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Breaking the Silence on Student Loans

March 20, 2009

Given the intensity, even toxicity, that typically surrounds discussions of the federal government's two competing student loan programs, the relative lack of public pushback against President Obama's proposal last month to end the lender-based guaranteed loan program has been surprising.

Little has been heard from the Republican lawmakers who have historically supported the private market (though federally subsidized) program. There have been the predictable shouting and cries of alarm from organizations that represent banks and other lenders, but even those have been relatively tame and mostly reactive.

And hardly a peep has come from financial aid directors at the thousands of colleges -- still a solid majority of all institutions -- that participate in the guaranteed loan program. In interviews in recent weeks, several said that they had major concerns about the Obama proposal and its insistence that they join the direct loan program, but they acknowledged that -- as administration officials clearly hoped -- their opposition was muted in part because the Obama plan would use savings from ending the guaranteed loan program to do things they like: ensure a regular, increasing flow of federal money to Pell Grants and direct significant additional funds to students and colleges.

Lots of discussions have taken place outside the public eye, with lenders encouraging college officials who support the bank-based program to speak up, and financial aid administrators debating whether and how to do that. On financial aid listservs, criticisms of the president's plan have been outnumbered by guaranteed loan participants asking their peers about the pros and cons of moving to direct lending.

But with members of Congress planning to move with lightning speed -- as soon as next week -- to draft legislation that could direct the Education Department to do away with the guaranteed loan program, the relative silence broke Thursday. The National Association of Student Financial Aid Administrators, which had gently expressed concern about Obama's loan proposal (amid significant praise for the president) when his budget was released last month, sent a letter to its members (following one it sent to lawmakers on Tuesday) urging Congress not to use the budget reconciliation process to mandate that the government originate all loans out of direct lending, and suggesting instead that Congress slow down and consider alternatives such as the association's own proposal for a single, hybrid loan program.

"Rather than eliminating FFELP through the budget reconciliation process, which would prevent a full vetting of alternative proposals, NASFAA asked legislators to convene a stakeholder's meeting to consider viable options that will ensure students have the long-term financing they need to meet college costs," the association's president, Philip R. Day Jr., wrote in a memo to its members.

The language in the actual letter to Rep. George Miller, the California Democrat who heads the House Education and Labor Committee, was even plainer: "We ask that the budget reconciliation process not be utilized to reform the student loan process."

Later Thursday, the financial aid group, issuing somewhat conflicting signals, sent yet another note to leaders of its state subsidiaries saying that NASFAA leaders had received "absolute assurances" from Miller and his staff that Congress would consider alternatives to the president's plan. "I want to emphasize that NASFAA's official position, particularly given the repeated assurances that have been provided regarding the commitment to continue the dialogue, is that we are not opposed to the budget reconciliation process."

Changes of the magnitude and breadth that the Obama administration proposed in the Education Department's 2010 budget plan would probably take many months to enact and even longer to carry out, and leave lots of room for the typical give and take (and compromise) of the legislative process, potentially given those who objected to the administration's approach time to propose alternatives.

But Congressional Democrats' plan to use the budget reconciliation process changed all that. Budget legislation is virtually impossible to amend and is voted on in a pure thumbs up or down way, and can usually be drafted with enough goodies for enough legislators to ensure its passage. As a result, if crafters of the legislation decide to write into the budget legislation language that directs the Education Department to head down the road Obama has pointed them down, opponents would find it virtually impossible to excise such language from the bill.

 

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