Democrats Set Education Budget Compromise

Congressional leaders, after little consultation with GOP, offer budget bill that would boost Pell Grants and slash lender payments; Bush veto considered unlikely.
September 6, 2007

Congressional leaders -- well, Democratic Congressional leaders, anyway -- reached agreement Wednesday on compromise legislation that would increase the maximum Pell Grant to $5,400 by 2012 and finance that and other new spending by slashing federal payments to student loan providers.

Both houses of Congress are expected to vote on (and pass) the budget reconciliation legislation as soon as Friday, which would mean that the only thing standing between American students and a massive new infusion of federal financial aid is a possible veto by President Bush.

The Bush administration threatened a veto against the version of the budget reconciliation legislation that the House of Representatives passed in mid-July. The White House took a slightly friendlier view of the Senate-passed bill, with administration officials saying they could "work with" it.

The compromise legislation (H.R. 2669), which a small group of House and Senate Democrats crafted in recent days with virtually no input from their Republican counterparts -- a mirror image of the process Republicans used in early 2006 when they drafted their own education-related budget bill, to bitter denunciations from Democrats -- more or less splits the difference between the House and Senate bills, taking elements of both.

So the key questions -- difficult to answer for the moment -- are whether the final version is too much like the House bill for the White House to support, and whether President Bush can formulate a reason to veto the legislation that will overcome the certain Democratic objections that he would be denying billions of dollars in new aid to needy students.

Early projections from most higher education lobbyists and other observers was that the president would not veto the bill. "It seems like the Democrats made sufficient movement toward addressing the concerns of the administration letter that a veto is unlikely," said John Dean, special counsel to the Consumer Bankers Association. Dean, a Washington veteran, made that assessment despite the fact that his group strongly opposes the bill, because of the more than $22 billion it would cut from lenders and guarantee agencies over five years.

"H.R. 2669 will come to be viewed as irresponsible legislation that undermined rather than expanded college opportunity," Joe Belew, president of the bankers' group, said in a prepared statement. The legislation would produce its savings by (1) reducing lender profits on new federal loans by 0.55 points for for-profit lenders and 0.40 points for nonprofit lending agencies (at a total cost of $12.365 billion over five years); dropping to 16 percent from 23 percent the proportion that guarantee agencies can keep of the funds they collect from borrowers ($1.94 billion over five years); doubling the fee that lenders pay the Treasury when consolidating loans, to 1 percent from 0.5 percent ($2.25 billion over five years); ending a program that rewards loan providers who are “exceptional performers” in servicing their student loans ($1.16 billion over five years); and cutting two separate payments to guarantee agencies, at a total savings of about $5 billion over five years.

Belew's assessment of the budget legislation is obviously not shared by its sponsors. Its chief architects, Sen. Edward M. Kennedy (D-Mass.) and Rep. George Miller (D-Calif.), the chairmen, respectively, of the Senate and House education committees, portrayed it Wednesday as they have for months -- as the single biggest infusion of federal student aid in 60 years. "By making college more affordable for young Americans, we not only open doors of opportunity for them, but we equip a new generation of Americans to compete and win in the global economy,” said Kennedy, the chairman of the Senate Health, Education, Labor and Pensions Committee. “Just as the G.I. Bill half a century ago, this bill increases access to higher education for millions of Americans.”

The final version of the legislation, which Democrats unveiled at a hurriedly called meeting of the members of the Senate education committee and of the House postsecondary education panel, would provide $15.290 billion in new budget authority spending for the Pell Grant Program, increasing the maximum grant to $4,800 in 2008 (from the current $4,310) and to at least $5,400 by 2012, according to a Congressional Budget Office "score" of the legislation. The big increase for Pell Grants was urged by the White House and by college groups, which had been cool to the Senate's proposal to create a Pell-like program called Promise Grants.

The compromise measure would spend another $6.915 billion on cutting the interest rate on some federally subsidized loans in half over five years, though, in another compromise, the interest rate would rise back to the current 6.8 percent (from a low of 3.4 percent) in July 2012, a year earlier than it would have in the original House legislation.

By directing the vast majority of the savings in the legislation to those two priorities -- the Pell Grant increase, which the Bush administration and Kennedy have made a top priority, and the loan interest rate cut, which House Democrats made one of their top legislative goals upon taking over Congress last November -- the compromise bill left relatively little aside for other items.

One victim of that change was a package of new policies aimed at easing the loan burden for low-income students, by guaranteeing that such borrowers will not have to pay more than 15 percent of their discretionary income in loan repayments, and allowing borrowers in economic hardship to have their loans forgiven after 25 years. The bill as drafted delays enactment of those provisions by a year, until 2009, and also limits to three years the amount of time that the federal government will pay the interest on loans for financially strapped borrowers. Taken together, the income-based repayment proposals, which were championed by the Project on Student Debt, will cost the government $1.2 billion over five years, where the more generous Senate proposal would have provided more than $2 billion for those purposes.

"We'd love another billion dollars to help with debt burdens, but there's an impressive investment in Pell Grants for lower income students, and that's respectable," said Robert Shireman, executive director of the Project on Student Debt.

The compromise legislation also creates a handful of new programs aimed at encouraging students to enter the teaching profession and providing funds to institutions that serve large numbers of African American, Hispanic, American Indian and other minority students. But the compromise bill jettisons several other proposed new programs that had been in the House bill and that had been a central reason why the Bush administration opposed that version of the budget reconciliation legislation.

The fact that the legislation would create any new programs at all -- and that it would direct only $750 million of the more than $22 billion in savings toward deficit reduction, which is supposed to be the primary aim of budget reconciliation measures -- continued to draw the ire of House and Senate Republicans like Sen. Judd Gregg (R-N.H.). "To use reconciliation as a stalking horse to expand programmatic activity, particularly in mandatory spending, is a pure adulteration of the reconciliation process," Gregg said.

Some Republicans argued that the planned cuts to lenders went too deep, and others also objected to the compromise legislation's proposal (drawn from the Senate bill) to require lenders to compete at auction in each state for the right to provide federal loans for parents. Rep. Howard P (Buck) McKeon (R-Calif.), the senior Republican on the House education committee, called the auction plan an "untested system" that would result in an "unprecendented change in the way parents access low-cost loans to help finance their children's education." (The auction legislation is another provision that drew sharp opposition from Education Secretary Margaret Spellings in the Statement of Administration Policy that the Bush administration issued about the Senate bill, and one of multiple ways in which Congressional Democrats did not respond to the White House's wishes in drafting the compromise bill.)

And Republicans balked, as well, at the process Democrats used to draft the compromise legislation, which largely left Republicans out in the cold. When Republicans drafted and passed a comparable budget reconciliation measure in late 2005 and early 2006, they locked Democrats out of the negotiations over compromise legislation, much to the dismay of the Democratic minority at the time. With the Democrats in charge this time around, they engaged in the same tactics. At Wednesday's first (and almost certainly only) meeting of the "conference" committee of House and Senate lawmakers, many Republican members of Congress grumbled that they had not yet seen the bill they were supposed to be discussing and possibly amending.

Those and other objections are sure to earn the compromise legislation some opposition from Congressional Republicans, and it's conceivable that they could be enough to raise at least another threat of a Bush veto.

But with an election year around the corner, Democrats would probably itch for the chance to say that President Bush had vetoed a bill that would give huge sums of additional money to help low- and moderate-income Americans pay for college. That increases the odds that the budget bill -- and its promised billions -- will survive in roughly its current, compromise form.


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