Bush vs. Bankers

January 17, 2005

There is no such thing as an offhanded comment from a White House spokesman.

So when Trent Duffy, in explaining Friday that President Bush would seek to bolster the Pell Grant program in part by reducing the subsidies paid to lenders in the student-loan program, called the subsidies "excessive" and described the loan industry as "very profitable," the political winds surrounding the student-loan programs continued to shift.

That prospect may have been lost in the shuffle amid the cheerleading from colleges about the president's stepped-up support for Pell Grants, which he announced in a carefully orchestrated "Conversation on Higher Education and Job Training" with students and college officials at Florida Community College at Jacksonville.

Bush said he would slowly raise the size of the maximum Pell Grant, the primary source of grant money for students from low-income families, by $100 a year for five years, to a high of $4,550 by 2009. The White House also said the president's 2006 budget plan would call for wiping out the $4 billion shortfall that now exists in the Pell program.

College leaders like David Ward of the American Council on Education applauded the plan, calling it "extraordinary news," while Democrats in Congress expressed skepticism because Bush proposed during the 2000 presidential campaign to lift the Pell Grant to $5,100. "My first instinct is to say: 'Show me the money,' " says Rep. George Miller of California, "because this administration has a track record of broken promises on education funding."

Partially lost amid that back and forth was the question of how the government would pay for more Pell funds. The president himself referred obliquely only to a way to "reform the student loan program to make it more -- or ask Congress to reform it -- to make it more effective and efficient, and thereby saving money." But Duffy, his spokesman, said the administration would go after the subsidies the government pays to lenders, which have been under attack from advocates for students but defended by most Republican politicians.

''We're confident that we can gradually reduce the subsidies, the excessive subsidies, in that program," said Duffy, the White House spokesman. ''It is a very profitable industry."

The White House's growing opposition to the subsidies does not come close to ensuring their end. Republican supporters of the loan industry in Congress (where campaign contributions from banks and student-aid lenders flow generously) did not respond to the president's proposal Friday, but the previous day, GOP leaders announced that they had asked the Government Accountability Office to investigate the "hidden costs" of the Direct Student Loan Program, which competes directly with the guaranteed student-loan program that provides the lender subsidies.

The student loan wars are heating up again.

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