Senators Side With Students

With backers of budget bill framing choice starkly, lawmakers reject measure that would have softened cuts to loan providers.
July 20, 2007

Ultimately, they probably never had a chance.

The two U.S. senators who proposed an amendment to the nearly $19 billion student loan bill that was debated, and ultimately passed, on the Senate floor Thursday may have had some legitimate arguments on their side. They asserted -- and some of its opponents conceded -- that no one knows for sure whether the cuts that the underlying "budget reconciliation" legislation would make to subsidies for student loan providers could force some lenders out of the market. Rather than risk that outcome, the amendment's backers said, wouldn't it be wise to be a little more cautious and cut a little less deeply into lender profits, to the tune of $15.6 billion instead of $18 billion?

In the hours leading up to Thursday afternoon's vote, even opponents believed that those arguments -- and the lobbying might of the student loan industry -- gave the amendment a realistic shot. But the ability of Democratic lawmakers and advocates for students to frame the issue, simply and starkly, as a choice between helping needy students or fat-cat for-profit lenders proved too powerful for most senators to ignore, especially after proponents of the amendment were forced to concede that it would reduce the money available to students by $4 billion over five years.

It was hard not to picture lawmakers thinking ahead to the campaign ad quoting Sen. Edward M. Kennedy (D-Mass.), who led opposition to the measure, as saying: "Do we want to do more for students or more for the banks?" As Kennedy flashed a chart showing how much less students in each state would receive under the proposed amendment, one could almost see the votes peeling away. Ultimately, 62 senators, including 13 Republicans, voted down the amendment, clearing the only significant potential hurdle to the overall budget bill, which the Senate finally passed, after a marathon of unrelated amendments were rebuffed one after another, early Friday morning by a vote of 78 to 18.

The showdown over softening the proposed cuts to lenders was the only significant substantive battle during the Senate's consideration of the the budget reconciliation legislation. After that conflict dissipated into a rout, a parade of Democrats (and a few Republicans) rose to praise the bill as a long-overdue effort to help make college more affordable for families through a variety of measures, including:

  • Providing $17.3 billion over five years for need-based financial aid, notably through the creation of “Promise Grants,” which would go to Pell Grant eligible students with the greatest financial need. The creation of the Promise Grants, which would essentially be an extension of the Pell program, would result in the equivalent of increasing the maximum Pell Grant to at least $5,100 next year and to $5,400 by 2011, assuming that Congress does not otherwise increase the Pell Grant through the normal appropriations process.
  • Instituting a system of “income-based repayment” for borrowers, in which their student loan payments would be capped at a manageable percentage of their income (15 percent of the amount by which a borrower’s adjusted gross income exceeds 150 percent of the poverty line) and their debt canceled after 25 years of repayment.
  • Raising the amount that working students can earn -- through the “income protection allowance” -- without reducing their financial aid awards. Those amounts would rise to $6,000 by 2012-13 for dependent students and $9,330 for financially independent students.
  • Forgiving the remaining student loan balance after 10 years for borrowers who enter and spend a certain amount of time working in public service fields and fulfill other national needs.
  • Increasing to $30,000 from the current $20,000 the family income level under which a student is automatically eligible for the maximum Pell Grant.

“The passage of the Higher Education Access Act tonight was a victory not only for students and their families, but for the American people," Kennedy said in a statement released after the vote. "With this new Congress we made education a national priority again, and we’ve given the next generation the tools they need to compete in the global economy. Not since the GI bill, has education been made such a priority in the nation’s budget."

Opponents of the measure took great pains to praise its overall thrust of trying to make college more affordable for students. A few budget hawks, like Sen. Judd Gregg (R-N.H.), criticized the bill as an abuse of the budget reconciliation process, which is designed to shave funds from federal mandatory programs to shrink the deficit. Instead, Gregg said, the legislation will pour close to $18 billion of additional money into government programs over five years, and nearly $60 billion over 10 years.

That number grew somewhat after senators approved two other amendments to the legislation, including one (sponsored by a Republican, no less, Sen. Lisa Murkowski of Alaska) that would use $176 million that would have gone toward deficit reduction to instead expand a new program aimed at helping states encourage low-income students go to college.

