What Now for Student Aid Bill?

Democrats' plan to consider health care legislation through "budget reconciliation" process has implications for student loan reform -- not all of them good.
March 8, 2010

WASHINGTON -- For months, legislation to restructure the student loan programs and bolster Pell Grants, community colleges and other priorities has been held hostage as the Obama administration and Congressional leaders wrangled over health care.

Now, with Democrats having decided to push health care through Congress with or without Republican support, the possible paths forward for the student aid measure are a little clearer -- but they don't necessarily bode well for its immediate passage, according to several Congressional aides, college lobbyists, and other Congress watchers interviewed for this article.

Ready for a civics refresher?

First, some background. If you remember, the House of Representatives in September passed the Student Aid and Fiscal Responsibility Act, which would cease all lending from the bank-based Family Federal Education Loan Program and redirect the resulting savings into Pell Grants, community college aid, early childhood education, and other programs.

The bill seemed like a fait accompli last fall, given the political popularity of financial aid for college students and the diminished political backing for student loan providers. But despite near-constant rumors that the logical next step in the process -- the introduction of a parallel bill in the Senate -- was imminent, days stretched into weeks and then into months without it actually happening.

Many factors probably contributed to that delay, but foremost among them, by far, was the student loan legislation's relationship to health care reform. This is where the civics lesson comes in.

Each year Congress enacts a budget for the operations of the federal government. Every so often -- particularly when Congress faces large deficits or otherwise wants to make major changes in law to change the shape and structure of federal spending -- it also engages in the optional process known as "budget reconciliation," which requires individual Congressional committees to draft legislation that changes federal entitlement spending or revenue by a specified amount. (Descriptions of the process can be found here, on the Web site of the Center on Budget and Policy Priorities, and here, directly from the House Rules Committee.)

Reconciliation legislation differs from other spending measures in multiple ways, but most importantly because it can be passed in the Senate by just 50 favorable votes, compared to the 60 needed to end a filibuster on normal legislation.

In its budget resolution for 2010, Congress opened the door for the use of the reconciliation process for both health care and student loan reform. Doing so essentially linked the fate of the two pieces of legislation in one key way: Because Congress can approve only one piece of budget reconciliation legislation per annual budget resolution, the White House and Congressional supporters of health care reform wanted to retain the possibility that if they couldn't pass health reform legislation through normal means, they could use reconciliation as a fallback.

Now, with Democrats having lost their filibuster-proof majority in the Senate and the prospect of bipartisan agreement on health legislation in the rear-view mirror, President Obama has signaled that he plans to use budget reconciliation to pass health care.

Under the plan laid out by the White House last week, the House would pass a version of the Senate-passed health care legislation, with the expectation that Democratic leaders in the House and Senate would then (with the White House) reach agreement on a second piece of legislation that would contain "fixes" to the Senate health care bill designed to ease the concerns of House Democrats who think the Senate bill was tilted too much toward gaining Republican votes that never materialized.

What does any of that have to do with student loans? Because the Democrats no longer have 60 sure votes in the Senate, they would have to pass the second piece of health care legislation through the budget reconciliation process -- where it would be attached to the student aid bill.

(Word is that the Senate will not introduce its own version of the SAFRA bill; according to several people familiar with the situation, Democratic leaders in the House and Senate have reached agreement with White House officials on a version of the legislation that would be merged with the health reform bill.)

In one way, these developments would seem, finally, after months of delay tied to uncertainty over the passage of health reform, to clear the way for passage of SAFRA. Health care reform is far and away the Obama administration's top legislative priority, and the administration seems to have decided that it is ready to push aggressively for passage of the legislation, political consequences be damned. So to the extent that student loan reform is linked to that top priority, SAFRA seems like it is finally on line to be taken up and considered.

But that same dynamic could also work against the student aid legislation. Because health care reform is the administration's top priority, White House officials are likely to walk away from anything that stands between them and passage of the health bill. So if they were to decide that opposition to the student aid changes might prevent meaningful numbers of Congressional lawmakers from supporting the combined health care/student aid legislation in budget reconciliation, Congress watchers say, SAFRA could find itself put off once again.

Diverging Views of SAFRA

What is the state of political support for the student aid legislation? Is it likely that a majority of House and Senate members back the measure?

