests. Admission test costs vary, but it is
common for test takers to attempt the same test more than once,
sit for multiple tests, or to attempt the tests at extended
intervals. The expense of doing so is not trivial.
Senator Bob Graham, Ranking Minority Member of the
Committee, made the following comments in a floor statement
accompanying legislation he introduced regarding the probable
effect of allowing beneficiaries to use their education
benefits to pay for admissions tests: ``This would greatly aid
the individuals who have been absent from an academic setting
for a long period of time and would go a long way in preparing
them for their educational endeavors.'' These sentiments were
echoed at the Committee's June 22, 2004, hearing by the
veterans' organizations present.
Committee bill
Section 204 would allow beneficiaries of all of VA's
educational assistance programs to use their benefits to pay
for fees for national tests for admission to institutions of
higher learning or graduate schools (such as the SAT, LSAT,
GRE, and GMAT), and for national tests such as advance
placement exams and CLEP exams that can qualify veterans for
receipt of college credit.

Section 301. Availability of administrative and judicial redress for
certain veterans denied opportunity to compete for Federal
employment

Background
Veterans who served during a wartime period, or during a
period for which a campaign badge or expeditionary medal was
awarded, and veterans with service-connected disabilities, are
accorded certain advantages when competing for Federal job
openings. These veterans--referred to as ``preference
eligible'' veterans--along with veterans who have been
separated from the Armed Forces under honorable conditions
after three years or more of active service, may not be denied
the opportunity to compete for job openings for which a Federal
agency is accepting applications from individuals outside of
its own workforce.
Current law authorizes preference eligible veterans the
right to seek administrative redress, first with the Secretary
of Labor and then in a United States District Court, for
alleged violations of their employment rights. However, there
is no legal authority for non-preference eligible veterans with
three or more years of active duty service to seek the same
administrative and judicial review of alleged Federal agency
violations.
Committee bill
Section 301 would grant veterans who have been separated
from the Armed Forces under honorable conditions after three
years or more of active service the right to seek
administrative and judicial review of alleged Federal agency
violations of their right to compete for Federal job openings.

Section 302. Extension of biennial report of Advisory Committee on
Former Prisoners of War

Background
Section 541 of title 38, United States Code, establishes an
Advisory Committee on Former Prisoners of War. The purpose of
the Advisory Committee is to assess the needs of, and to review
VA programs relating to, former prisoners of war, and to make
recommendations to the VA for administrative or legislative
action. The Advisory Committee is to submit a report to the VA
no later than July 1st of each odd numbered year through 2003.
Thus, the reporting requirement has lapsed.
Committee bill
Section 302 would extend, for a period of six years
(through 2009), the requirement that the Advisory Committee on
Former Prisoners of War submit a report to VA no later than
July 1st of each odd numbered year.

Section 303. Modification of definition of minority group member for
purposes of Advisory Committee on Minority Veterans

Background
Section 544 of title 38, United States Code, establishes an
Advisory Committee on Minority Veterans. For purposes of that
section of law, ``minority groups members'' include veterans
who are: Asian American; Black; Hispanic; Native American
(including American Indian, Alaskan Native, and Native
Hawaiian); or Pacific-Islander American. The VA must consult
with and seek the advice of the Advisory Committee on a regular
basis with respect to the administration of benefits for
veterans who are minority group members.
Committee bill
Section 303 would amend the definition of a ``minority
group member'' veteran to make it conform to the new Race and
Ethnic Standards used in Federal statistical reporting and in
the 2000 United States Census. Specifically, section 303 would
redefine the categories of minority group member veterans by
making the following changes: substituting ``Asian'' for
``Asian American''; ``Black or African American'' for
``Black''; ``Hispanic, Latino, or Spanish Origin'' for
``Hispanic''; and ``American Indian or Alaska Native'' and
``Native Hawaiian or other Pacific Islander'' for ``Native
American (including American Indian, Alaskan Native, and Native
Hawaiian).'' This provision would not change eligibility or
entitlement to existing or future benefits.

Cost Estimate

In compliance with paragraph 11(a) of rule XXVI of the
Standing Rules of the Senate, the Committee, based on
information supplied by the Congressional Budget Office
(hereinafter, ``CBO''), estimates that enactment of the
Committee bill would, relative to current law, decrease direct
spending by $38 million in 2005, decrease direct spending by
$27 million over the 2005-2009 period, and decrease direct
spending by $9 million over the 2005-2014 period. In addition,
discretionary spending resulting from S. 2486 would be less
than $100,000 a year over the 2005-2009 period, assuming
appropriation of the necessary amounts. Enactment of the
Committee bill would not affect the budget of state, local, or
tribal governments.
The cost estimate provided by CBO, setting forth a detailed
breakdown of costs, follows:

U.S. Congress,
Congressional Budget Office,
Washington, DC, August 19, 2004.
Hon. Arlen Specter,
Chairman, Committee on Veterans' Affairs,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 2486, the Veterans'
Benefits Improvements Act of 2004.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Sarah T.
Jennings.
Sincerely,
Douglas Holtz-Eakin, Director.
Enclosure.

Veterans' Benefits Improvements Act of 2004

Summary: S. 2486 would make changes to several veterans
programs, primarily housing and readjustment benefits. CBO
estimates that enacting this legislation would decrease direct
spending for veterans programs by $27 million over the 2005-
2009 period and by $9 million over the 2005-2014 period. In
addition, CBO estimates that discretionary spending resulting
from S. 2486 would be less than $100,000 a year over the 2005-
2009 period, assuming appropriation of the necessary amounts.
S. 2486 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would not affect the budgets of state, local, or tribal
governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of S. 2486 over the 2005-2009 period is shown
in Table 1. The costs of this legislation fall within budget
function 700 (veterans benefits and services).
Basis of estimate: This estimate assumes that the bill will
be enacted by October 1, 2004. Almost all of the budgetary
impact of the bill would be in the form of direct spending for
veterans' housing and readjustment benefits. Table 2 summarizes
those effects, and the individual provisions that would affect
direct spending are described below. In total, CBO estimates
that enacting this legislation would decrease direct spending
by $27 million over the 2005-2009 period and by $9 million over
the 2005-2014 period.

TABLE 1.--ESTIMATED BUDGETARY IMPACT OF S. 2486
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------
2005 2006 2007 2008 2009
----------------------------------------------------------------------------------------------------------------
Changes in direct spending:
Estimated Budget Authority................................ -38 -28 * 18 22
Estimated Outlays......................................... -38 -28 * 18 22
----------------------------------------------------------------------------------------------------------------
Notes.--Estimated changes in discretionary spending are less than $100,000 a year.
* = less than $500,000.

