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Whodunit? Chairman Miller, That's Who

August 9, 2006

(Note: The commission announced Wednesday morning that it had dropped the recommendation on the private loans from the report it will consider and almost certainly vote on at its meeting Thursday. For details, see bottom of article.)

You can count on one hand the number of substantive changes that the Commission on the Future of Higher Education made between the second and third full drafts of its report. Because the changes are so few, those that did emerge have attracted scrutiny, and one in particular -- a proposal encouraging more students and families to use private loans instead of government-financed loans -- continued Tuesday to draw the ire of advocates for students, who say a shift from unsubsidized federal loans to private loans could cost students billions in higher interest payments.

Among the questions financial aid experts have asked is: Just where did the proposal come from, and how was it seen as important enough to find its way in to a draft in which very little else changed, and that on the whole is friendly to students' financial interests?

In a poisonous atmosphere of federal financial aid circles marked by intense competition between the government's direct and guaranteed loan programs and sharp suspicion of commercial lenders by student groups, conspiracy theories abounded. The leading theory was that the provision must clearly be the work of Catherine B. Reynolds, a commission member who made her fortune running a company called EduCap, Inc., that offers, yes, private loans. Reynolds has been a virtually silent member of the commission, and this was clearly her attempt to put a personal stamp on its report, and an attempt by commission leaders to involve her, the speculation went.

But as it often is, the speculation seems to have been off-base. In an interview Tuesday, Charles Miller, the commission's chairman, blew up the Reynolds theory and pointed the finger elsewhere: at himself. "Me," he said, when asked who was responsible for the private loan provision. And no, he insisted, the proposal had nothing to do with helping to line the pockets of private lenders.

Instead, Miller had a couple goals in mind, he said. First, the chairman has throughout the commission's deliberations sought ways to increasingly involve the private sector in financing higher education; at one early meeting, he said he hoped to explore ways that the "private capital markets" might invest in American higher education. The private loan market, he said, "calls attention to the fact that there's a private market that has alternatives for people, and is an example of a way that allows the private sector to be engaged in market-driven business" related to higher education.

Second, Miller noted that the commission also added to the latest draft a specific proposal about increasing the purchasing power of the Pell Grant, and that he thought it was important -- since the panel calls for broadly restructuring the federal student-aid system -- "to say something about the student loan area." "I wanted us to say something on the loan side, and I saw this as a very modest proposal, not prescriptive. The purpose of the bullet point was to elevate the issue, to say, 'Let's look at this area,' and to create some discussion."

That it has done, but not precisely in the way Miller had hoped. Monday, the Project on Student Debt lambasted the proposal in a letter to Miller, saying that it would force many students to take on added debt and pay higher interest rates, and that, contrary to the language of the provision, shifting borrowers to private loans from federally unsubsidized loans would not free up "scarce public funds." "No substantial resources, if any at all, would be freed up by ejecting middle class students from the federal loan programs," the group wrote. "Contrary to the assertion in the draft report, the bulk of the federal loan program costs are associated with subsidized Stafford loans, which are made on the basis of need and provide an interest subsidy while students are in school."

Tuesday, the Higher Education Project of the State Public Interest Research Groups weighed in, saying that if the commission were to carry out the logic of the provision and shift students who now receive unsubsidized federal loans to private loans instead, the recipients would pay an added $32 billion in interest costs over five years.

"This would be a catastrophically terrible deal for students," said Luke Swarthout, who heads the Higher Education Project. "The commission has avoided programmatic analysis of the loan programs for 10 months now, and having ignored the issues up until this point, they've put forward a proposal that advantages lenders at the expense of students and families."

Miller hinted Tuesday that his effort at stimulating conversation may not survive the commission's meeting Thursday or appear the panel's next draft. Said the chairman: "I don't know that it'll stay in there."

Update: Miller sent around an e-mail message to fellow commissioners Wednesday morning in which he said "it is clearly a good choice to remove the recommendation ... relating to student loans from consideration in the report, which we have done." In his e-mail -- which followed an e-mail last night in which Miller tried to explain why he had included the proposal -- the chairman added: "I won't dwell further at this time on the rationale for putting this recommendation on the table. The current situation doesn't allow the Commission an opportunity to understand the details or defend the idea. The financial aid recommendations in the draft report are very powerful as they stand without it.

My own operating rule on financial aid has been to avoid getting bogged down in specific program discussions in this complex, convoluted system. I ignored that rule, but proved the point that this will be a difficult area to address without looking at the whole picture."

 

 

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