Yellow Light on Student Loan Reform

Congress's compromise budget resolution clears way for White House plan to push restructuring of student financial aid -- but signals lawmakers' skepticism of ending role for private and state lenders.
April 29, 2009

A compromise 2010 budget resolution released Tuesday by Congressional leaders gives the Obama administration a chance to push its plan to restructure the federal student loan programs -- but also sends a clear signal to the White House that lawmakers remain skeptical about the president's proposal to largely eliminate the lender-based Federal Family Education Loan Program.

President Obama and Education Secretary Arne Duncan have pushed Congress hard to include in its final budget blueprint the opportunity to use the "budget reconciliation" process to enact policy changes in both health care and higher education. Legislation considered through budget reconciliation can be approved by the Senate by a simple majority rather than the normal 60 votes (to avoid potential filibuster), and is therefore often opposed (especially by the minority) as an inappropriate way to consider major shifts in federal policy.

The budget resolutions passed this spring by the House and Senate took differing approaches, with the House including language in its budget resolution that would have given the House Education and Labor Committee until September 30 to come up with a plan to shave $1 billion in federal mandatory spending -- a goal the committee would be likely to accomplish only through radical changes in the student loan programs, which the Congressional Budget Office estimates would save $94 billion over 10 years. The Senate Budget Committee opted not to head down the controversial path of budget reconciliation, though both panels included provisions that would create reserve funds designed to cover the costs of making the Pell Grant Program a federal entitlement, which college leaders and student advocates aggressively favor.

The compromise resolution that Democratic leaders unveiled late Monday seemed to largely back the president's plan to ensure a steady stream of funds for Pell Grants, and to give the Congressional education committees until October to craft budget reconciliation legislation that would save the Treasury $1 billion a year over five years.

But in a clear nod to Congressional supporters of the bank-based loan program, the compromise budget blueprint also includes a non-binding "Sense of the Congress" resolution that praises the role of lenders and guarantee agencies and requires that "any reform of the federal student loan programs ... include some future role for the currently involved private and non-profit entities." Loan reform, it goes on to say, should "capitalize on the current infrastructure provided by private and non-profit entities, In order both to provide employment to many Americans during this time of economic distress and to maintain valuable services that make postsecondary education more accessible and attainable for many Americans."

The extent to which this would-be Congressional mandate is conflicts or is consistent with the White House's plan is likely to be debated. Education Department officials have maintained all along that their plan would use existing lenders -- not to make loans (which would all, under its plan, be originated out of the federal Treasury) but to contract with them to service loans, and also possibly to help with debt avoidance, through arrangements with states.

But depending on how one reads the Congressional language, lawmakers might be seen trying to stake out a broader role than just that -- or to send a warning to the executive branch that they remain skeptical about either the wisdom or the likely success of the administration's plan.


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