Revamped Aid Bill on Track

Compromise legislation, clearing several key hurdles, would provide billions for Pell Grants, minority institutions -- and, in a late reversal, community colleges.
March 19, 2010

WASHINGTON -- The endgames of massive pieces of legislation like the current health care/student loan bill are a politics junkie's dream -- and many a policy wonk's nightmare. The kinds of compromises that are typically required to win last-minute votes, meet budget requirements, and get a measure over the finish line often necessitate decisions that leave nobody -- even those making the choices to get the deal done -- entirely satisfied.

Examples abounded Thursday as Democratic Congressional leaders and White House officials unveiled the higher education portion of a compromise version of budget legislation designed to overhaul both the health care and student loan systems. By any measure, the bill would make huge investments in higher education and college students, pouring upwards of $42 billion into Pell Grants, historically black and other minority-serving institutions, community colleges, repayment options for student loan borrowers, and college access grants.

"We have a historic opportunity before us," Education Secretary Arne Duncan said during a conference call with reporters Thursday afternoon, as Democrats predicted that they now had the votes to pass the combined health care/student aid measure.

But while Duncan and Democratic Congressional leaders heralded the legislation as an unprecedented chance to redirect money that currently flows as subsidies to student loan providers into aid to make college more affordable for students, even they had difficulty masking their disappointment at the whittled-down version of the measure. Delays in considering the legislation and budget realities had radically transformed what had once been seen as an opportunity to spend twice that amount -- in excess of $80 billion -- and use the money to propel changes in how colleges operate, through a series of accountability provisions and new programs.

In the end, to satisfy budget requirements and win over skeptical deficit hawks in their own party, Democratic leaders wound up directing a total of $19 billion (of the $61 billion in revenues that the student loan shift would produce over 10 years) to reduce the deficit and help pay for the health care portion of the legislation.

What's In
The compromise version of the
student loan legislation contains:

  • $36 billion for Pell Grants
  • $2.55 billion for historically black and other minority serving colleges
  • $2 billion for a grant program for community colleges and career training programs
  • $1.5 billion to expand income-based repayment options for student loan borrowers
  • $750 million for College Access Challenge Grants
  • $50 million to help colleges make transition to direct loan program

Stripped entirely from the final version of the legislation were billions of dollars to extend a cut in the student loan interest rate past 2012, $8 billion for early childhood education, and an overhaul and expansion of the Perkins Loan Program that was designed to reward institutions for their success in graduating low-income students.

The measure also lowers the sights of the administration's plan to create a new $3 billion College Access and Completion Fund to prod states and institutions to innovate; instead, it would put $750 million toward the existing College Access Challenge Grant Program.

And even the administration's top higher education priority -- increasing the Pell Grant -- took a serious hit. While the version of the legislation that the House passed last fall would have increased the maximum Pell Grant to $6,900 by 2019 and tied future increases in the grants to inflation plus 1 percentage point, the compromise measure would set the maximum grant to $5,975 in 2019 and provide for no increase in four of the next 10 years. ($36 billion doesn't go as far as it used to.)

Because so many more students have applied and qualified for the grants as a result of swelling enrollments and Americans' worsening financial situations, the Pell Grant Program faces a $19 billion shortfall in 2009-10 and 2010-11, and lawmakers felt pressed to set aside $13.5 billion of the money from the budget bill to pay down about two-thirds of that total. Congressional appropriators will have to find the rest of that money in the coming months.

"We just had to make the choices we had to make in this bill," Rep. George Miller, the California Democrat who heads the House Education and Labor Committee, said almost wistfully during the news conference with Duncan.

Despite some "what could have been" feelings, advocates for students and some college officials certainly found plenty to celebrate. "At a time when tens of millions of college students must assume crushing debt loads to fund their education, this legislative proposal will bring relief to those who might otherwise forgo or drop out of college," said Rich Williams, higher education associate at the U.S. Public Interest Research Group.

His group and the United States Student Association cheered not only the Pell increases, but the $1.5 billion that the legislation would direct to expand a program that gives student loan borrowers more options for repaying their loans -- which President Obama touted in his 2011 budget proposal. The provision would, beginning in 2014, cap at 10 percent of a borrower's monthly income the amount that he or she would have to repay under the income-based Repayment Program, down from the current 15 percent.

Another happy group of people (rather unexpectedly so) were community college officials, who as of early this week were grieving over the apparent abandonment of the American Graduation Initiative, the $10 billion-plus program aimed at helping them enroll and graduate 5 million more students by 2020.

But due in part to pleas and exhortations from community college trustees and presidents, and what two-year-college lobbyists described as a never-say-die search by Obama administration officials for some way to support the institutions, Democratic lawmakers found some excess funds in a Senate Finance Committee account that allowed them to allocate $2 billion to finance a program created (but not funded) in last year's economic stimulus legislation.

The program, the Community College and Career Training Grant Program, is designed to help institutions create educational or training programs of two years' duration or less, with the goal of producing workers. Toward that end, the legislation would provide $500 million a year from fiscal 2011 to 2014 through the Department of Labor's Trade Adjustment Assistance program (rather than the Education Department). The grants would be awarded competitively, but each state would be assured of receiving at least 0.5 percent of the funds.

While those crafting the compromise budget legislation aimed to help community colleges, they may have given an unintended windfall to for-profit colleges, as well: The original stimulus measure creating the career training program structured it in such a way to include for-profit institutions in the definition of eligible recipients.

Other Compromises

The student loan legislation's strongest critics -- lenders and their Republican allies in Congress -- blasted some of the tactics that Democratic sponsors of the bill used to draft a version of the measure that appeared to win over enough supporters to more or less ensure passage.

They are most unhappy, of course, about the basic thrust of the legislation, which would derive its $61 billion in savings by shifting all lending from the lender-based (but government-subsidized) Federal Family Education Loan Program to the government's Direct Loan Program. The lenders have been trying for months to turn lawmakers against the idea of ending their ability to make loans (and the accompanying subsidies), arguing that doing so would kill thousands of jobs.

But on Thursday, they took another approach, directing their ire at the billions of dollars that would go to purposes other than helping students afford college, namely health care. "Should students be paying for their neighbor’s medical costs? Separate consideration of student loan reform is imperative to ensure that legislation that minimizes job losses and reinvests savings in higher education can be considered," America's Student Loan Providers said, in a last-ditch effort to encourage votes against the sweeping health care and student loan overhauls.

They also balked at the most blatantly political move in the legislation, which was an exemption that would allow a state-run bank in North Dakota (alone among the states) to continue to offer loans directly to students. Democratic Congressional aides defended the decision because they said the North Dakota bank is, as a taxpayer-owned agency, essentially a government lender like the federal government, so sustaining its ability to lend is consistent, they argued, with the legislation's overall goal.

But critics characterized the arrangement as a sop to Sen. Kent Conrad -- the North Dakota Democrat who heads the Senate Budget Committee and whose backing of the student loan legislation has been essential for passage -- and to other Democratic lawmakers. They compared the deal to the much-criticized exemption that health care supporters granted to Sen. Ben Nelson of Nebraska to win his key vote for that legislation.

“This 'Bismarck Bank Job' provision looks like exactly the sort of backroom deal that makes the American people hate Washington and the whole process that has led to this massive, awful government takeover of our health care," Rep. John Boehner, the House minority leader, said in a news release that asked whether the provision had been inserted to assure the vote of Rep. Earl Pomeroy of North Dakota, the state's lone House Democrat, on health care.


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