Direct spending--housing

Sections 101 through 104 would affect direct spending for
veterans' housing programs. Together, CBO estimates that these
provisions would lower direct spending by $39 million in 2005,
$184 million over the 2005-2009 period, and $259 million over
the 2005-2014 period. In preparing this estimate, CBO accounted
for the interactions between individual provisions. Costs or
savings for those provisions, estimated as if they were enacted
alone, are described below, along with the effect of
interactions between the provisions.
Increase and Index VA Home Loan Guaranty. Section 101 would
increase the maximum loan guarantee amount on Department of
Veterans Affairs (VA) home loans by indexing this amount to the
Freddie Mac conforming loan limit for single-family homes,
which is adjusted annually to reflect home prices. Under
current law, the maximum loan guaranty is $60,000, which
effectively creates a maximum loan amount of $240,000. (For
large loan amounts, VA can guarantee no more than 25 percent of
the loan amount.) The provision would raise the maximum loan
guarantee amount to 25 percent of the Freddie Mac conforming
loan limit ($333,700 in 2004). CBO estimates that this
provision would lower direct spending on the veterans' housing
program by $208 million over the 2005-2009 period and $288
million over the 2005-2014 period. These savings are the net
effect of three individual program effects (two with savings
and one with costs), as explained below.

TABLE 2.--ESTIMATED CHANGES IN DIRECT SPENDING UNDER S. 2486
--------------------------------------------------------------------------------------------------------------------------------------------------------
Outlays by fiscal year, in millions of dollars--
----------------------------------------------------------------------------------------------------
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
HOUSING 1
Spending Under Current Law......................... -2,036 -144 -140 -144 -149 -153 -152 -155 96 98 165
Proposed Changes................................... 0 -39 -38 -35 -35 -36 -41 -42 * 1 8
Spending Under S. 2486............................. -2,036 -183 -178 -179 -184 -189 -193 -197 96 99 173
VETERANS' READJUSTMENT BENEFITS
Spending Under Current Law......................... 2,665 2,852 3,008 3,166 3,315 3,458 3,590 3,737 3,853 3,974 4,098
Proposed Changes................................... 0 1 10 35 53 58 52 26 5 5 5
Spending Under S. 2486............................. 2,665 2,853 3,018 3,201 3,368 3,516 3,642 3,763 3,858 3,979 4,103
Total Proposed Changes \1\......................... 0 -38 -28 * 18 22 11 -16 5 6 13
--------------------------------------------------------------------------------------------------------------------------------------------------------
a Five- and 10-year costs in the text differ slightly from a sum of the annual costs shown here because of rounding.
Notes.--Numbers may not add to totals because of rounding.
* = less than $500,000.

Based on information from VA and previous increases in the
loan guaranty amount, CBO estimates that the bill would result
in 11,000 new guaranteed loans a year over the 2005-2014
period. In addition, roughly 4,000 guaranteed loans each year
would now be made with higher loan amounts--these would not be
new borrowers, but veterans who would no longer need a
downpayment (or as large a downpayment) to qualify for the VA
loan guarantee. CBO and VA estimate that the VA loan guarantees
currently have a negative subsidy rate of about -0.3 percent,
reflecting relatively low default rates and up-front fees.
Because of that negative subsidy rate, CBO estimates that
the added loans and higher loan amounts would lower direct
spending on guaranteed loans by an average of $42 million a
year over the 2005-2011 period. Savings would end after 2011
because, under current law, certain loan fees expire in 2012,
resulting in higher subsidy rates beginning in that year.
Consequently, the increase in the volume of guaranteed loans
under S. 2486 would raise direct spending by $10 million over
the 2012-2014 period.
Second, CBO expects some of those 15,000 loans will become
delinquent and go to foreclosure. When a guaranteed loan goes
into foreclosure, VA often acquires the property and issues a
new direct loan (called a vendee loan) when the property is
sold. Because the vendee loan program also has a negative
subsidy rate, CBO estimates that the added vendee loans would
lower direct spending by less than $500,000 in 2005 and by $3
million in 2014.
Finally, VA sells most vendee loans on the secondary
mortgage market and guarantees their timely repayment. Based on
information from VA, CBO estimates the subsidy cost of such
loan guarantees would be less than $500,000 through 2007 and
would eventually reach $4million in 2014.
Guarantees of Adjustable Rate Mortgages (ARMs). Section 102
would reinstate VA's program of guarantees for adjustable rate
mortgages through 2011. Under that program, interest rates on
adjustable rate mortgages guaranteed by VA may change annually.
Section 103 would extend through 2011 VA's current pilot
program of guarantees for hybrid ARMs, which carry an initial
interest rate that is fixed for at least three years and then
is subject to annual adjustments. That program is scheduled to
expire at the end of 2005.
CBO expects that most veterans would prefer a hybrid ARM.
Based on information from VA and experience with the current
pilot program, we estimate that about 30,000 hybrid ARMs would
be guaranteed each year and that these loans would be 5 percent
larger and 10 percent more likely to default than fixed-rate
mortgages. (CBO estimates that fixed-rate mortgages guaranteed
by VA have a default rate of 7.1 percent and that the hybrid
ARMs would have a default rate of 7.8 percent.) Under current
law, most of those borrowers would receive VA guarantees for
fixed-rate mortgages.
We also expect that about 1,000 ARMs would be guaranteed
each year and that those loans would be 20 percent larger and
50 percent more likely to enter into default than fixed-rate
mortgages; the projected default rate on those loans is 10.6
percent.
CBO estimates that enacting these provisions would increase
direct spending by $45 million over the 2005-2011 period. That
sum represents the additional subsidy cost, as defined by the
Federal Credit Reform Act, of guaranteeing the two kinds of
ARMs. (That cost is the net present value of expected payments
by the government to cover defaults and delinquencies, as well
as other necessary payments, net of expected receipts to the
government from any loan fees, penalties, and recoveries.)
Effect of Interactions Between Housing Provisions. The
estimated cost of enacting sections 102 and 103 and the
estimated savings from enacting section 101 are both increased
by an interactive effect. CBO estimates that the net effect of
this interaction would be additional savings of $16 million
over the 2005-2011 period.
Loan Fees from Veterans Eligible for Compensation. Section
104 would prohibit VA from charging loan fees for veterans who
have been rated eligible for compensation through a pre-
discharge examination. Under current law, a veteran must be
receiving compensation in order to have the fees waived. Based
on information from VA, CBO estimates that the enactment of
this section would affect very few individuals and would have
an insignificant effect on direct spending.

Direct spending--Veterans' readjustment benefits

S. 2486 contains several provisions that would enhance the
education benefits available to reservists, veterans, and the
spouses and survivors of certain veterans. CBO estimates that
enacting these sections would increase direct spending for
veterans' readjustment benefits by about $1 million in 2005,
$157 million over the 2005-2009 period, and $250 million over
the 2005-2014 period (see Table 3). The cost for each
individual provision is described below.

