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Budget Deal Raises Odds of Pell Increase

May 17, 2007

Democratic Congressional leaders reached agreement late Tuesday on a 2008 budget resolution that greatly increases the likelihood that lawmakers pass legislation this year that will cut financial support for student loan providers and use the savings to increase financial aid for students. Predictably, the move brought praise from student groups and howls of protest from lenders.

The Congressional action came in a seemingly arcane procedure in which House and Senate leaders, at the urging of the heads of their chambers' education committees, included what is known as "budget reconciliation" language in the spending blueprint they plan to pass this week. Under that language, the House Education and Labor Committee and the Senate Health, Education, Labor and Pensions Committee commit to developing legislation by September that would produce at least $750 million in budget savings from the mandatory programs under their jurisdiction.

But by all accounts, the panels' Democratic leaders plan to make changes in the Higher Education Act, which governs most federal higher education programs, that would slash subsidies for student loan providers by many times that (as much as $22 billion, by one proposal) and use the proceeds to increase the maximum Pell Grant and cut the interest rate on student loans, among other goals.

The education committee leaders could try to enact such changes through the normal process of passing the Higher Education Act as a freestanding piece of legislation. But attaching the student aid portions of the Higher Education Act to the budget reconciliation process gives Democratic leaders some key advantages. Budget legislation cannot be filibustered (a common tactic used by opponents of Senate legislation) and it is difficult if not impossible to amend.

So Democratic leaders have virtually ensured themselves that they can get a bill that would achieve their purposes through Congress whether Republicans like it or not -- much as Republican leaders did 15 months ago, when they enacted budget reconciliation legislation that cut $12 billion from the student loan programs to put toward deficit reduction, much to the dismay of college leaders and Democrats.

The budget resolution drafted by Democrats this week calls for increasing spending on education programs by about $3.6 billion in 2008 over the comparable level for 2007, plus another $2 billion in funds advanced for the 2009 fiscal year. While those funds could be put toward multiple uses, college lobbyists are hopeful that much of it would go toward a significant increase in the maximum Pell Grant. Congress increased the maximum grant by $260, to $4,310, in February.

The budget plan over all calls for significantly more domestic spending than President Bush sought in his own 2008 budget, and White House officials have promised to veto a Congressional budget that exceeds his own requests. But a veto could be politically unpalatable for the president if Democrats can portray their plan as bolstering support for popular priorities such as education, health care, and veterans' programs.

While in the last Congress Republicans embraced the wisdom of using the budget process to make changes in the student loan and aid programs and Democrats and student advocates decried it, this time the reverse is true.

“The budget committee’s announcement today means that we now have an excellent opportunity to make college more affordable for American families," said Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee. "It is no mystery that the federal student aid programs are far less efficient than they should be. Each year, the programs waste billions of taxpayer dollars on excessive subsidies to lenders. That money should be used as intended -- to help parents and students pay for college, not to pad the profits of big banks and lenders."

Republican lawmakers and lenders dismissed the Democrats' characterization that the plan aims to cut into lenders' profits to increase other aid for students, and instead described it as intended to undermine the lender-based Family Federal Education Loan Program and to buttress the federal government's competing direct loan program.

"American students and their families should be concerned about the budget agreement announced yesterday by the Congressional leadership," Joe Below, president of the Consumer Bankers Association, said in a prepared statement. "As a result of it, Congress will cut hundreds of millions from financial aid programs and apparently consider drastic changes to the student loan program relied upon by 80 percent of American student borrowers and, quite possibly, end that program as it is known today.

"Cuts of the magnitude planned by Congressional leaders will raise the cost of borrowing for students by eliminating the ability of student loan lenders to offer borrowers discounts on loan fees and interest rates. The cuts will discourage investment in new technologies to make repaying a student loan easier and will lead to poor quality service. Most importantly, the leadership apparently wants to end the FFEL program and force all students who need loans to borrow from a government monopoly, the William D. Ford Direct Loan program."

 

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