Painful Weekend in Congress

Bills contain mostly bad tidings for colleges and students, especially on loans, but funds may surface for science grants and Katrina-damaged colleges.
December 19, 2005

As Congress scrambled over the weekend to try to wrap up its work before adjourning for the year, lawmakers acted on several measures potentially important to higher education -- with mostly dreadful results for colleges and students.

The House of Representatives voted in the early hours of this morning -- finishing at about 6 a.m. -- on three major pieces of legislation. One would cut $12.7 billion from the federal student loan programs, mostly by returning to federal coffers enormous subsidies that now go to lenders when borrowers are paying a lower interest rate than the minimum one guaranteed by the government, although fees or interest rates paid directly by students and parents would also rise.

The measure would, however, provide about $3.75 billion to create a new two-part grant program for students -- "academic competitiveness" grants for low-income freshmen and sophomores from academically rigorous high schools who maintain a 3.0 grade point average in college, and National Science and Mathematics Access to Retain Talent (SMART) grants, which would go to college juniors and seniors to study high-demand fields like sciences and certain foreign languages.

The House also voted early this morning on a Defense Department appropriations bill containing a provision that would cut 1 percent from the spending levels for all federal discretionary programs in 2006. That action, if it holds, would mean reductions for virtually all federal programs important to higher education, since almost all of them were to have had their funds held at the 2005 levels to begin with.

A positive development for colleges over the weekend was that House and Senate lawmakers drafting compromise hurricane relief legislation, which was also attached to the Defense spending bill, had agreed to include $200 million for colleges in the Gulf Coast region. That's less than the $500 million college groups had sought, but getting any funds at all was far from assured.

The situation late last night was very fluid, and information on what was included (or not) in the various measures was flying across the Internet and through telephone lines well into the night, leaving many unanswered questions. But here's where things apparently stood on the three major, somewhat interrelated measures relevant to higher education that Congress was trying to finish up:

Katrina relief. Starting with the positive, Congressional leaders seemed to have reached agreement on a $29 billion package of Katrina-related relief, and it included $200 million. An intense lobbying effort by college groups over the last two weeks -- overcoming legislators' reluctance to give aid directly to colleges rather than only to affected students -- got the money into the bill. The vast majority of those funds -- $190 million -- were to be evenly divided between the Louisiana Board of Regents and the statewide higher education coordinating board in Mississippi to deliver among institutions in their states. Although the state agencies were apparently going to be responsible for divvying up the funds, private institutions in the two states are going to be eligible for the funds, college lobbyists said.

The other $10 million is to be allocated to institutions that took in students displaced by Hurricane Katrina.

Becky Timmons, director of government relations at the American Council on Education, called the inclusion of Katrina funds for colleges a "huge relief."

Budget reconciliation. Congress has been working for months on a measure aimed at cutting spending on federal mandatory programs, in a push by conservative lawmakers to rein in the federal budget deficit in a process known as "budget reconciliation." The two chambers had been far apart, with the Senate seeking to cut about $35 billion and the House pushing for $50 billion. The situation has been complicated by the fact that Republican leaders in Congress are also pushing to save money so they can cut taxes.

Late Saturday, representatives of the House and Senate reached a compromise that would slash about $40 billion, with about a third of the savings coming from the student loan programs. "It's a terrible precedent to finance a third of the deficit reduction for the government as a whole on the backs of students," said Timmons.

As details began to emerge last night, it became clear that while earlier versions of the budget reconciliation legislation, particularly in the House of Representatives, would have derived much of their savings by cutting subsidies to lenders, most of the money in the final bill will come out of the pockets of students -- 70 percent, in the estimation of Luke Swarthout, higher education associate with the State Public Interest Research Groups.  He called the bill "an outrage to lower and middle class families that hope to send their children to college."