TABLE 3.--ESTIMATED CHANGES IN DIRECT SPENDING FOR VETERANS' READJUSTMENT BENEFITS UNDER S. 2486
----------------------------------------------------------------------------------------------------------------
Outlays by fiscal year, in millions of dollars--
---------------------------------------------------------------------
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
----------------------------------------------------------------------------------------------------------------
Description of Provisions:
Expanded Education Assistance for -1 6 31 48 53 47 21 0 0 0
Certain Reservists...................
Exams for College Admission and for 1 3 3 4 4 4 4 4 4 4
Course Credit........................
Extension of Eligibility Period....... 1 1 1 1 1 1 1 1 1 1
---------------------------------------------------------------------
Total Changes in Veterans' 1 10 35 53 58 52 26 5 5 5
Readjustment Benefits..............
----------------------------------------------------------------------------------------------------------------

Expanded Education Assistance for Certain Reservists.
Montgomery GI Bill (MGIB) education benefits are available to
most active-duty servicemembers who agree to have $1,200
withheld from their pay and who serve three years of continuous
active duty. Reduced MGIB benefits are available to
servicemembers who make the same contribution and serve two
years. Under current law, reservists who serve two continuous
years of active duty are also eligible for the reduced MGIB
benefit, currently $800 dollars a month for 36 months. Section
202 would extend eligibility for the two-year MGIB benefit to
reservists who, after September 11, 2001, and before June 30,
2008, complete a total of two, noncontinuous years of active
duty in any five-year period. Reservists who choose to
participate in the MGIB program would have one year after
completion of their two qualifying years of service to remit
the $1,200 contribution.
Based on information from the Department of Defense (DoD),
CBO estimates that more than 25,000 reservists would accumulate
two noncontinuous years of active duty and make the $1,200
payments in the time period described above. Based on current
usage rates, CBO assumes that 80 percent of those who make the
$1,200 payment would use the MGIB benefit, resulting in a few
hundred new trainees in 2005, and an average of about 7,300
additional trainees a year over the 2006-2011 period. CBO also
assumes that these new trainees would use this benefit to the
same extent as current trainees, with an average benefit of
about $4,800 in 2005, increasing in subsequent years by a cost-
of-living adjustment. After considering the $1,200
contributions, CBO estimates that enactment of section 202
would decrease direct spending for readjustment benefits by $1
million in 2005, and increase direct spending by about $140
million over the 2005-2009 period, and $205 million over the
2005-2011 period.
Exams for College Admission and for Course Credit. Section
204 would allow those veterans, survivors, and reservists who
are eligible for veterans' education benefits to use those
benefits to pay for tests given nationally for college
admission and for course credit. Based oninformation from VA,
CBO estimates that in 2005 about 190,000 veterans, reservists, and
survivors and dependents will begin a course of study at a college or
university. For several reasons, CBO believes that only about 20
percent of those students would use the proposed benefit. First, the
Defense Activity for Non-Traditional Education Support (DANTES),
currently offers most admissions and many for-credit exams at no cost
to active-duty and reserve servicemembers. Thus, members beginning
their education within a few years of their separation from the
service, or while in the reserves, are likely to take any necessary
tests through DANTES at no charge. Furthermore, many veterans have
taken some college-level courses while on active duty and thus are
admitted to college based on their previous work and not on the results
of entrance exams. Finally, close to half of the students will likely
be attending two-year colleges, which do not normally require entrance
exams.
Based on information from VA and DoD, CBO estimates that,
in 2005, about 11,000 of these students would take one or more
entrance or course-credit exams at an average cost of $85 and
would be reimbursed by VA under this provision. As the benefit
becomes more widely known, CBO expects the number of students
using the benefit would increase over several years to about
40,000 a year. Assuming the test fees increase with inflation
to an average of about $100 in 2014, CBO estimates enacting
this proposal would increase direct spending for veterans'
readjustment benefits by $1 million in 2005, $15 million over
the 2005-2009 period, and $35 million over the 2005-2014
period.
Extension of Eligibility Period. Under the Survivors and
Dependents Education Assistance Program, spouses of veterans
who are totally disabled as a result of a service-connected
disability, and the unmarried, surviving spouses of
servicemembers who died on active duty or of veterans who died
of a service-connected disability or while totally disabled as
the result of a service-connected disability, are eligible for
36 months of education assistance, at the current rate of $788
a month. Eligible spouses and surviving spouses have 10 years
from the date the veteran is rated as totally disabled or from
the date of the servicemember's or veteran's death to use the
benefit. Section 203 would increase the eligibility period to
20 years for the unmarried, surviving spouses of members who
died on active duty.
Based on information from VA and DoD, CBO expects that
under section 203, an additional 260 spouses would use this
education benefit each year. However, because the 2004-2005
academic year would have started before the assumed enactment
date for S. 2486, CBO expects only about 130 additional spouses
would apply for this benefit in fiscal year 2005. Assuming
these trainees pursue their education at the historical rate
for spouses in the survivors and dependents education program,
CBO estimates they would receive an average benefit of $4,300
in 2005. Allowing for annual cost-of-living increases in the
benefit amount, CBO estimates that enactment of section 203
would increase direct spending for veterans' readjustment
benefits by about $600,000 in 2005, $5 million over the 2005-
2009 period, and $10 million over the 2005-2014 period.
Collection of Contributions. Reservists who serve two
continuous years of active duty are eligible to participate in
the MGIB program. DoD reports that about 10,000 reservists have
recently met this requirement. Under current law, a reservist's
pay cannot be reduced to pay the required $1,200 contribution,
so reservists who wish to participate in the MGIB program are
currently obliged to make direct payments. Section 201 would
allow DoD to collect those contributions through reductions in
basic pay as is done for active-duty members, or through other
appropriate methods. Since the current method is cumbersome,
CBO believes that simplifying payment of the contribution would
increase the number of reservists who choose to participate in
MGIB, but only slightly. The resulting increase in spending
would not be significant.

Spending subject to appropriation

Section 302 would require the Veterans' Advisory Committee
on Former Prisoners of War to submit a report in 2005, 2007,
and 2009, to the Secretary of Veterans Affairs assessing the
extent to which VA programs and activities are meeting the
needs of former prisoners of war. Under current law, the
Advisory Committee was only required to submit this report
through 2003. According to information from the General
Services Administration's Federal Advisory Committee Database,
the cost to operate this committee is expected to total about
$100,000 in 2004. Since the committee would continue to operate
and advise the Secretary absent this reporting requirement and
since salaries, travel, and other expenses account for much of
the cost of operating the committee, CBO estimates that
implementing this provision would cost a small fraction of that
annual cost over the 2005-2009 period, assuming appropriation
of the necessary amounts.
Intergovernmental and private-sector impact: S. 2486
contains no intergovernmental or private-sector mandates as
defined in UMRA and would not affect the budgets of state,
local, or tribal governments.
Previous CBO estimates: On July 13, 2004, CBO transmitted a
cost estimate for H.R. 1716, the Veterans Earn and Learn Act of
2004, as reported by the House Committee on Veterans' Affairs
on June 25, 2004. Section 301 of H.R. 1716 is identical to
section 101 of S. 2486, as are the estimated savings.
On May 25, 2004, CBO transmitted a cost estimate for H.R.
4345, a bill to amend title 38, United States Code, to increase
the maximum amount of home loan guarantee available under the
home loan guarantee program of the Department of Veterans
Affairs, and for other purposes, as ordered reported by the
House Committee on Veterans' Affairs on May 19, 2004. On May
18, 2004, CBO transmitted a cost estimate for H.R. 4345, as
introduced on May 12, 2004. Bothversions of H.R. 4345 are
identical to section 101 of S. 2486, as are the estimated savings.
On April 28, 2004, CBO transmitted a cost estimate for H.R.
4065, the Veterans Housing Affordability Act of 2004, as
introduced on March 30, 2004. H.R. 4065 would raise the maximum
loan guarantee amount to 22.5 percent of the Freddie Mac
conforming loan limit. Section 101 of S. 2486 would raise the
maximum loan guarantee amount to 25 percent of the Freddie Mac
conforming loan limit. Thus, the estimated savings from
enacting section 101 are somewhat larger.
Estimate prepared by: Federal Costs: Housing: Sunita
D'Monte; Readjustment Benefits: Sarah T. Jennings; Veterans'
Outreach: Dwayne M. Wright. Impact on State, Local, and Tribal
Governments: Melissa Merrell. Impact on the Private Sector:
Heidi Golding.
Estimate approved by: Robert A. Sunshine, Assistant
Director for Budget Analysis.

