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Cautious Backing for Obama Plan

Cautious Backing for Obama Plan
April 22, 2009

Even as college financial aid directors continue intense debate over President Obama's plan to end the guaranteed student loan program, most of the major higher education groups signed a letter Tuesday urging members of Congress to back the proposal, saying the major benefit -- using the savings to guarantee a permanent stream of funding for Pell Grants -- outweighs concerns about the change.

Representatives of the House and Senate are preparing to meet to resolve differences between the two chambers' budget resolutions, which set the broad terms of the process by which Congress will craft the 2010 federal budget.

The House version largely endorsed Obama's proposal to originate all loans out of the direct loan program instead of the competing bank-based program, and to use the proceeds -- which the Congressional Budget Office estimated at $94 billion over 10 years -- on additional aid for students. The central idea: shifting funding from Pell Grants to the mandatory side of the budget, ensuring an annual increase and avoiding the whims of lawmakers. The Senate budget proposal supported the idea of setting aside funds for Pell Grants but did not back the student loan plan.

The Obama plan has generated vociferous opposition from student loan providers and raised significant concerns for some financial aid officers, since about two-thirds of colleges participate in the bank-based loan program and generally like it. The National Association of Student Financial Aid Administrators sent a letter last month discouraging Congress from using the budget process to make policy changes in the loan programs, citing its members' concerns.

Apart from that, higher education groups had been largely silent on the Obama plan, to the increasing dismay of groups that advocate on behalf of students. They had begun asking whether college leaders were willing to forgo the idea of a Pell Grant entitlement, which for many higher education officials have seen as the holy grail for low-income students, because they did not want to anger lenders or lose some of the benefits they now gain from the guaranteed loan program.

Tuesday's letter, which was signed by 24 college groups, including five of the six major "presidential" associations -- the exception being the National Association of Independent Colleges and Universities -- walks a fairly delicate line. It "strongly" urges Congress to seize the "one-in-a-lifetime opportunity" to create a Pell Grant entitlement, to "bring stability and predictability" to the program. (Sarah Flanagan, NAICU's vice president for government relations and policy development, said of her group's position: "NAICU, while positively inclined towards many aspects of the president's budget, has reserved taking a position on the package until its members have had a chance to fully consider the implications of the plan for their campuses.")

And it recognizes that such a change would be possible only because of the proposed conversion to 100 percent direct lending and the accounting of Pell Grant costs, a confluence of factors that the groups note "has not happened before and is not likely to happen again."

The letter acknowledges the controversy in higher education over the elimination of the Federal Family Education Loan Program, because "it asks colleges and universities to forgo longstanding lending arrangements that have worked successfully in favor of a system with which some are familiar."

Despite those concerns, the letter concludes, most colleges "are open to considering [the loan plan] in order to secure an authentic Pell Grant entitlement."

 

 

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