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Delay for Loan Auction, Help for Borrowers

Delay for Loan Auction, Help for Borrowers
March 31, 2009

Technically, of course, given the name, Congress passes "technical corrections" bills to fix typos and make other minor changes in legislation that it has passed previously. But given the immense complexity of many federal laws, and how dramatically circumstances can change in just the few months after they are enacted, technical corrections bills sometimes wind up making changes that seem to go way beyond inconsequential tweaking.

That is very much the case with a measure the House of Representatives passed on a voice vote Monday (HR 1777), which is designed to update changes that Congress has made in two recent laws renewing the Higher Education Act of 1965. While many of the provisions of the 54-page bill make the kind of piddling changes on which technical corrections measures usually focus -- replacing the erroneous "Tribally Controlled College or University Assistance Act of 1978" with the correct name, the "Tribally Controlled Colleges and Universities Assistance Act of 1978," for instance -- the new measure would make one hotly contested change in policy and another shift that would help tens of thousands of student loan borrowers.

The former change would postpone for a year a planned auction of federal student loans for parents, which Congress passed as part of a budget reconciliation measure in 2007. The auction, which Democratic supporters in Congress said would experiment with the idea of setting loan interest rates through market-based forces rather than the political whims of lawmakers, had been opposed at the time by the Bush administration and many Republicans as risky and potentially disruptive to parents and students.

In recent weeks, as the national economic picture continued to disintegrate and many major loan providers announced that they would not participate in the state-by-state auctions, potentially putting the plan at risk, the National Association of Student Financial Aid Administrators urged Congress to delay the auction, even as the Education Department announced that it was proceeding.

But given the upheaval surrounding the student loan landscape generally -- with the Obama administration pushing a plan to eliminate the lender-based guaranteed loan program entirely -- even Democrats who supported the auction idea embraced the notion that postponing the auction program makes good sense.

Republicans, though, did not pass up an opportunity to use the backtracking on the auction to offer a cautionary suggestion about the current student loan environment to their Democratic counterparts and anyone in the Obama administration who might be listening. Noting that he and others had opposed the auction proposal as "shortsighted" two years ago, Rep. Howard P. (Buck) McKeon, the senior Republican on the House Education and Labor Committee, said during Monday's brief discussion about the technical amendments bill that he hoped the vote "will send a message that undercutting a successful program to achieve political goals was not a good idea in [2007], and it's not a good idea today," a not-veiled-at-all reference to Education Secretary Arne Duncan's plan to eliminate the guaranteed loan program.

The other significant but less-visible change the technical corrections bill would help tens of thousands of student loan borrowers who, after defaulting on their loans, "rehabilitate" them by making at least nine on-time payments, as explained in this earlier article. The borrowers are supposed to be able to clean their credit records once the loans are repurchased by another lender, but the credit crunch has obliterated the market for such purchases -- leaving borrowers in the lurch.

At the urging of loan guarantors, Congress, in the technical corrections bill, would grant the Education Department the authority to buy rehabbed loans under the larger program that federal agencies announced last fall to ensure that federal student loans would continue to be available to borrowers. This change, if the Senate passes and President Obama signs the technical corrections bill as expected, would allow borrowers who have rehabbed their loans to once again benefit from having dug themselves out of a financial hole.

In other changes that would be made by the technical corrections bill, Congress would:

  • Delay for a year, to 2010-11, implementation of the shortened Free Application for Federal Student Aid that is designed to make it easier for some students and families to apply for financial aid. The Higher Education Opportunity Act that Congress passed last summer directed the Education Department to make an EZ FAFSA available to the subsection of low-income students who already qualify for an expedited review of their financial situations, part of a larger plan to facilitate the student aid application process.
  • Extend the range of people who are barred from receiving "prohibited inducements" from student loan guarantors. The existing language bars "any institution of higher education or the employees of any institution of higher education" from getting such gifts or payments; the corrections bill would extend the prohibition also to "any individual or entity."

 

 

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