Regulatory Impact Statement

In compliance with paragraph 11(b) of rule XXVI of the
Standing Rules of the Senate, the Committee on Veterans'
Affairs has made an evaluation of the regulatory impact that
would be incurred in carrying out the Committee bill. The
Committee finds that the Committee bill would not entail any
regulation of individuals or businesses or result in any impact
on the personal privacy of any individuals and that the
paperwork resulting from enactment would be minimal.

Tabulation of Votes Cast by Committee

In compliance with paragraph 7 of rule XXVI of the Standing
Rules of the Senate, the following is a tabulation of votes
cast in person or by proxy by members of the Committee on
Veterans' Affairs at its July 22, 2004, meeting. On that date,
the Committee, by unanimous voice vote, ordered S. 2486, as
amended, a bill to amend title 38, United States Code, to
improve and enhance education, housing, employment, medical,
and other benefits for veterans and to improve and extend
certain authorities relating to the administration or benefits
for veterans, and for other purposes, as amended, reported
favorably to the Senate.

Agency Report

On June 22, 2004, Deputy Secretary of Veterans Affairs, the
Honorable Gordon H. Mansfield, appeared before the Committee on
Veterans' Affairs and submitted testimony on, among other
things, S. 2486, as introduced, and also on the following
additional bills from which provisions in S. 2486, as amended,
are derived: S. 2099, S. 2522, and S. 2534. Excerpts from this
statement are reprinted below:

Statement of Gordon H. Mansfield, Deputy Secretary of Veterans Affairs

Good Afternoon Mr. Chairman and Members of the Committee,
thank you for inviting me here today to present the
Administration's views on a number of bills that would
primarily affect Department of Veterans Affairs (VA) programs
of veterans benefits and services.

* * * * *

s. 2486 and s. 2522

Mr. Chairman, with one exception, we do not yet have
cleared positions or cost estimates on the education benefit
provisions in S. 2486. We will supply those for the record.
Title I--Education Provisions

* * * * *

S. 2486 would require the VA Secretary to collect $1200
from certain Reservists who wish to participate in the chapter
30 MGIB program before such individuals begin to receive
educational assistance benefits under that program.
Title II of S. 2486 and S. 2522--Housing Benefits
Title II of S. 2486 would make several amendments to the VA
housing loan program authorized by chapter 37 of title 38,
United States Code.
Both S. 2486 and S. 2522 would increase the maximum VA
housing loan guaranty, which is currently $60,000. S. 2486
proposes to increase the guaranty to $83,425. S. 2522 would
index the maximum guaranty to 25 percent of the Federal Home
Loan Mortgage Corporation (also known as ``Freddie Mac'')
single family conforming loan limit. Because the current
Freddie Mac conforming limit is $333,700, S. 2522 would also
increase the VA guaranty to $83,425. However, under S. 2522,
the VA guaranty would be automatically adjusted annually in
tandem with the Freddie Mac loan limit.
Neither the law nor regulations sets a maximum principal
amount for a VA guaranteed home loan, so long as the total loan
amount does not exceed the reasonable value of the property
securing the loan, and the veteran's present and anticipated
income is sufficient to afford the loan payments. As a
practical matter, requirements set by secondary market
institutions limit the maximum VA loan to four times the
guaranty. The current maximum guaranty of $60,000 effectively
limits VA housing loans to $240,000. Increasing the maximum
guaranty to $83,425 would have the effect of increasing the
maximum amount lenders are willing to finance to $333,700. If
the guaranty were indexed as proposed by S. 2522, in future
years the effective maximum VA loan would remain at the Freddie
Mac conforming limit.
VA is currently reviewing the results of an independent
program evaluation of the VA Home Loan program. The maximum
home loan guaranty was an element of this evaluation. We
support the concept of increasing the guaranty level but
reserve our opinion on this proposal until we can complete our
analysis of the contractor's final report.
VA estimates that increasing the guaranty to $83,425 as
proposed by S. 2486 would produce a loan-subsidy savings to the
Veterans Housing Benefit Program Fund of approximately $23.3
million in FY 2005, and a 10-year savings of approximately
$82.4 million. Indexing the guaranty as proposed by S. 2522
would produce similar savings.
Adjustable Rate Mortgage (ARM) Program
S. 2486 would revive and make permanent the Adjustable Rate
Mortgage (ARM) program authorized by section 3707 of title 38,
United States Code. Originally enacted in 1992, section 3707
authorized a 3-year demonstration program for VA to carry out
an ARM program similar to the one administered by the
Department of Housing and Urban Development under section 251
of the National Housing Act.
Due to concerns about the high cost of ARMs, the Congress
allowed section 3707 to sunset on September 30, 1995. Similar
concerns prevent VA from supporting enactment of this proposal.
VA's past experience was that such ARMs had a 50 percent
increased risk of default over fixed-rate VA guaranteed home
loans.
We estimate that enactment of this provision would increase
loan subsidy costs by $4.0 million in Fiscal Year 2005, and
have a 10-year cost of $261.3 million.
Hybrid ARM Demonstration Program
S. 2486 would also make permanent the Hybrid ARM
demonstration program authorized by section 3707A of title 38.
Unlike traditional ARMs authorized by section 3707, which have
an annual interest rate adjustment, Hybrid ARMs bear a fixed
rate of interest for an initial period of at least 3 years.
Thereafter, the interest rate is adjusted annually.
The current Hybrid ARM program was authorized for two years
and will sunset September 30, 2005. VA only began guaranteeing
Hybrid ARMS in the current fiscal year. These loans will not
have an interest rate adjustment until late calendar year 2006
or early 2007 at the earliest. We do not believe VA has had
sufficient experience to judge the viability of the Hybrid ARM
program or assess its performance. Accordingly, we do not favor
making this program permanent at this time. Rather, we suggest
that the current Hybrid ARM demonstration program be extended
by four years, i.e., through Fiscal Year 2009, to allow VA time
to assess this new program.
This bill would modify the rules for interest rate
adjustments on VA hybrid ARMs. Under current law, annual
adjustments are limited to one percentage point, and the
interest rate may never exceed five percentage points above the
initial interest rate.
S. 2486 would limit the initial interest rate adjustment to
one percentage point if the interest rate had remained fixed
for three or fewer years. The bill would also provide that the
maximum interest rate increase over the life of the loan would
be set by VA. S. 2486 does not provide for any limit on
individual annual interest rate adjustments after the initial
one. Although we have no objection to providing more
flexibility in interest rate adjustments, we do not favor the
language of this proposal as drafted.
The initial interest rate for VA Hybrid ARMs must remain
fixed for at least three years. As a practical matter,
virtually no hybrid ARMs have the initial fixed interest rate
period of exactly three years. Interest rate adjustments are
normally made at the beginning of a month. To ease pooling of
loans in the secondary market, it is very likely that VA hybrid
ARMs closed by a particular lender over a period of several
months would all have the same initial adjustment date. An
initial fixed interest rate term such as three years, two
months, and 18 days would be common. Therefore, limiting the
initial adjustment to one percentage point only if the interest
rate was fixed for three or fewer years is virtually
meaningless. Further, this section makes no mention of a limit
on the initial adjustment if the fixed rate period exceeds
three years.
We also believe the statute should limit the size of annual
adjustments, or clearly provide that VA has the authority to
set such limits by regulation. We would be pleased to work with
your Committee staff to modify this proposal. VA estimates that
enactment of this proposal would have a ten-year cost of
approximately $24.8 million.
Waiver of VA Loan Fee
S. 2486 would waive collection of the VA loan fee from
veterans who are rated as eligible to receive compensation as a
result of a pre-discharge disability examination. Currently,
section 3729 of title 38, United States Code, imposes a fee on
most persons who obtain or assume a loan guaranteed or made by
VA. The fee is waived, however, for veterans who are receiving
compensation or who, but for the receipt of retirement pay,
would be entitled to compensation, and for surviving spouses of
a veteran who died from a service-connected disability.
We believe waiving the fee for a veteran or service member
who has been rated eligible for compensation but who purchases
a home before payment of the benefit has begun is a logical
extension of existing law. Therefore, VA supports enactment of
this proposal. We estimate the associated costs of its
enactment would be insignificant.

