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Student Loans Slashed

The end of 2005 brought a large reduction in the federal student loan program.
University Business, Feb 2006

Still reeling from Congressional action that slashed $12.7 billion from federal student aid as 2005 ended, Washington's higher ed community began the New Year trying to come to grips with the situation they faced.

"This is the biggest cut in the history of the federal student loan program," declared David Ward, president of the American Council on Education (ACE), the coordinating body for the wide range of postsecondary organizations in the capital.

The cuts were contained in a budget reconciliation bill that aimed to trim the federal deficit by reducing funding for entitlement programs over the next five years. It was the first reconciliation measure in eight years to trim mandatory spending programs like Medicare and Medicaid in addition to student loans.

The student aid cuts amount to nearly a third of the estimated $39.7 billion that the budget bill will save, adding to the dismay of higher ed lobbyists and lawmakers who fought to protect the funding.

Although the House still had to act on three unrelated amendments that the Senate tacked to the bill at the last minute, at press time the student aid cuts were a done deal in the legislation that was expected to go to the White House in January for President Bush's signature.

As explained by ACE, the bill establishes fixed interest rates for student loan repayment and consolidation and increases rates for parent loan repayments. It also cuts subsidies for student loan lenders and hikes student loan origination fees in the near term, before cutting rates over the long term. Loan limits for first- and second-year students also will rise.

"At a time when the nation's future economic prospects are tied more closely than ever before to a college-educated and highly-skilled workforce, it is shortsighted to ask college students and their families to bear so much of the burden of deficit reduction," Ward asserted in a letter to senators on behalf of ACE and 11 other higher ed associations during the final flurry of activity on the bill.

On the plus side, the measure uses a small portion of the student loan cuts to create new grants for math, science, and foreign language majors; reduce loan origination fees; increase borrowing limits; and improve the need-analysis system.

However, Ward wrote, "these provisions are far too small, and in the case of one of the grant programs, far too complex and restrictive to offset the damaging consequences of the cuts to student loans."

Republicans and Democrats on Capitol Hill have opposite stances on these issues.

Adding new grants for low-income students "is a significant achievement. It's good for students and the country," said Sen. Michael B. Enzi (R-Wyo.), chairman of the Senate Committee on Health, Education, Labor, and Pensions. "We laid a solid cornerstone for education." Rep. John Boehner (R-Ohio), chairman of the House Education and Workforce Committee, added that he's pleased to see the grants targeted in particular to those "pursuing degrees in fields that will help improve American competitiveness."

House committee senior democrat Rep. George Miller (D-Calif.) took sharp exception to Republicans' glee over the bill, stating, "At a time when millions of Americans are struggling to keep up with skyrocketing tuition costs, it is shameful for Congress to raid student aid in order to pay for tax breaks for the wealthiest Americans."

Still awaiting action, meanwhile, is reauthorization of the Higher Education Act (HEA). When the current Congress began a year ago, the HEA was the most significant issue for postsecondary institutions, largely because 75 percent of federal student aid comes through programs under the law.

Although the budget bill addressed funding for most of the key student aid programs, debate over HEA reauthorization is likely to bring new efforts to strengthen the programs. Enzi said he would press for further investment in higher education through the HEA.

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

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