A Resignation and a Proposal

President of financial aid group quits amid charges related to past position, as student aid officials put forward alternative to Obama student loan plan.
July 24, 2009

Eighteen months after he triumphantly took office promising to reinvigorate the National Association of Student Financial Aid Administrators, Philip R. Day Jr. resigned Thursday as its president and CEO, his term cut short by allegations that he broke California campaign laws while chancellor of the City College of San Francisco.

On the same day that Day formally stepped off the national stage, a collection of NASFAA's members did what he had pushed the association to do: step up their visibility in federal policy debates, in this case by issuing an alternative to the Obama administration's proposal to essentially gut the lender-based guaranteed student loan program.

Day's decision to resign came as no surprise; it had seemed an inevitability since the moment federal prosecutors filed charges against him and two other City College officials this month, on the eve of NASFAA's annual meeting. The district attorney in San Francisco filed felony charges accusing him of misusing public funds in bond campaigns on the college's behalf. Day could face nine years in prison and fines of $300,000 if convicted on all charges.

Day has vowed to fight the allegations against him aggressively, and he had gone on administrative leave almost immediately to begin doing so. In announcing his permanent resignation Thursday, though, association officials said the president had been concerned about how much time he'd need to defend himself and "felt very strongly that it was imperative that the association be insulated from and not distracted by any future developments related to this situation," a NASFAA news release said.

The association said that Joan Crissman, who was appointed as interim president when Day was put on leave, would stay in that role. "My devotion to NASFAA and the more than 20,000 financial aid administrators it represents has never been stronger," Crissman said. "Together we will ensure that our important work continues uninterrupted."

Also on Thursday, a group of financial aid administrators who call themselves the Friday the 13th Group (because they met on Friday, March 13, not because they see themselves as bad luck) put forward an alternative to the Obama administration's student aid restructuring plan, which has now been put into legislative form by Congressional Democrats and passed by a House committee.

The group describes itself as "a grass-roots initiative" to represent this interests of rank and file college student aid officers, "driven by our concern for students and the unintended consequences that come from basing reform on current political pressures without sufficient consideration of what best serves the interests of all stakeholders -- students, parents, schools, and taxpayers."

The group gives voice in a collective way to arguments that lots of individual financial aid officers have made quietly and in many cases privately about the push by Obama and Congressional Democrats, especially about the potential loss of the services that lenders provide to students and colleges. These services, the coalition argues, are driven largely by the competition that exists among lenders seeking to service loans, competition that would largely be lost under -- and has been greatly underestimated by -- the administration's plan.

If the Education Department and Congressional supporters of the administration have played down the significance of lost competition, the Friday the 13th Group argues, they have at the same time exaggerated the benefit to be derived from the plan in one central way: by promising that the move to 100 percent direct lending would deliver a "Pell Grant entitlement," a permanent and growing stream of annual funding that would shield the government's primary need-based aid program from the whims of Congressional appropriators each year.

"[I]t is important to set the record straight: mandating that all loans be Direct Loans will not make the Pell Grant program a true entitlement program," the group wrote. "For that to occur, much deeper budget cuts -- potentially from other student aid programs -- would need to be enacted by Congress. Our view is that there has been widespread misrepresentation of this particular issue, which has had the effect of minimizing the number of financial aid administrators willing to communicate their concerns about the President’s proposal. Connecting increased funding of the Pell Grant to the student loan discussion has served to distract from the basic considerations of competition and choice."

The financial aid officers' alternative portrays itself asbacking the administration and embracing some elements of the Obama proposal -- most importantly, having the government own all loans, to take advantage of the savings generated by the federal Treasury's ability to borrow funds more cheaply. The aid officers' proposal would not only use those savings, but also end several existing student grant programs (Academic Competitiveness, SMART, TEACH, and Supplemental Educational Opportunity Grant Programs) and use the funds to increase spending on Pell Grants and work study.

It also would sustain a role for lenders in originating loans on the government's behalf, letting colleges and students choose which lenders they seek to work with to service loans, and sustain a central role for loan providers in default prevention and financial literacy programs.

"How do we best increase funding for need-based financial aid and still provide a reliable, quality and customer service-focused federal student loan program for students?" the report concludes. "We strongly believe that student loan reform should be guided by these simple principles: fix what’s broken and build on what works. Competition, choice, customized default prevention and financial literacy programs, and responsiveness must remain top priorities. To do this, postsecondary institutions, students and parents must have a broad range of choices to ensure on-going accountability, innovation and low default rates."


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