Sharing the Pain

House panel votes to impose cuts on lenders but makes advocates for students unhappy, too.
July 22, 2005

There were long periods during Thursday's marathon session of the House Education and the Workforce Committee when it was hard to remember that the legislation under review was the Higher Education Act. There were long speeches and sharply worded exchanges about tax cuts, the war in Iraq, and an esoteric debate about the historical accuracy of the "Robin Hood" legend.

At other times, it felt a lot like the mid-1990s, when members of Congress warred constantly over the federal government's two competing student loan programs.

But at no point would anyone listening in have had a moment's doubt whether this Congress is filled with partisan rancor between Republicans and Democrats, as the committee's second full day considering legislation to renew the Higher Education Act was dominated by charges and countercharges about who cares more about students and which party has the better approach to meeting American students' needs for grants and loans.

The committee's Republican majority had its way on all the key votes. The panel:

  • Adopted a plan that will allow borrowers who consolidate several loans into one to choose between a fixed and a variable rate, which advocates for students and college officials have advocated.
  • Approved an amendment that would reduce funds for lenders and guarantee agencies by reducing the amount the government reimburses them when students default on their loans, but turned away a Democratic attempt to cut those funds even more.
  • Rejected a Democratic proposal that would have shifted money saved in the loan programs to increase the maximum Pell Grant by $500 over five years.
  • Voted down a proposal that would have rewarded colleges that participate in the "less expensive" of the government's two loan program (which, though the accounting methods are fiercely debated, is generally seen as the direct loan program) by letting them use half of any savings they generate to give their students additional Pell Grants. Republican supporters of the guaranteed loan program said the plan amounted to an effort to bribe colleges into the direct lending program, which has lost hundreds of colleges in recent years.

Underpinning Thursday's debate was the fact that in crafting its bill to renew the Higher Education Act, the law that governs federal student aid and other higher education programs in the U.S. Education Department, the House committee is under intense pressure to come up with billions in dollars in savings to help Republican leaders in Congress meet their goal of reconciling a huge budget deficit. Exactly how much money the committee is trying to wring out of the various programs is disputed, but Democrats peg it at $11 billion, and Republicans say it is too early to tell, but don't dispute that figure vigorously.

Most of that money would come out of the hides of banks and other entities in the guaranteed loan program, through a series of fee increases and cuts in subsidies. The lenders are unhappy about the cuts but seem to recognize that they're an easy target, because many of them are hugely profitable.

But some Republican lawmakers said they feared the cuts might drive some lenders out of the programs -- a threat that has been made before but has not come to fruition.

The most contentious issue related to the loan programs in this renewal of the Higher Education Act related to students who merge several loans into one, a practice that has become hugely popular because the terms for doing so have been so generous.

Too generous, in the eyes of the chairman of the House panel, Rep. John A. Boehner (R-Ohio). He has argued that letting borrowers consolidate multiple loans into one at the current low fixed rate (which until July 1 was 2.8 percent for current students, and 3.5 percent for graduates) has cost the government -- which subsidizes the difference -- too much as interest rates have risen. Boehner's original legislation to renew the Higher Education Act this spring would have let the consolidation rate fluctuate each year with the overall economy, with a cap of 8.25 percent.

Student groups and many college officials argued that letting the market set the rates would almost inevitably hurt students, and they have pushed to retain a fixed rate. Compromise came this month in the form of a proposal by another Republican member of the committee, Rep. Thomas E. Petri of Wisconsin, who often sides with students over lenders in the debates over the federal loan programs.

On Thursday, Boehner and Petri jointly unveiled the details of that compromise, which, while siding with Democrats and advocates for students by giving students a choice of refinancing options, sets the cap for both the fixed and variable rates at 8.25 percent, which Democrats said was too high. Petri's legislation also would require either lenders or students to pay a 0.5 percent fee to create their loans. The combination of the higher rate and the fee, Democrats said, would increase the cost of the average borrower's consolidated loan by $6,000.

"We should be as sensitive as we possibly can to the burden we're putting on the backs of these students," said Rep. George Miller of California, the education committee's top Democrat.

Petri's proposals made both Democrats and some Republicans unhappy, underscoring what seems to be the theme of this year's version of the Higher Education Act reauthorization, which is that given the fiscal climate, everyone must share the pain.


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