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The Competition to Aid Students

June 14, 2007

Two summers ago, as the House Education and Labor Committee debated legislation to renew the Higher Education Act, the panel's Republican majority and Democratic minority warred over the best way to spend money gained from cutting subsidies to lenders. Arguing that the bill drafted by Republicans would do too little to make college affordable for low-income students, Democrats proposed an amendment to use savings from the loan programs to increase the maximum Pell Grant by $500 over five years. No can do, the panel's Republicans said, insisting that for the good of taxpayers, it was essential that they use the billions in loan program savings to reduce the deficit.

Flash forward to Wednesday, when the House Education and Labor Committee again debated legislation that would squeeze many billions of dollars out of student loan programs. This time, as the panel discussed a Democratic-drafted bill that would spend $5 billion to increase the maximum Pell Grant by $500 over five years (but spend twice that on cutting the loan interest rate for low-income and middle class borrowers and enhancing or creating other aid programs), Republicans argued that the Democrats were shortchanging needy students. Their proposed solution: spend more than twice as much money on Pell Grants as the Democratic bill would.

“This Pell Grant proposal will tip the balance back toward low-income students struggling to pay for their college education by increasing the maximum Pell Grant far more than the underlying bill,” said Rep. Howard P. (Buck) McKeon (R-Calif.), the senior Republican on the committee.

The Republican proposal, McKeon suggested, was more in line with the Democrats’ stated aims of helping students than their own proposal, which focuses much of its attention on cutting loan payments for borrowers after they've left college. (A statement issued by McKeon late Wednesday hit that theme even harder: "When Republicans provided them the opportunity to cast a vote for low-income students in the Pell Grant program, Democrats instead reaffirmed their desire to divert billions to new, unproven entitlement programs and to temporary interest rate cuts for certain college graduates.")

Whoa, Democrats said, finding irony in being accused by Republicans of not being pro-student enough. “Where you been?” said a combative Rep. John Tierney (D-Mass.), arguing that when McKeon and other Republicans had “your shot [at cutting the loan programs] last time,” they poured $12 billion of the $18 billion they slashed from the programs to “pay down a deficit created because you gave so many tax cuts…. The idea that this is going to be shortchanging students is ridiculous.”

That moment, with the Republicans trying to “out-student” Democrats, offered the latest evidence of how much the public policy environment for higher education has changed of late, largely because of the changeover in Congress wrought by November's election. As the House committee approved “budget reconciliation” legislation, linked to its pending deliberations over the Higher Education Act, that would wring $19 billion from the student loan programs, the panel’s 27 Democrats (joined by three Republicans) voted to spend all but $750 million of those funds on enhanced financial aid, a fact cited by Rep. George Miller (D-Calif.), the chairman of the committee.

Both the Republican-led and Democratic-led Congresses had "a rather unique and rare opportunity to take the resources that were being devoted to wasteful and excessive subsidies on lending institutions" and do something else with them, Miller said to McKeon. "You chose to draw down the deficit that developed to pay for tax cuts; we've chosen to put all the money back into the education programs. We just have a difference of opinion; that's what an election is about."

Advocates for students certainly saw Wednesday's vote as a monumental change in the weather. “For many students, college is quickly becoming out of reach,” explained Rebecca Thompson, legislative director of the United States Student Association. “By increasing need-based grant aid, the College Cost Reduction Act will keep economic insecurity from replacing economic opportunity.”

Another student lobbyist, Luke Swarthout, higher education advocate for the U.S. Public Interest Research Group, noted with some irony after Wednesday’s drafting session that groups like his were more or less the only ones cheering. College leaders, who balked loudly and often two years ago when the Republican budget reconciliation plan used money that might have gone to enhanced student aid to cut the deficit instead, do appreciate the additional funds that this year’s Democratic-drafted legislation would provide for their students.

But most of them are also deeply troubled by other aspects of the measure approved Wednesday, especially provisions that aim to make higher education more affordable by attacking the other side of the equation: holding down what colleges and universities charge to students. Among other things, the House legislation would require significantly more reporting by colleges about their prices and their performance (including data on completion rates and faculty/student ratios), and put in place a series of steps institutions would have to go through if they increase tuition significantly, along with some carrots and sticks aimed at discouraging such increases.

Many college leaders have consistently objected to such policies as “price controls,” which they maintain are bad public policy.

Representatives of most of the major higher education associations remained mum after Wednesday’s vote by the House panel, saying they would continue to work with lawmakers in the House -- and in the Senate, which is expected to consider its version of the budget reconciliation/Higher Education Act legislation next week -- to eliminate or at least alter the college cost provisions that upset them so.

If changes are not forthcoming, college groups will be in a bit of a bind. They will not want to be seen as opposing student-friendly legislation that represents such a dramatic transformation in the political landscape.

Student-loan providers face no such dilemmas: the rejiggered political landscape has been terrible for them, and on Wednesday they complained bitterly about how much damage the legislation passed by the House panel would do to their industry.

To pay for increases for students, said Kevin Bruns, executive director of America's Student Loan Providers, "the bill makes an unwise and punitive assault on a college loan program that works.... The bill would make college less affordable for millions of middle class families, as their loan costs would almost certainly increase. The bill would make student loans uneconomical for all but a few lenders. Many would simply stop offering loans, thereby reducing the choice and competition that has made federal guaranteed loans the lowest-cost student loans available anywhere."

Although some Republicans on the panel (and at least one Democrat, Rep. Rob Andrews of New Jersey) expressed concern about the potential damage to lenders, the primary objections raised by opponents of the bill was that it would pay for the Pell Grant increases and most other new program funds out of the federal "mandatory" spending rather than the normal discretionary spending that requires Congressional approval each year. Some Republicans also complained that the legislation would direct too much money to creating new programs, such as one that would provide federal grants to encourage nonprofit groups to spend their own money to encourage first-generation and low-income Americans to go to college.

Other Republicans, however, expressed significant support for many of the legislation's goals and provisions. Three went so far as to vote for the legislation -- Reps. Thomas Petri of Wisconsin, Dean Heller of Nevada, and Luis G. Fortuño of Puerto Rico -- but others joined their Democratic colleagues in praising certain aspects of the bill., which would, among other things:

  • Increase the maximum Pell Grant to $5,200 by 2001-12 (at a cost of $5 billion).
  • Cut the interest rate on federally subsidized student loans in half, to 3.4 percent, by 2012-13. (Total cost: $6 billion.)
  • Institute a system of “income-based repayment” for borrowers, in which their student loan payments would be capped at a manageable percentage of their income and their debt canceled after 20 years of repayment.
  • Raise the amount that working students can earn -- through the “income protection allowance” -- without reducing their financial aid awards.
  • Lift the annual and aggregate limits on how much individual students can borrow from the federal loan programs, with the goal of reducing borrowers’ dependence on private (and typically more expensive) loans.
  • Forgive up to $5,000 in loans, and otherwise easing the loan repayment burden, for students who enter public service fields and fulfill other national needs.
  • Create a new grant program for students who are planning to be teachers.
  • Create a new program ($500 million over five years) for institutions that serve large numbers of Hispanic, American Indian and other minority students. This new provision, added to the legislation very late in the game, just before committee members voted on it, would allow for the provision of funds to "predominantly black" institutions -- those that meet a variety of standards, including having at least 40 percent of their enrolled students be black.

 

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