Aid Bill Moves, Amid Misgivings

House panel approves sweeping changes in college grant and loan programs, despite objections of Republicans and significant discomfort of most college groups.
July 22, 2009

WASHINGTON -- As the House of Representatives Education and Labor Committee began a long day of deliberations over a massive restructuring of the student aid programs Tuesday, there was not a shred of doubt that the legislation at hand would ultimately pass (and it did).

So most of the drama Tuesday, such as it was, revolved around the widely varying stances that higher education groups took on the legislation and the Obama administration policies it is designed to carry out. Some (the American Association of Community Colleges and the Association of Community College Trustees) supported it outright, and a few others (like the National Association of Independent Colleges and Universities) expressed major reservations about it, but the bulk of college groups, in their public statements, sought to strike a balance between expressing appreciation for the potential billions in new dollars for financial aid and other purposes, and concern about such issues as the extent to which Congress would give states the power to distribute federal money. (Note: This article has been updated from an earlier version to clarify facts.)

And more subtly -- except when they were speaking privately, when they did not hold back -- many college leaders said they had begun to feel as if the Obama administration and Congressional Democrats had engaged in a bait and switch operation. In originally proposing to end all lending through lender-based guaranteed loan program, in which a solid majority of colleges participate, the administration won the support of -- or at least stifled opposition from -- many higher education leaders by promising a "Pell Grant entitlement," the holy grail for many student aid advocates.

But as the Obama proposal has morphed into House legislation (H.R. 3221), Democratic lawmakers would direct less than half of the money that could be generated by the legislation to increasing the Pell Grant, and tens of billions of dollars would go to purposes outside higher education, including early childhood learning and reducing the federal deficit.

"When President Obama outlined his fiscal year 2010 budget proposal, he called for the elimination of the Federal Family Education Loan (FFEL) Program and recommended that almost all of the funds saved be redirected to helping low- and lower-middle income students finance higher education through the establishment of a Pell Grant entitlement," Molly Corbett Broad, president of the American Council on Education, wrote in a letter to House leaders signed by 10 college groups. "We believe that Congress should adopt the president's priorities and use a substantial majority of any savings derived from the student loan program to directly assist college students and their families."

College leaders are loath to look either greedy or ungrateful given that the Congressional legislation would direct $40 billion over 10 years to increase the Pell Grant, $2.5 billion for community college facilities, and $3.25 billion to limit student loan interest rates, and $1.25 billion to expand the Perkins Loan Program; it also would simplify the federal financial aid form.

Resonant Rhetoric

But Republican lawmakers had no such qualms about challenging the Democrats' priorities, and they questioned the decision to use some of the $87 billion that the government would collect by originating all loans through its direct loan program for other purposes: nearly $8 billion over 10 years to strengthen early childhood education, for instance, and $4.1 billion to modernize and repair school and college facilities, including those damaged by Hurricanes Katrina and Rita. Though they didn't come right out and say it, Republicans on the education panel seemed eager to turn the tables on Democrats who, four years ago, accused them of a "raid on student aid" programs when they used the same "budget reconciliation" process to use student loan subsidy cuts to reduce the deficit.

"You're taking profits to the government that were coming in to student lending and using it for purposes other than students," said Rep. Mark Souder of Indiana. "I just want to be clear: You're taking what was a higher education section of funding and not using it all for higher education." Another Republican, Rep. Brett Guthrie of Kentucky, who leads his party's membership on the education panel's Higher Education, Lifelong Learning, and Competitiveness Subcommittee, said that his alternative proposal -- which would have extended the existing, temporary structure for originating student loans through 2014 while the government studied a new approach -- would have increased Pell Grant spending more than the Democrats' bill would. (The GOP alternative was defeated along party lines.)

Democratic leaders disputed the suggestion that they were snagging student aid funds and redistributing it for other purposes, noting that the tens of billions of dollars the government would save by making all loans through direct lending is money that would, if left alone, go to lenders, not students. "Why do we need to funnel that money through a profit-making middleman?" asked Rep. Timothy Bishop of New York. "The money we are taking away is not being given to students [now]. I believe that our legislation moves us forward in a way that is most supportive of student aspirations."