Among other changes, the compromise budget reconciliation measure would:

  • Leave at 6.8 percent the fixed rate that borrowers pay to consolidate multiple student loans into one, and set at a 6.8 percent fixed rate what borrowers pay for Stafford loans, as the Senate's budget reconciliation had proposed doing. College groups generally preferred that approach to the House's plan to switch to a variable rate that would be capped at 8.25 percent, although student groups are upset that under the fixed rate approach, borrowers could wind up paying a higher interest rate in years when rates fall below 6.8 percent. The measure also would increase to 8.5 from the current 7.9 percent the interest rate that parents pay on their loans (known as PLUS loans).
  • Phase down over several years the fees that students pay when they originate loans, but temporarily raise them in the short term, which some college officials say will hurt the direct loan program by requiring borrowers in that program to pay a 3 percent fee in 2006-7, up from the 1.5 percent fee they now pay. Republican Congressional aides say there is no increase in fees, though, because the education secretary has the authority to give students a 1.5 percent rebate.
  • Move the funds that the Education Department uses to cover the administrative costs of the running its loan programs (most of which are for the direct lending program) from the "mandatory" part of the federal budget to the "discretionary" part, so that Congress must allocate funds for it each year. That would increase the competition for already tight funds for higher education and mean that in difficult budget years, lawmakers might have to choose between funds for students and funds to carry out a program that serves students.
  • Create a new two-part grant program aimed at increasing the number of students studying science and math. The first part of the "Academic Competitiveness" program, which appears to have developed without much discussion or scrutiny in the last few days, would be for first- and second-year students who are eligible for Pell Grants and who have attended a high school recognized by the U.S. education secretary as having a "rigorous curriculum" (to keep the grants, students would need to attain a cumulative grade point average of 3.0). The upperclass portion of the program, which was included in the Senate's version of the budget reconciliation legislation earlier this fall, would be for juniors and seniors who major in high-demand fields, especially in technological disciplines. Grants would be $750 in the first year, $1,300 in the second, and $4,000 in the third and four years.
  • Eliminate the controversial 9.5 percent interest rate available to lenders on loans made by “recycling” existing pools of funds drawn from certain bonds -- although the measure would allow "flexibility" for some nonprofit lenders to phase out the subsidies. Details were not available.
  • Increase loan limits for first- and second-year students and allow graduate students, for the first time, to take out PLUS loans.
  • Repeal the "50 percent" rule that requires colleges to offer at least 50 percent of their courses in person, to which institutions heavy into distance education have objected.

The budget measure also includes one other provision that is only tangentially related to higher education but could prove controversial. It would forgive the student loans of any borrower who elects to teach in private elementary and secondary schools, which is the sort of measure that tends to provoke teachers unions and other defenders of public education.

Appropriations. Although the House passed a 2006 spending bill for the Departments of Labor, Health and Human Services and Education last week, the measure has been hung up in the Senate over provisions unrelated to higher education. Over the weekend, the spending bill was attached to the mammoth Defense Department appropriations bill that lawmakers feel a desperate need to pass to support the war effort in Iraq.

But also attached to the Defense bill is a provision that would impose a 1 percent cut across all federal agencies, including those financed by legislation that Congress has passed previously this session. The provision, if it takes effect, would result in cuts for almost all federal college programs, as almost all of them would, in the spending bill for education and health programs, have stayed frozen at the 2005 levels.
Timmons described the 1 percent cut as another drop in the "slippery slope backwards for student aid programs."

Although the House was expected to pass all three of these measures by this morning, the situation is murkier in the Senate, which remains tied up in knots over a proposal to allow drilling for oil in the Alaska National Wildlife Refuge, which Republican moderates and many Democrats oppose. Legislation that would allow such drilling has been attached to the Pentagon spending bill, but if opponents of "ANWR" drilling, as it is called, manage to defeat that measure as a result, supporters of the drilling provision have vowed to attach it to the budget reconciliation bill -- which could doom that measure.

So final passage of all of these pieces of legislation remains in some doubt.


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