* * * * *

Title III--Medical and Other Amendments

* * * * *

Title III of S. 2486 contains a number of amendments to
various medical and other program authorities.
Technical Amendments to Title 5 of the United States Code
S. 2486 would also make technical amendments to title 5,
United States Code, to afford veterans with preference status
the right to certain administrative and judicial redress in
cases where an agency has allegedly violated their rights under
a statute or regulation relating to veterans' preference.
Although in principle we support this proposal inasmuch as it
would generally enhance veterans' employment related rights, we
defer to the views of the Office of Personnel Management.

* * * * *

Extensions of Certain Reporting Requirements
S. 2486 would extend through July 1, 2009, the biennial
reporting requirement of the Advisory Committee on Former
Prisoners of War. It would also extend through December 31,
2009, the reporting requirements of VA's Special Medical
Advisory Group. VA supports these proposals.
Amendment to VA Definition of Minority Veterans
Finally, S. 2486 would amend VA's definition of minority
veterans in section 544 of title 38, United States Code, to
comport with the Office of Management and Budget's (OMB)
revised Standards for the Classification of Federal Data of
Race and Ethnicity (1997). We support this proposal, which is
identical to one submitted by the Department last year. The
proposal is needed to bring the definitions applicable to
minority veterans in line with those used in the Census 2000.
The proposed changes would not change minority veterans'
eligibility or entitlement to existing or future benefits.

* * * * *

s. 2099

S. 2099 would entitle Selected Reservists who, on or after
September 11, 2001, serve on active duty in the Armed Forces
for not less than two years in any five-year period, and who
meet the other eligibility criteria, to basic educational
assistance under the chapter 30 Montgomery GI Bill program. The
two-year period required for eligibility would not have to be
continuous service, but could be an aggregate of one or more
periods of service. These MGIB participants would receive one
month of educational assistance benefits for each month of
active duty served after September 11, 2001, as part of the
two-year eligibility criteria. The amount of the benefit paid
would be the same as that of an individual whose entitlement is
based on an obligated active duty period of two years,
currently $800 monthly for a program of education pursued on a
full-time basis. The Secretaries of the various military
components of the Armed Forces are charged with informing
Selected Reservists of the availability of the benefits
provided by this bill.
Mr. Chairman, the Department has already implemented
provisions of chapter 30 MGIB education benefits in a manner
that recognizes benefits for Reservists called or ordered to
active duty and who serve a continuous period of active duty
aggregating two years or more, provided they otherwise meet the
MGIB eligibility criteria. However, we do not yet have a
cleared position or cost estimate on this specific proposal,
but will supply those to the Committee as soon as possible.

* * * * *

s. 2534

Mr. Chairman, we do not yet have cleared positions or cost
estimates on S. 2524, a proposal to establish a War-Related
Blast Injury Center, or S. 2534, a bill to improve veterans
education and housing benefits. We will supply those for the
record.

* * * * *

Changes in Existing Law Made by the Committee Bill, as Reported

In compliance with paragraph 12 of Rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
the Committee bill, as reported, are shown as follows (existing
law proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):

TITLE 5, UNITED STATES CODE

* * * * * * *

CHAPTER 33--EXAMINATION, SELECTION, AND PLACEMENT

Subchapter I--Examination, Certification, and Appointment

* * * * * * *

Sec. 3330a. Preference eligibles; administrative redress

(a)(1)(A) A preference eligible who alleges that an agency
has violated such individual's rights under any statute or
regulation relating to veterans' preference may file a
complaint with the Secretary of Labor.
(B) A veteran described in section 3304(f)(1) who alleges
that an agency has violated such section with respect to such
veteran may file a complaint with the Secretary of Labor.

* * * * * * *

Sec. 3330b. Preference eligibles; judicial redress

(a) In lieu of continuing the administrative redress
procedure provided under section 3330a(d), a preference
eligible, or a veteran described by section 3330a(a)(1)(B) with
respect to a violation described by such section, may elect, in
accordance with this section, to terminate those administrative
proceedings and file an action with the appropriate United
States district court not later than 60 days after the date of
the election.

* * * * * * *

TITLE 38, UNITED STATES CODE

* * * * * * *

CHAPTER 5--AUTHORITY AND DUTIES OF THE SECRETARY

* * * * * * *

Subchapter III--Advisory Committees

* * * * * * *

Sec. 541. Advisory Committee on Former Prisoners of War

* * * * * * *

(c)(1) Not later than July 1 of each odd-numbered year
through [2003] 2009, the Committee shall submit to the
Secretary a report on the programs and activities of the
Department that pertain to veterans who are former prisoners of
war. Each such report shall include--

* * * * * * *

Sec. 544. Advisory Committee on Minority Veterans

* * * * * * *

[(d) In this section, the term ``minority group member''
means an individual who is--
[(1) Asian American;
[(2) Black;
[(3) Hispanic;
[(4) Native American (including American Indian,
AlaskanNative, and Native Hawaiian); or
[(5) Pacific-Islander American.]
(d) In this section, the term ``minority group member''
means an individual who is--
(1) American Indian or Alaska Native;
(2) Asian;
(3) Black or African American;
(4) Native Hawaiian or other Pacific Islander; or
(5) of Hispanic, Latino, or Spanish origin.

