Faint Echoes of 1995

As Republican leaders in the House of Representatives released a plan Tuesday to use nearly $15 billion in savings from student loan programs to reduce the federal deficit and help rebuild the Gulf Coast, higher education leaders ratcheted up a campaign to retain those funds to benefit college students.

“This is a raid on the student aid programs,” David L. Warren, president of the National Association of Independent Colleges and Universities, said during a telephone news conference sponsored by the Student Aid Alliance, which hoped to unleash a torrent of student calls and e-mail messages on lawmakers. “If there is money to be saved from these programs, now, if ever there was a time, they should be used for student aid in one form or another. Instead they’re being sent off for other purposes.”

With some of their recent rhetoric and their sense of urgency, Warren and other college leaders have brought back memories of 1995, when Congressional leaders proposed changes aimed at eliminating subsidies that limit the cost of loans to students and cutting other benefits for students, as part of a broad plan to reduce a ballooning federal deficit. 

That year, higher education associations and student groups in Washington created a new organization (a precursor to the Student Aid Alliance) that undertook an all-out lobbying blitz, complete with a letter writing campaign and an 1-800 call-in number for students, that accused Congress's new Republican leaders of seeking to finance tax cuts for wealthy Americans on the backs of needy students. Bruised and battered in public opinion polls, driven in large part by the new political force known as the ''soccer moms," the new Republican majority in Congress eventually dropped its plans, and when the government eventually enacted a budget plan the following spring, after a government shutdown, spending on student aid and college programs actually increased sharply.    

Although the broad outlines of the current situation may resemble that of a decade ago -- Congressional Republican leaders seek to use savings from efficiencies in the student loan programs to cut the deficit and pay for tax cuts -- college officials acknowledge that what’s happening now is far more complex, and not nearly as easy to explain.

First, while some of the savings produced by the “budget reconciliation” plans drafted thus far by the Senate and particularly the House of Representatives would come from increasing loan fees and interest rates for students, the bulk of the money derives from diminished subsidies and rising costs for banks and other parties in the guaranteed loan program. So while student groups are unhappy about what they describe as the “largest cut to student aid in history,” -- much to the consternation of Congressional Republicans -- college lobbyists eager for a reprise of the 1995 reversal do not have as clearcut or resonant a tale of woe now as they did then.

Still, the higher education groups insist that they have plenty to be unhappy about. They hoped that Congress, in renewing the Higher Education Act this year, would use any savings produced by making the student loan programs more efficient to significantly increase the maximum Pell Grant or boost spending on other financial aid programs, at a time when students are having increasing difficulty paying for college. 

But while the combined Higher Education Act and budget reconciliation bill in the Senate would direct nearly $8 billion toward new “temporary” aid for low-income students and those studying math and science, and House leaders say their package would “expand college access for low- and middle-income students,” most of the funds the Congressional committees have identified are headed for other purposes.

“The only way you can get more money for student aid or better terms or conditions for students is by taking it away from the Pillsbury Doughboy that is the student loan programs,” said Sarah A. Flanagan, vice president for government relations at the independent college association. “So everyone -- lenders, institutions, the government and students -- worked together over the last 10 years to create savings, and then Congress goes ahead and starts pulling the arms and legs off the Doughboy and putting it toward deficit reduction. This cash is going out the door and we’re not going to have any more for six more years, if we have any at all. Think of all the missed opportunities to help students.”

Depending on how the complicated budget reconciliation process unfolds, it is possible that even the $8 billion that the Senate has proposed using to create two new student aid programs could be snapped up by Congressional budget cutters for other purposes at the point that negotiators from the House and Senate meet to craft a compromise of their chambers’ respective budget reconciliation bills.

House leaders are trying to raise to $50 billion the amount they are seeking to cut out of mandatory spending programs, up from about $35 billion that the House and Senate agreed to back in February. If the House enacts a budget reconciliation bill that cuts $50 billion, Senate leaders might have to give up the $8 billion in student aid spending to reach a compromise, college lobbyists fear.

The House Education and the Workforce Committee is scheduled to meet this morning to begin work on its plan to cut $15 billion from the loan programs and about $5 billion from federal pension benefits.

"Republicans have pledged to put forward a responsible budget that fulfills our national priorities while protecting the interests of taxpayers,” said Rep. John A. Boehner (R-Ohio), the committee’s chairman. “The committee is going to do our part by eliminating waste and inefficiency while securing the long-term future of programs to provide college access and a secure retirement for American families."

The House committee had approved a plan back in July that would cut about $9 billion from the student loan programs, mostly through reduced subsidies for lenders. To find another $6 billion in savings, the plan released Tuesday and to be considered by the panel today would increase costs for both lenders and borrowers. 

It would increase to 1 percent from 0.5 percent the origination fee that lenders pay when they initiate a loan, and introduce a one-time “offset” fee when borrowers seek to consolidate several federal loans into one -- a fee that lenders can pay if they choose, but that would be passed on to student borrowers who consolidate their loans through the government's direct-lending program. The panel also increased to 1.3 percent from 1.05 percent the annual payment that lenders that do most of their business in consolidated loans must pay to the government on the total value of their portfolio.

The education committee's new plan would also give Congressional appropriators the power to set the Education Department's administrative budget for managing the direct loan program, which supporters of that program fear could allow opponents of the program to restrict the flow of funds needed to operate it. Right now, department officials control how much they spend to manage the program.

In other Congressional developments Tuesday, the Senate, in considering its 2006 spending bill for the Departments of Education, Labor and Health and Human Services, rejected an amendment offered by Sen. Edward M. Kennedy (D-Mass.) that would have increased the maximum Pell Grant in the 2006 fiscal year to $4,250, $200 more than the current $4,050. Forty-eight senators supported the amendment, far short of the 60 needed for approval (a 3/5 majority is necessary to waive a Congressional rule that requires any added spending to be offset).

The Senate is expected to pass the spending legislation ( HR 3010) this week.