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A Blizzard of Bills

Congress takes early action, but upcoming conflicts are brewing.
University Business, Apr 2007

TRUE TO THEIR WORD, Democratic congressional leaders wasted little time in moving to improve college affordability by increasing Pell Grant awards and slashing interest rates on student loans. Both actions fulfilled promises they made during last year's campaigns.

The first was easy. The second is not yet a signed and sealed deal, and competing higher education and business interests, not to mention frequently opposing Democratic and Republican viewpoints, leave little assurance as the new Congress moves through its first session.

The only thing assured so far is a $260 increase in the maximum Pell Grant, from $4,050 to $4,310, which was included in the final continuing resolution for the fiscal year 2007 budget that President George W. Bush signed in mid-February. The Pell Grant boost was the first since 2003, when it was raised by $50, and it will be effective for eligible students in the 2007-2008 school year.

One Senate bill would
prohibit lenders from
offering gifts worth $10 or more to college employees.

A month earlier-and barely two weeks after its session began-the House passed legislation to cut in half federally subsidized student loan interest rates from the current 6.8 percent to 3.4 percent over the next five years.

But the success of that measure, which the House approved by a vote of 356 to 71, is far from being replicated in the Senate; powerful banking interests there have launched a campaign to derail it.

The student loan cut is only one controversial part of the Student Debt Relief Act (S.359), introduced in the upper body by Sen. Edward M. Kennedy (D-Mass.), chair of the Health, Education, Labor, and Pensions Committee. He says it would save the current typical student borrower $2,280 over the lifetime of his or her loan and save the beginning college student $4,420 when fully phased in.

Kennedy's comprehensive measure also would raise the Pell Grant to $5,100 and cap federal student loan payments at 15 percent of a borrower's discretionary income, with loans forgiven after 25 years and an option for 10-year loan forgiveness for individuals in public service careers such as teaching, law enforcement, and social work.

Further, Kennedy says $13 billion in savings can be generated, at no cost to taxpayers, by reforming the student loan programs to encourage the use of the government's less expensive Direct Loan (DL) program instead of the Federal Family Education Loan (FFEL) program in which private banks participate.

Four major banking organizations-the American Bankers Association, America's Community Bankers, Consumer Bankers Association, and Financial Services Roundtable-immediately weighed in with their concerns about Kennedy's proposal. They noted in a letter to Kennedy that in 1993, Congress rejected replacing the FFEL program with the DL program with the hope that competition between the two programs would benefit students and parents.

That indeed has been the result, according to these organizations.

But Kennedy's proposal "appears to us to be an attempt to end the beneficial competition between the two programs," the banking groups asserted in the letter. They challenged using federal monies to encourage schools to quit the FFEL program in favor of Direct Loans. "As a matter of fiscal policy, we question the soundness of using estimated budget savings that may or may not materialize to make immediate cash awards to schools. We also question using legislation to encourage schools to abandon the program that they believe best serves their students," the organizations declared.

Kennedy countered the bankers' claims in February at his committee's first hearing of the year on "Higher Education, Higher Cost, and Higher Debt: Paying for College in the Future." Citing charts prepared by the Government Accountability Office, he termed the FFEL program "an incomprehensible maze of rules and responsibilities, involving organizations the Direct Loan program doesn't need, and with money changing hands every which way."

In the DL program, by contrast, "the government simply lends funds directly to the students," which helps to make it less expensive for taxpayers, Kennedy said. "Clearly, the Direct Loan program is the better alternative," he declared.

With Sen. Richard J. Durbin (D-Ill.), Kennedy introduced another bill to protect students and parents from exploitation by private lenders who offer gifts to colleges as a way to secure loan business. The measure prohibits lenders from offering any gift worth more than $10 to a college employee, including free or discounted trips, meals, invitations to entertainment events, or other forms of hospitality.

It also bars lenders from offering services to Financial Aid offices that create a conflict of interest, such as supplying temporary staff during peak loan processing times, and prohibits lenders from entering arrangements with colleges to "brand" the lender's loan product with a college's emblem or logo.

Meanwhile, Congress also is paying attention to the president's FY 2008 budget, which includes a proposal to boost the Pell Grant to $4,600. It too calls for regular increases of $200 per year through 2012 to bring the maximum award to $5,400. At that level, as the American Council on Education (ACE) reports, the maximum grants are projected to cover all tuition and fees for students at community colleges and the average tuition for second-year students at a four-year public institution.

The Bush budget also would increase by 50 percent the maximum Academic Competitiveness Grants, established last year to provide additional student aid to first and second year students who complete a rigorous high school curriculum and are eligible for a Pell Grant. Under the Bush proposal, first-year Academic Competitiveness Grants would rise from $750 to $1,125, and second-year grants from $1,300 to $1,950. But to pay for these spending increases, ACE reports, the Administration would eliminate the Supplemental Education Opportunity Grants program, the Perkins Loan program, the Leveraging Educational Assistance Partnership program, and the Robert C. Byrd Honors Scholarships-plus cut subsidies to student loan lenders by $18.8 billion.

Overall, according to an analysis by the House Appropriations Committee, approximately 1.5 million students would lose financial aid as a result of these cuts.

"Congress should be increasing the federal investment in student aid rather than diminishing it, and expanding educational opportunity rather than restricting it. Other countries around the globe will not wait for us to get our economic house in order before we begin to reinvest in higher education," the Student Aid Alliance declared in April.

The Washington-based Alliance is a coalition of more than 60 organizations representing college students, parents, college and university presidents, faculty, financial aid administrators, and others.

The Consumer Bankers Association also responded "with alarm" to a proposal in the Bush budget to slash interest rates to student lenders by a half percent. "Student lenders cannot sustain cuts of this magnitude, which would cut margins by about 20 percent. Driving away banks from this program will leave students with either a government monopoly or an oligopoly of loan providers and few if any of the benefits currently provided by the competition," declared CBA President Joe Belew.

In the early swirl of proposals and counterproposals, statements and rebuttals, there are no firm indications of where the new Congress will wind up on many of the key higher education issues. Republicans, the minority party in both houses for the first time in 12 years, have been unusually muted but are not expected to remain that way.

Sen. Mike Enzi (R-Wyo.), ranking member of the Senate Education Committee, outlined the need for a broad Higher Education Act reauthorization bill that would, among other things, "encourage competitive financial aid" and "open doors to more information helpful to students and parents planning for college." Enzi, the only accountant in the Senate, also called for a simplified federal student aid system.

"Congress should be ... expanding educational opportunity rather than restricting it." -Student Aid Alliance statement

Reauthorization of the HEA, which contains all major federal student financial aid programs, was supposed to be at the top of the education agenda as the last Congress began two years ago. When the financial guts of the measure were included in a budget reconciliation bill that Congress approved, what was left of HEA was extended in a series of short-term resolutions. The current one expires June 30.

The hearing that Kennedy's committee held in February seemed to signal that the Senate is ready to take up the HEA again, according to a report by ACE. At the hearing where Kennedy unveiled his proposals to cut student loan interest rates, raise the Pell Grant, and make other changes, he declared, "All these issues will be addressed in this year's reauthorization of the Higher Education Act."

In the months ahead, all these issues, and others, will be subjects of more hearings and targets of intense lobbying by interested parties on all sides. While Democrats hold comfortable control over the House, their one-vote majority in the Senate is tenuous.

In short, although the political lineups have changed, the rest is par for the course on Capitol Hill.

Alan Dessoff, a former reporter for The Washington Post, is a Bethesda, Md.-based freelance writer.

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