* * * * * * *

CHAPTER 30--ALL-VOLUNTEER FORCE EDUCATIONAL ASSISTANCE PROGRAM

Subchapter I--Purposes; Definitions

* * * * * * *

Sec. 3011. Basic educational assistance entitlement for service on
active duty

* * * * * * *

(b) [The basic pay] (1) Except as provided by paragraph
(2), the basic pay of any individual described in subsection
(a)(1)(A) of this section who does not make an election under
subsection (c)(1) of this section shall be reduced by $100 for
each of the first 12 months that such individual is entitled to
such pay.
(2) In the case of an individual covered by paragraph (1)
who is a Reserve, the Secretary of Defense shall collect from
the individual an amount equal to $1,200 before the
commencement by the individual of the use of entitlement to
basic educational assistance under this chapter. The Secretary
of Defense may collect such amount through reductions in basic
pay in accordance with paragraph (1) or through such other
method as the Secretary of Defense considers appropriate.
(3) Any amount by which the basic pay of an individual is
reduced under [this chapter] this subsection shall revert to
the Treasury and shall not, for purposes of any Federal law, be
considered to have been received by or to be within the control
of such individual.

* * * * * * *

Sec. 3012. Basic educational assistance entitlement for service in the
Selected Reserve

(a) Except as provided in subsection (d) of this section,
each individual--
(1) who--

* * * * * * *

(B) as of December 31, 1989, is eligible for
educational assistance under chapter 34 of this
title and was on active duty at any time during
the period beginning on October 19, 1984, and
ending on July 1, 1985, continued on active
duty without a break in service and--
(i) after June 30, 1985, serves at
least two years of continuous active
duty in the Armed Forces, subject to
subsection (b) of this section,
characterized by the Secretary
concerned as honorable service; and
(ii) after June 30, 1985, subject to
subsection (b) of this section and
beginning within one year after
completion of such two years of
service, serves at least four
continuous years in the Selected
Reserve during which the individual
participates satisfactorily in training
as prescribed by the Secretary
concerned; [or]
(C) as of December 31, 1989, was eligible for
educational assistance under chapter 34 of this
title and--
(i) was not on active duty on October
19, 1984
(ii) reenlists or reenters on a
period of active duty on or after
October 19, 1984; and
(iii) on or after July 1, 1985,
(I) serves at least two years
of continuous active duty in
the Armed Forces, subject to
subsection (b) of this section,
characterized by the Secretary
concerned as honorable service;
and
(II) subject to subsection
(b) of this section and
beginning within one year after
completion of such two years of
service, serves at least four
continuous years in the
Selected Reserve during which
the individual participates
satisfactorily in training as
prescribed by the Secretary
concerned; or
(D) during any five-year period beginning on
or after September 11, 2001, and ending on or
before June 20, 2008, while in the Selected
Reserve, serves on active duty in the Armed
Forces for one or more periods (whether
continuous or otherwise) aggregating not less
than two years of service on active duty during
such period;

* * * * * * *

(c) [The basic pay] (1) Except as provided in paragraph
(2), the basic pay of any individual described in subsection
(a)(1)(a) of this section who does not make an election under
subsection (d)(1) of this section shall be reduced by $100 for
each of the first 12 months that such individual is entitled to
such pay.
(2) In the case of an individual covered by paragraph (1)
who is a Reserve, the Secretary of Defense shall collect from
the individual an amount equal to $1,200 before the
commencement by the individual of theuse of entitlement to
basic educational assistance under this chapter. The Secretary of
Defense may collect such amount through reductions in basic pay in
accordance with paragraph (1) or through such other method as the
Secretary of Defense considers appropriate.
(3) Any amount by which the basic pay of an individual is
reduced under [this chapter] this subsection shall revert to
the Treasury and shall not, for purposes of any Federal law, be
considered to have been received by or to be within the control
of such individual.
(4)(A) In the case of an individual who becomes entitled to
basic educational assistance under this chapter by reason of
subsection (a)(1)(D), the Secretary of Defense shall collect
from the individual an amount equal to $1,200 not later than
one year after the completion by the individual of the two
years of service on active duty providing the basis for such
entitlement.
(B) An individual described in subparagraph (A) shall not
be entitled to basic educational assistance as described in
that subparagraph unless an amount equal to $1,200 is first
collected from the individual as required under that
subparagraph.
(C) The Secretary of Defense may collect amounts under
subparagraph (A) through reductions in basic pay in accordance
with paragraph (1) or through such other method as the
Secretary of Defense considers appropriate.

* * * * * * *

Sec. 3013. Duration of basic educational assistance

* * * * * * *

(b) Subject to section 3695 of this title and subsection
(d) of this section, each individual entitled to basic
educational assistance under section 3012 of this title [is
entitled to (1) one month of educational assistance benefits
under this chapter for each month of continuous active duty
served by such individual after June 30, 1985, as part of the
obligated period of active duty on which such entitlement is
based in the case of an individual described in section
3012(a)(1)(A) of this title, or in the case of an individual
described in section 3012(a)(1)(B) of this title, after June
30, 1985, and (2) one month of educational assistance benefits
under this chapter for each four months served by such
individual in the Selected Reserve ``after the applicable date
specified in clause (1) of this subsection (other than any
month in which the individual served on active duty).] is
entitled to--
(1) one month of educational assistance benefits
under this chapter--
(A) in the case of an individual described in
section 3012(a)(1)(A) of this title, for each
month of continuous active duty served by such
individual after June 30, 1985, as part of the
obligated period of active duty on which such
entitlement is based;
(B) in the case of an individual described in
section 3012(a)(1)(B) of this title, for each
month of continuous active duty served by such
individual after June 30, 1985; or
(C) in the case of an individual described in
section 3012(a)(1)(D) of this title, for each
month of active duty served by such individual
after September 11, 2001, and before July 1,
2008, as part of the aggregate period of active
duty on which such entitlement is based; and
(2) one month of educational assistance benefits
under this chapter for each four months served by such
individual in the Selected Reserve after the applicable
date specified in paragraph (1) of this subsection
(other than any month in which the individual served on
active duty).