Democrats voted overwhelmingly for SAFRA when the bill passed the House in September by a vote of 253 to 171, with just nine Democrats opposing the bill or not voting at all. But at least one of the Democrats who opposed the bill -- Rep. Paul Kanjorski of Pennsylvania -- was among the Democrats in the narrow majority of 220 who supported the House version of the health care legislation in November. In explaining his opposition to the student loan bill, Kanjorski argued that the legislation would take away jobs that Sallie Mae had created in his district. (Critics note that Kanjorski is also among the leading recipients of Sallie Mae's campaign contributions.)

At the time the House voted on SAFRA in September, the student loan industry had just begun ramping up its opposition to the bill, and promoting an alternative that would make some of the same changes but sustain a role for non-government lenders in originating loans. But the passage of months since then have given lenders and their supporters much more time to make their case on the jobs issue and others. In the meantime, columns deriding the student loan plan as a "government takeover" of the student loan industry were designed to resonate with criticism of the Obama health plan as socialized medicine.

Changes in the economy and the federal budget picture have also begun to conspire against the administration's plan. Because so many people are returning to college (as often happens during a recession), the projected cost of the Pell Grant Program, and of SAFRA's proposal to tie annual increases in the maximum grant to the inflation rate, have sent the price tag of the SAFRA plan soaring.

And on Friday, the Congressional Budget Office's new accounting (known in Washington parlance as a "score") of the administration's 2011 budget proposal dropped its assessment of the amount that the federal government would save by shifting all lending to the government's Direct Loan Program to $67 billion, from the $87 billion on which the administration has counted. "[R]eplacing the guaranteed loan program by providing additional direct loans would, by CBO’s estimates, yield budgetary savings totaling $67 billion over the 2011–2020 period," the budget office wrote.

That is significant because it means the bill would produce less money to do the many things that the administration and Congressional Democrats want -- the CBO score calculates the cost of the programs the bill would create or expand at $200 billion.

Until Congress passes a budget resolution for the 2011 fiscal year, Democratic leaders have some leeway in deciding which set of budget numbers to use for the student loan portion of the reconciliation bill, so they could choose to embrace the $87 billion figure rather than the $67 billion score. But that decision rests mainly in the hands of Sen. Kent Conrad (D-N.D.), who heads the Senate Budget Committee and is a well-known budget hawk. He is likely to feel significant pressure to use the more up-to-date -- and presumably more accurate -- numbers.

There is another way in which the delay in passing SAFRA may have hurt the legislation's chances. Since last fall, some opponents of the administration's loan restructuring have expressed concerns that it would put colleges in a bind if it forced them to quickly change their process for delivering loan funds from the lender-based program to the direct loan program.

Administration officials have engaged in a months-long argument with loan company officials over whether it is fair to expect colleges to make the move to direct lending before Congress has passed legislation requiring them to do so. Some college financial aid administrators, urged on by lenders, have accused administration officials of playing politics, treating the shift to direct lending as a done deal.

Education Department officials (often supported by college financial aid leaders) have encouraged colleges to prepare themselves for the change even if they stop short of making the full-blown switch, noting that even if Congress does not pass the Obama plan, the 2008 law that provided federal money to prop up the lender-based loan program will expire by July, essentially gutting the program.

Late last week, both of Tennessee's senators and seven of its nine House members -- including three of its five Democrats -- wrote a letter to Education Secretary Arne Duncan urging him to support an extension of the 2008 law, known as the Ensuring Continued Access to Student Loans Act, warning that failure to do so could create "major and negative implications for millions of students and thousands of institutions of higher education for the upcoming academic year."

The letter was the latest in a growing selection from Democratic lawmakers questioning the administration's student aid legislation, including from Delaware's two senators and Indiana's Evan Bayh, among others.

It's too early to say whether the critiques represented in those letters and others that may be yet to come might be enough to derail the administration's student aid legislation. But the most serious threat could be if White House officials become convinced that opposition to the student loan legislation could be a liability to health care reform -- their top priority.

(Postscript: There is one other way in which the linking of the two bills could pose problems for supporters of the student aid priorities. If the administration were to end up short of money to pay for its health care plans, lawmakers could look to raid the savings produced by the student loan restructuring to pay for the health care measure.)


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