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                                                       Calendar No. 706
108th Congress                                                   Report
                                 SENATE
 2d Session                                                     108-352
======================================================================
 
              VETERANS' BENEFITS IMPROVEMENTS ACT OF 2004

                                _______
                                

               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.

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Sec. 3729. Loan fee

    (a) * * *

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    (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.

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