* * * * * * *

Sec. 3015. Amount of basic educational assistance

(a) The amount of payment of educational assistance under
this chapter is subject to section 3011 of this title. Except
as otherwise provided in this section, in the case of an
individual entitled to an educational assistance allowance
under this chapter whose obligated period of active duty on
which such entitlement is based is three years, a basic
educational assistance allowance under this subchapter shall be
paid--
(1) for an approved program of education pursued on a
full-time basis, at the monthly rate of--

* * * * * * *

(D) for months occurring during a subsequent
fiscal year, the amount for months occurring
during the previous fiscal year increased under
[subsection (h)] subsection (i); or--

* * * * * * *

(b) In the case of an individual entitled to an educational
assistance allowance under section 3011 or 3018 of this title
whose obligated period of active duty on which such entitlement
is based is two years, a basic educational assistance allowance
under this chapter shall (except as provided in the succeeding
subsections of this section) be paid
(1) for an approved program of education pursued on a
full-time basis, at the monthly rate of--

* * * * * * *

(D) for months occurring during a subsequent
fiscal year, the amount for months occurring
during the previous fiscal year increased under
[subsection (h)] subsection (i); or

* * * * * * *

(h) In the case of an individual entitled to an educational
assistance allowance under section 3012(a)(1)(D) of this title,
the amount of basic educational assistance payable under this
chapter is the amountdetermined under subsection (b) of this
section.
[(h)](i)(1) With respect to any fiscal year, the Secretary
shall provide a percentage increase in the rates payable under
subsections (a)(1) and (b)(1) equal to the percentage by
which--
(A) the Consumer Price Index (all items, United
States city average) for the 12-month period ending on
the June 30 preceding the beginning of the fiscal year
for which the increase is made, exceeds
(B) such Consumer Price Index for the 12-month period
preceding the 12-month period described in subparagraph
(A).
(2) Any increase under paragraph (1) in a rate with respect
to a fiscal year after fiscal year 2004 and before fiscal year
2014 shall be rounded down to the next lower whole dollar
amount. Any such increase with respect to a fiscal year after
fiscal year 2013 shall be rounded to the nearest whole dollar
amount.

* * * * * * *

Subchapter IV--Time Limitation for Use of Eligibility and Entitlement;
General and Administrative Provisions

* * * * * * *

Sec. 3032. Limitations on educational assistance for certain
individuals

* * * * * * *

(g)(1) Subject to paragraph (3), the amount of educational
assistance payable under this chapter for a national test for
admission or national test providing an opportunity for course
credit at institutions of higher learning described in section
3452(b) of this title is the amount of the fee charged for the
test.
(2) The number of months of entitlement charged in the case
of any individual for a test described in paragraph (1) is
equal to the number (including any fraction) determined by
dividing the total amount of educational assistance paid such
individual for such test by the full-time monthly institutional
rate of educational assistance, except for paragraph (1), such
individual would otherwise be paid under subsection (a)(1),
(b)(1), (d), or (e)(1) of section 3015 of this title, as the
case may be.
(3) In no event shall payment of educational assistance
under this subsection for a test described in paragraph (1)
exceed the amount of the individual's available entitlement
under this chapter.

* * * * * * *

CHAPTER 32--POST-VIETNAM ERA VETERANS' EDUCATIONAL ASSISTANCE

* * * * * * *

Subchapter III--Entitlement; Duration

* * * * * * *

Sec. 3232. Duration; limitations

* * * * * * *

(d)(1) Subject to paragraph (3), the amount of educational
assistance payable under this chapter for a national test for
admission or national test providing an opportunity for course
credit at institutions of higher learning described in 3452(b)
of this title is the amount of the fee charged for the test.
(2) The number of months of entitlement charged in the case
of any individual for a test described in paragraph (1) is
equal to the number (including any fraction) determined by
dividing the total amount of educational assistance paid such
individual for such test by the full-time monthly institutional
rate of educational assistance, except for paragraph (1), such
individual would otherwise be paid under this chapter.
(3) In no event shall payment of educational assistance
under this subsection for a test described in paragraph (1)
exceed the amount of the individual's available entitlement
under this chapter.

* * * * * * *

CHAPTER 34--VETERANS' EDUCATIONAL ASSISTANCE

Subchapter I--Purpose; Definitions

* * * * * * *

Sec. 3452. Definitions

For the purposes of this chapter and chapter 36 of this
title--

* * * * * * *

(b) The term ``program of education'' means any curriculum
or any combination of unit courses or subjects pursued at an
educational institution which is generally accepted as
necessary to fulfill requirements for the attainment of a
predetermined and identified educational, professional, or
vocational objective. Such term also means any curriculum of
unit courses or subjects pursued at an educational institution
which fulfill requirements for the attainment of more than one
predetermined and identified educational, professional, or
vocational objective if all the objectives pursued are
generally recognized as being reasonably related to a single
career field. Such term also means any unit course or subject,
or combination of courses or subjects, pursued by an eligible
veteran at an educational institution, required by the
Administrator of the Small Business Administration as a
conditionto obtaining financial assistance under the provisions
of section 7(i)(1) of the Small Business Act (15 U.S.C. 636(i)(1)).
Such term also includes licensing or certification tests, the
successful completion of which demonstrates an individual's possession
of the knowledge or skill required to enter into, maintain, or advance
in employment in a predetermined and identified vocation or profession,
provided such tests and the licensing or credentialing organizations or
entities that offer such tests are approved by the Secretary in
accordance with section 3689 of this title. Such term also includes any
course, or combination of courses, offered by a qualified provider of
entrepreneurship courses. Such term also includes national tests for
admission to institutions of higher learning or graduate schools (such
as the SAT, LSAT, GRE, and GMAT exams) and national tests providing an
opportunity for course credit at institutions of higher learning (such
as the AP exam).

* * * * * * *

Sec. 3482. Computation of educational assistance allowances

* * * * * * *

(i)(1) Subject to paragraph (3), the amount of educational
assistance payable under this chapter for a national test for
admission or national test providing an opportunity for course
credit at institutions of higher learning described in section
3452(b) of this title is the amount of the fee charged for the
test.
(2) The number of months of entitlement charged in the case
of any individual for a test described in paragraph (1) is
equal to the number (including any fraction) determined by
dividing the total amount of educational assistance paid such
individual for such test by the full-time monthly institutional
rate of educational assistance, except for paragraph (1), such
individual would otherwise be paid under this chapter.
(3) In no event shall payment of educational assistance
under this subsection for a test described in paragraph (1)
exceed the amount of the individual's available entitlement
under this chapter.

* * * * * * *

CHAPTER 35--SURVIVORS' AND DEPENDENTS' EDUCATIONAL ASSISTANCE

Subchapter I--Definitions

* * * * * * *

Sec. 3501. Definitions

(a) For the purpose of this chapter and chapter 36--

* * * * * * *

(5) The term ``program of education'' means any curriculum
or any combination of unit courses or subjects pursued at an
educational institution which is generally accepted as
necessary to fulfill the requirements for the attainment of a
predetermined and identified educational, professional, or
vocational objective. Such term also includes any preparatory
course described in section 3002(3)(B) of this title. Such term
also includes licensing or certification tests, the successful
completion of which demonstrates an individual's possession of
the knowledge or skill required to enter into, maintain, or
advance in employment in a predetermined and identified
vocation or profession, provided such tests and the licensing
or credentialing organizations or entities that offer such
tests are approved by the Secretary in accordance with section
3689 of this title. Such term also includes national tests for
admission to institutions of higher learning or graduate
schools (such as the SAT, LSAT, GRE, and GMAT exams) and
national tests providing an opportunity for course credit at
institutions of higher learning (such as the AP exam).