Most of the objections to the bill, though, revolved around how deeply it would cut into lender profits to pay for all the goodies for students. Among other things, it would:

  • Reduce lender profits on new federal loans by 0.5 points for for-profit lenders and 0.35 points for nonprofit lending agencies.
  • Drop to 16 percent from 23 percent the proportion that guarantee agencies can keep of the funds they collect from borrowers.
  • Double the fee that lenders pay the Treasury when consolidating loans, to 1 percent from 0.5 percent.
  • End a program that rewards loan providers who are “exceptional performers” in servicing their student loans.

Lenders have been arguing for months that the accumulation of cuts will make the student loan business unprofitable for many a small lender, a concern that led Kennedy and Rep. Michael B. Enzi (R-Wyo.), in drafting the bill, to exact smaller cuts from nonprofit lenders than from for-profit providers. In the amendment they put forward Thursday, Sens. Ben Nelson (D-Neb.) (home to Nelnet, a leading for-profit lender) and Richard Burr (R-N.C.), sought to level the playing field by applying the 0.35 point cut to for-profit companies, too.

In promotional materials and in introducing the measure on the Senate floor, the amendment's sponsors sought to portray it as having no negative impact on the money available to students. "It preserves the maximum Pell Grant levels [in the budget bill] and does not reduce financial aid for students," Nelson said Thursday. Despite criticism from student groups, he added, "the Nelson/Burr amendment increases grant aid to the exact same funding levels" as the Democratic bill.

Only that's not quite the case, Kennedy pointed out, comparing, line by line, the amounts that the two measures would make available for the new "Promise Grants" program for students from low-income families. "There is $4.2 billion less in terms of student aid," the Massachusetts Democrat said.

"We raise $4 billion less money out of the system, and we believe that's a prudent thing to do," Burr ultimately conceded. When Sen. Sheldon Whitehouse (D-R.I.), responding to a Kennedy chart showing that Rhode Island students would lose $10 million in aid under the amendment, asked Burr whether that was so, Burr said he hadn't done the math. "But I've never found [Kennedy's] charts to be incorrect," he said with a weak smile.

By that point, the steam seemed to have gone out of support for the amendment, and when the senators ultimately cast their ballot, all Democrats save two and 13 Republicans (Missouri's Christopher (Kit) Bond, Minnesota's Norm Coleman, Maine's Susan Collins and Olympia Snowe, New Mexico's Pete Domenici, Enzi, Charles Grassley of Iowa, Judd Gregg of New Hampshire, Richard Lugar of Indiana, Murkowski, Oregon's Gordon Smith, Arlen Specter of Pennsylvania and Alaska's Ted Stevens) opposed the alternative.

Lenders were deeply disappointed. "With the defeat of the Nelson-Burr amendment today, Congress has severely limited the options of families and students who are trying to effectively plan and pay for college," Eric Solomon, a spokesman for Nelnet, said in a prepared statement. "This legislation will force significant portions of the private sector away from the student loan market, thereby reducing access to the expertise, products and services necessary to provide a deeper understanding and fulfill the variety of financing needs that American families require in today’s environment of high-cost higher education.... The bottom line is the Senate’s vote was bad for millions of students and their families who are already struggling to pay rapidly rising tuitions."

The bipartisanship that marked much of Thursday's discussion frayed near the end of the debate that went late into the night, as Republican senators sought to attach amendments to the budget bill that had nothing to do with higher education or the substance of the legislation (on subjects such as the Federal Communications Commission's "fairness doctrine" and detainees at Guantanamo Bay), virtually all of which were rebuffed as "non-germane." The "vote-a-rama," as one higher education lobbyist called it, proceeded past midnight, although the majority leader, Sen. Harry Reid of Nevada, vowed to keep the Senate in session until the budget measure finally passed.

Ultimately, though, a large majority of senators voted to embrace the final legislation. Now it will be up to a committee of Senate and House members to draft a compromise version of the budget legislation that meshes the Senate's version with a parallel measure the House approved this month. President Bush has threatened to veto the House measure.

College leaders, who had thrown their support behind the Senate bill in recent days, applauded the Senate's support for the bill Thursday.

"This bill is a major victory for students and families," said Terry W. Hartle, senior vice president for government and public affairs at the American Council on Education. "It's also notable -- and increasingly rare -- that we can call this a bipartisan success story -- a reminder that both Democrats and Republicans have historically supported federal student aid."

He added: "There are significant differences between the House and Senate reconciliation bills, but I predict that the two sides will work them out quickly and successfully."


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