WASHINGTON -- How Thursday's House of Representatives hearing on the future of the federal student loan programs looked to a particular observer probably comes down to where he or she falls on the cynicism continuum. Taking the session at face value, you'd be inclined to walk away fairly impressed by the genuine multiplicity of viewpoints expressed and the stated willingness of the Democrats running the House Education and Labor Committee to consider various possible approaches to reshaping the loan programs.
Then again, if you've watched a decade and a half of battling between the political parties over the federal government's two loan programs and have watched House Democrats largely cater to the wishes of President Obama so far, you'd probably harbor serious doubts about Thursday's promises that the committee's Democratic leaders will thoroughly consider alternatives to the administration's plan to end the lender-based guaranteed loan program and use the savings to ensure a permanent and growing source of Pell Grant funds.
Rep. George Miller, the California Democrat who heads the education committee and whose views loom large over it, made clear in his statements Thursday that major change is coming to the loan programs, one way or the other, because the financial markets have forever altered the economics of student lending. "The administration has given us a proposal for where they want to go," a proposal, he said, that "sets the bar high" by promising tens of billions of dollars in savings that could be used to make college more affordable for students from low-income families.
"There has been a suggestion that this is all a 'done deal,' " Miller said, in a nod to the more cynical. "There is agreement that there is a serious cost to the way this program has been run, but what we do about that is an open question for members of this committee."
Almost as an afterthought, Miller added: "Of course, I haven't gotten in the habit of telling President Obama no yet...."
And that's no small thing, given that the student loan proposal, and its ancillary promise of as much as $94 billion in savings, has soared to the top of the higher education agenda of the new president, along with Education Secretary Arne Duncan. The administration has trumpeted at every turn the possibility of achieving the financial aid officers' holy grail of a Pell Grant entitlement (which the Education Department is now calling an "appropriated entitlement"), a major expansion of the Perkins Loan Program, and the creation of a $500 million a year fund to encourage college completion -- all with the money generated by essentially shifting all federal student lending out of the bank-based FFEL program and entirely into the competing Direct Student Loan program. (The administration's proposal would allow lenders to compete for the right to service loans, and envisions some role, financed through states, for guarantee agencies and other lenders that help students avert defaults and provide other support to students and colleges.)
While the prospect of generating boatloads of new funds is the administration's primary tool for enticing support for its proposal, its officials argue that it is necessary, too, to ensure the continued availability of loan funds to students, given the seizing of the credit markets that required emergency government action last year. Administration officials note that because of that action, many loans being made through the lender-based program now are, in fact, financed with government funds.
And Education Department leaders repeatedly describe the guaranteed loan program as being "on life support," which strikes some loan industry officials as hypocritical since the White House boasts in many other settings that its efforts to shore up the financial industry have been hugely successful.
Democratic leaders in Congress have cautiously backed the administration's plan thus far, giving the Congressional education committees until October to craft legislation to reform the loan programs that could be considered on a "fast track" through the budget reconciliation process. But in a nod to supporters of the bank-based loan program, the compromise budget blueprint also included a resolution praising the role of lenders and guarantee agencies and requiring that "any reform of the federal student loan programs ... include some future role for the currently involved private and non-profit entities."
Thursday's hearing, which aides to the House Education and Labor Committee said might be the panel's only formal, public discussion this year of possible changes in the federal student loan and financial aid systems, sent conflicting signals about how locked in the panel is to the Obama proposal, in everything from its choice of language to its witness list. The committee's Web page about the hearing said it would examine "proposals that will make historic increases in college aid by enacting reforms that will make the nation’s federal student loan programs more reliable, effective and efficient for students, families and taxpayers" -- no conditional tense there.
To the committee's credit, the witness list for the hearing was balanced between supporters of the administration's proposal (including the Education Department's Robert Shireman, who is the architect of the loan proposal, Chancellor Charles Reed of California State University, and Anna M. Griswold of Pennsylvania State University, which abandoned the FFEL program for the direct loan program last year amid the credit crunch) and student loan providers and guarantors, including representatives of Sallie Mae, New Hampshire Higher Education Assistance Foundation, and the Access Group. (Presumably it was an oversight that John F. Remondi, the vice chairman and chief financial officer of Sallie Mae, was left off the printed list of witnesses distributed to reporters at the hearing.)
Those who attended the meeting expecting the sort of histrionics that has long attended Congressional discussions about the two student loan programs would generally have been disappointed, at least by the witnesses (one or two lawmakers on each side of the aisle, including Reps. Mark Souder (R-Ind.) and Rob Andrews (D-N.J.), played their traditional roles of sharp-elbowed partisans).
All of the loan industry types, to some extent, accepted the idea that, as Miller put it, "there needs to be fundamental change" in the loan programs, and that business as usual in the guaranteed loan program would not stand. "There's sometimes a characterization that you're saying, 'No, we want to go back to where we are,' " Miller said in an almost coaching manner to Sallie Mae's Remondi. "But that's not what you're saying."
"That's right," Remondi said. He said that a proposed alternative that Sallie Mae has been circulating would "build from the foundation of the president's proposal" and "make that proposal even better," by using government funds for all loans (capitalizing on the federal treasury's ability to borrow money cheaply) but leaving a role for lenders to originate and service loans (on a "fee for service" basis), building in the sort of choice andcompetition that many financial aid experts see as strengths of the current two-program system.
"We are not trying to preserve lender subsidies, nor are we trying to preserve the FFEL program as we know it," Remondi said.
The idea that lenders recognize that the current bank-based system is unsustainable, and that there were a range of options for remaking the loan programs to incorporate elements of the two existing programs into a single, better one loan system, was echoed by Christopher Chapman, president and chief executive officer of the Access Group, a nonprofit lender mostly to graduate students. "There aren't two choices here -- it's not a choice of 100 percent direct lending or the status quo," he said. "We encourage the committee to look at [the options] closely, and retain the option that ensures that choice of competition, flexibility and freedom of service remain in the program."
To the extent that members of Congress remain open to considering alternatives to the Obama administration's proposal, the major question going forward is whether any of the other options will save enough money to approach the benefits of the Obama plan.
If they would -- and a spokeswoman for Miller confirmed that the House panel is awaiting a Congressional Budget Office analysis of the Sallie Mae proposal -- it is possible that senators and House members will be interested enough in protecting the roles of state loan agencies and attracted enough to the continued competition and choice to break with the administration.