* * * * * * *

Subchapter II--Eligibility and Entitlement

* * * * * * *

Sec. 3512. Periods of eligibility

* * * * * * *

(b)(1)(A) Except as provided in [subparagraph (B)] in
subparagraph (B) or (C), a person made eligible by subparagraph
(B) or (D) of section 3501(a)(1) of this title may be afforded
educational assistance under this chapter during the 10-year
period beginning on the date (as determined by the Secretary)
the person becomes an eligible person within the meaning of
section 3501(a)(1)(B), 3501(a)(1)(D)(i), or 3501(a)(1)(D)(ii)
of this title. In the case of a surviving spouse made eligible
by clause (ii) of section 3501(a)(1)(D) of this title, the 10-
year period may not be reduced by any earlier period during
which the person was eligible for educational assistance under
this chapter as a spouse made eligible by clause (i) of that
section.
(B) * * *
(C) Notwithstanding subparagraph (A), an eligible person
referred to in that subparagraph who is made eligible under
section 3501(a)(1)(B) of this title by reason of the death of a
person on active duty may be afforded educational assistance
under this chapter during the 20-year period beginning on the
date (as determined by the Secretary) such person become an
eligible person within the meaning of such section.

* * * * * * *

Subchapter IV--Payments to Eligible Persons

* * * * * * *

Sec. 3532. Computation of educational assistance allowance

* * * * * * *

(g)(1) Subject to paragraph (3), the amount of educational
assistance payable under this chapter for a national test for
admission or national test providing an opportunity for course
credit at institutions of higher learning described in section
3501(a)(5) of this title is the amount of the fee charged for
the test.
(2) The number of months of entitlement charged in the case
of any individual for a test described in paragraph (1) is
equal to the number (including any fraction) determined by
dividing the total amount of educational assistance paid to
such individual for such test by the full-time monthly
institutional rate of educational assistance, except for
paragraph (1), such individual would otherwise be paid under
this chapter.
(3) In no event shall payment of educational assistance
under this subsection for a test described in paragraph (1)
exceed the amount of the individual's available entitlement
under this chapter.

* * * * * * *

PART III--READJUSTMENT AND RELATED BENEFITS

* * * * * * *

CHAPTER 37--HOUSING AND SMALL BUSINESS LOANS

* * * * * * *

Sec. 3703. Basic provisions relating to loan guaranty and insurance

(a)(1)(A) Any loan to a veteran eligible for benefits under
this chapter, if made for any of the purposes specified in
section 3710 of this title and in compliance with the
provisions of this chapter, is automatically guaranteed by the
United States in an amount not to exceed the lesser of--
(i)(I) in the case of any loan of not more than
$45,000, 50 percent of the loan;
(II) in the case of any loan of more than $45,000,
but not more than $56,250, $22,500;
(III) except as provided in subclause (IV) of this
clause, in the case of any loan of more than $56,250,
the lesser of $36,000 or 40 percent of the loan; or
(IV) in the case of any loan of more than $144,000
for a purpose specified in clause (1), (2), (3), (6),
or (8) of section 3710(a) of this title, the lesser of
[$60,000] the maximum guaranty amount (as defined in
subparagraph (C)) or 25 percent of the loan; or
(ii) the maximum amount of guaranty entitlement
available to the veteran as specified in subparagraph
(B) of this paragraph.
(B) The maximum amount of guaranty entitlement available to
a veteran for purposes specified in section 3710 of this title
shall be $36,000, or in the case of a loan described in
subparagraph (A)(i)(IV) of this paragraph, [$60,000] the
maximum guaranty amount (as defined in subparagraph (C)),
reduced by the amount of entitlement previously used by the
veteran under this chapter and not restored as a result of the
exclusion in section 3702(b) of this title.
(C) In this paragraph, the term ``maximum guaranty amount''
means the dollar amount that is equal to 25 percent of the
Freddie Mac conforming loan limit limitation determined under
section 305(a)(2) of the Federal Home Loan Mortgage Corporation
Act (12 U.S.C. 1454(a)(2)) for a single-family residence, as
adjusted for the year involved.

* * * * * * *

Sec. 3707. Adjustable rate mortgages

(a) The Secretary shall carry out a demonstration project
under this section [during fiscal years 1993, 1994, and 1995]
during fiscal years 1993 through 2011 for the purpose of
guaranteeing loans in a manner similar to the manner in which
the Secretary of Housing and Urban Development insures
adjustable rate mortgages under section 251 of the National
Housing Act [12 USCS Sec. 1715z-16].

* * * * * * *

Sec. 3707A. Hybrid adjustable rate mortgages

(a) The Secretary shall carry out a demonstration project
under this section [during fiscal years 2004 and 2005] during
fiscal years 2004 through 2011 for the purpose of guaranteeing
loans in a manner similar to the manner in which the Secretary
of Housing and Urban Development insures adjustable rate
mortgages under section 251 of the National Housing Act [12
USCS Sec. 1715z-16] in accordance with the provisions of this
section with respect to hybrid adjustable rate mortgages
described in subsection (b).
(b) * * *
(c) Interest rate adjustment provisions of a mortgage
guaranteed under this section shall--
(1) correspond to a specified national interest rate
index approved by the Secretary, information on which
is readily accessible to mortgagors from generally
available published sources;
(2) be made by adjusting the monthly payment on an
annual basis;
[(3) be limited, with respect to any single annual
interest rate adjustment, to a maximum increase or
decrease of 1 percentage point; and]
(3) in the case of the initial interest rate
adjustment--
(A) if the initial interest rate remained
fixed for less than 5 years, be limited to a
maximum increase or decrease of 1 percentage
point; or
(B) if the initial interest rate remained
fixed for 5 years or more, be limited to a
maximum increase or decrease of such percentage
point or points as the Secretary may prescribe;
(4) in the case of any single annual interest rate
adjustment after the initial interest rate adjustment,
be limited to a maximum increase or decrease of 1
percentage point; and
[(4)] (5) be limited, over the term of the mortgage,
to a maximum increase of [5 percentage points above the
initial contract interest rate.] such number of
percentage points as the Secretary shall prescribe for
purposes of this section.

* * * * * * *

Sec. 3729. Loan fee

(a) * * *

* * * * * * *

(c) Waiver of Fee.--(1) A fee may not be collected under
this section from a veteran who is receiving compensation (or
who, but for the receipt of retirement pay, would be entitled
to receive compensation) or from a surviving spouse of any
veteran (including a person who died in the active military,
naval, or air service) who died from a service-connected
disability.
(2) A veteran who is rated eligible to receive compensation
as a result of a pre-discharge disability examination and
rating shall be treated as receiving compensation for purposes
of this subsection as of the date on which the veteran is rated
eligible to receive compensation as a result of the pre-
discharge disability examination and rating without regard to
whether an effective date of the award of compensation is
established as of that date.

* * * * * * *