The Republicans' focus on the wisdom of how the Democrats planned to spend the proceeds of the changes to the loan program reflected the fact that the philosophical argument over whether essentially ending the guaranteed loan program was for all intents and purposes over, at least in the House. (Lenders continue to insist that a different outcome could emerge in the Senate.) Some GOP members of the panel tried to tie the Democrats' loan restructuring to other Obama administration "government takeovers" of health care and banking, but given the sense of fait accompli surrounding the course of events, the rhetoric seemed half-hearted.

“The speed with which Democrats are orchestrating a full government takeover of our classrooms and communities is astonishing,” said Rep. John Kline (R-Minn.), the panel’s top Republican. “First, we saw a drive toward complete government takeover of our nation’s health care system. Now, we see government seizing control of student lending, forcing the private sector out and welcoming in a mountain of public debt. I’m almost afraid to ask: What part of our lives will be handed over to government next?”

Because the outcome was predetermined, Tuesday's goings-on were dull, and the five-hour deliberations over the bill produced relatively few changes to the legislation as Rep. George Miller introduced it last week. A few came in the "manager's amendment" that Miller substituted before the start of Tuesday's drafting session; among other things, it dropped a proposal from the original bill -- which college officials had warned was a deal breaker for them -- that would have ended the government's longstanding practice of paying the interest rate on federal loans for graduate students while they are still enrolled. The manager's amendment also trimmed the amount the bill would set aside for early childhood education to $8 billion from $10 billion.

Among amendments considered and voted on by the education panel, a small number stood out: the panel approved one, proposed by Rep. Howard P. (Buck) McKeon, that is designed to fix a flaw in the Post 9/11 GI Bill that will make it difficult for veterans in his home state of California to benefit from the new law to attend private colleges. The House committee also backed an amendment, proposed by Rep. Rob Andrews (D-N.J.), that would give for-profit colleges more short-term flexibility in complying with federal rules that require at least 10 percent of their revenues to come from sources other than federal financial aid.

The relative lack of debate over the student aid legislation could not, however, mask the deep philosophical divide that it has created or, probably more accurately, intensified within higher education. As the economy has turned down, in-fighting among the sectors of higher education -- public vs. private, two-year vs. four-year -- has stepped up almost in inverse proportion. That has occurred on the ground, at a micro level, in terms of increased battling for students and arguing over prices and value, but the tension has crystallized in the Obama administration's policy approach and the legislation introduced by its Democratic Congressional allies, despite broad support for the overall agenda of increasing college access and completion.

That's in part, of course, because the Obama administration has proposed pouring billions of dollars into the community college sector, much to the consternation of private colleges and, to a lesser extent, four-year public institutions (though the peace keepers in higher education are quick to note that some of the funds in Obama's and Miller's community college initiative would be available to four-year institutions that work with two-year colleges).

But more troubling, to some higher education officials, is the Democratic leaders' inclination to depend on states to distribute federal funds, as the student aid legislation would do in the Obama administration's proposed $3 billion College Access and Completion Fund and a good chunk of the $7 billion Community College Initiative. That is partly because so many states have been slashing their funding to public colleges in recent years, a trend growing during the current economic downturn, Broad of the American Council on Education wrote in the associations' letter to Miller Tuesday.

"As you know, state support for public higher education has steadily declined in recent years and is, in many places, falling precipitously this year, and in some states even need-based student aid is being slashed," she said. "We are concerned that a decision to give federal funds to states for higher education initiatives at the same time that many of them are disinvesting in their colleges and universities may only hasten further reductions in state support of higher education."

Private colleges are most worried of all. "We are appreciative of the student aid, but concerned about the precedent of deferring national higher ed policy to state bureaucrats who may or may not have the national interest in mind," Sarah Flanagan, vice president for government relations and policy development at the National Association of Independent Colleges and Universities, said in an e-mail message about the House legislation. (NAICU declined to sign the ACE letter, which its officials viewed as too positive; the two community college associations sent their own letter because they wanted to more clearly endorse the House measure.)

"We also believe that for generations the federal government has had it right -- funding students over institutions, but when institutions do get aid, making funding based on whether the school can help solve a national purpose, not by whether the school is run by state bureaucrats or private boards," Flanagan added. "We have worked hard to help implement the president's higher ed goals laid out in his budget proposal, and hope to work with Congress later this summer to make the bill something that the nonprofit sector can both support and pitch in on during the next few years to help more students complete college."


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