President Obama’s ambitious higher-education agenda moved a step closer to reality on Tuesday, as the U.S. House of Representatives education committee approved a bill that would end the guaranteed-student-loan program and use the savings to increase spending on Pell Grants, Perkins Loans, and community colleges.
The bill now heads to the House Budget Committee and to the floor, where lawmakers could pass the measure as early as next week.
While the president did not get everything he wanted in the bill—it would not, for example, make Pell Grants an entitlement, sheltered from the annual appropriations process—the measure embraces his key priorities. It would shift all student loans to the government-run direct-loan system, increase the maximum Pell award by a set percentage each year, and enlarge the Perkins Loan program from the current $1-billion to $6-billion a year, while overhauling its structure.
The bill, which was just introduced last week, would also provide $10-billion in grants to community colleges, $10-billion for early-learning programs, and $3-billion for Mr. Obama’s proposed College Access and Completion Innovation Fund, with money going to states, colleges, and nonprofit organizations—including guarantors—to improve college access, retention, and completion.
During four hours of debate over the bill on Tuesday, Democrats argued that the measure would end wasteful taxpayer subsidies to lenders and inject stability into a system that has been roiled by the credit crunch. Dozens of banks and other lenders have left the student-loan business in the last two years, and many of the surviving loan providers depend on federal financing to make new loans.
“I’d like to remind everyone of the choice before us,” said the panel’s chairman, George Miller, a Democrat from California, in an opening statement. “We can either keep sending these subsidies to banks and a broken system, or we can start sending them directly to students.”
‘A Hodgepodge of Education Initiatives’
Republicans countered that ending bank-based lending would nationalize lending to students and deepen the federal deficit, while costing states thousands of jobs and depriving students and colleges of their choice of lender. They argued that competition between the public- and private-sector programs had improved benefits to borrowers and services for students.
“This push for 100-percent direct lending is not a response to global-market instability,” said the committee’s top Republican, Rep. John P. Kline Jr. of Minnesota. “It’s just the latest salvo in a battle that has raged on for the last decade and a half between those who see value for the private sector in student lending and those who would prefer to have the federal government in charge.”
Republicans proposed that, rather than remove banks from student lending, Congress continue for five years an emergency program that has allowed lenders to sell their loans to the federal government. They estimated that extending the program would save the federal government $24-billion over four years, freeing up $12-billion for Pell Grants.
“The underlying [Democratic] bill is a hodgepodge of education initiatives from the cradle to the grave,” argued Rep. Brett Guthrie, a Republican from Kentucky. “It’s not the kind of focused legislation that we need.”
But Democrats rejected the Republican alternative, arguing that the loan-purchase program was a short-term stopgap, not a long-term fix.
“We don’t need a middleman,” said Rep. Timothy H. Bishop, a Democrat from New York. “If we are providing the capital, why do we need to funnel it through a profit-making intermediary?”
In the end, the proposal was defeated, 16 to 29, and the Democratic plan was approved by a vote of 30 to 17.
Defeat for Lenders
The result was a major defeat for lenders, which stand to lose billions of dollars in a switch to 100-percent direct lending. In recent weeks, they have furiously circulated counterproposals to the president’s plan and ramped up their lobbying on Capitol Hill.
Still, lawmakers did make a couple of concessions in the bill to lenders, setting aside a portion of the government’s loan-servicing contracts for nonprofit lenders and revising the formula used to calculate the subsidy rate on outstanding student loans. The change would bring the rate at which lenders borrow in line with the subsidy rate, making existing loans more profitable.
But student-loan lobbyists said they were not giving up on guaranteed lending yet. While House passage of the bill is now virtually assured, the measure must still clear the Senate, where some Democrats have voiced concern about potential job losses in their states as lenders pare their work forces. In news releases issued on Tuesday, the lobbyists stressed that passage by the committee was only the first step in a lengthy legislative process.
“The House committee’s approval is a setback for students, but it is just the first inning in a game that could easily go into extra innings,” said Richard Hunt, president of the Consumer Bankers Association.
Shortly after the committee meeting ended, a coalition of student-aid administrators from 50 colleges unveiled their proposals for remaking the student-loan system.
College lobbyists, meanwhile, had mixed feelings about the bill. While they welcomed the infusion of aid for low-income students and community colleges, some lobbyists said they were unhappy that Congress would spend some of the bill’s savings on elementary- and secondary-education programs. They also spoke of concerns about how the bill would structure the new Perkins Loan program and the president’s access and completion fund.
Still, most higher-education associations were expected to back the bill—with the possible exception of the National Association of Independent Colleges and Universities, or Naicu, which objects to the measure’s set-aside for community colleges and public four-year institutions.
“Naicu believes federal aid should be first to students, and any institutional aid should be based on the school’s ability to help reach national goals, not based on who runs it—state bureaucrats or nonprofit boards,” said Sarah A. Flanagan, vice president for government relations.
The American Council on Education, higher education’s umbrella lobbying group, sent a letter of support for the bill on Tuesday.
Before voting to approve the bill, lawmakers on the committee adopted several amendments, including one that would make it easier for for-profit colleges to benefit from the measure’s increase in student aid. The amendment, which was offered by Rep. Robert E. Andrews, a Democrat from New Jersey, would soften a requirement that colleges derive at least 90 percent of their revenue from nonfederal sources, allowing them to exclude Perkins Loans and a recent increase in Stafford Loan maximums from the 90-percent cap. It would also allow colleges to be out of compliance with the so-called 90-10 rule for three years, rather than the current two, before facing sanctions. Somewhat surprisingly, the amendment won the support of most Democrats, passing 42 to 5. Historically, many Democrats have opposed efforts to weaken the 90-10 rule, arguing that it has prevented taxpayer dollars from going to rogue institutions.
Other approved amendments would:
- Authorize the secretaries of education and veterans affairs to provide supplemental grants to veterans attending private institutions in states where public-college tuition is low but fees are high. Under the Post-9/11 GI Bill, which Congress approved last year, the federal government will cover a veteran’s tuition and mandatory fees, up to the amounts charged by the most expensive public college in a state. Without the amendment, veterans attending private institutions in California—where public-college tuition is set at zero—would receive only a fraction of the aid that veterans attending private institutions in states with high public-college tuition would receive.
- Forgive the student loans of service members who are called to duty in the middle of a term and do not receive academic credit for the term.
- Encourage states to work with industry to identify and deal with labor-market needs, and give priority in the awarding of community-college grants to entities that form partnerships with businesses or fields.
- Urge the secretary of education to provide assistance to states in applying for the bill’s community-college grants, to ensure equitable distribution of the awards.
- Allow community colleges to use grant funds provided under the bill to redesign and create programs to respond to regional work-force needs.
- Give priority in the awarding of access and completion grants to programs that focus on improving postsecondary access and success for women and other underrepresented groups in science, technology, engineering, and mathematics.
- Ensure that any federal money distributed to modernize community colleges does not offset state and local funds for that purpose.
- Authorize grants to colleges to hire veterans’ resource officers to increase college-completion rates.
- Clarify that Puerto Rico and U.S. territories are eligible for community-college grants under the bill.
