Washington
Updated: 11:50 p.m., U.S. Eastern time
Congressional Democrats have begun private discussions on cutting down their $87-billion student-loan bill, largely accepting the political reality forced by new estimates of the legislation's cost and savings.
The talks began in recent days, after a new analysis last week by the Congressional Budget Office showed that President Obama's proposal to end the bank-based system of distributing federal student loans would save $67-billion over 10 years.
Democrats had hoped the savings would be much higher and would finance a major increase in the Pell Grant program for low-income students, as well as help for students needing low-interest loans, community colleges, minority-serving institutions, and other educational priorities.
The chairman of the House and Senate education committees, Rep. George E. Miller of California and Sen. Tom Harkin of Iowa, declined on Thursday to say what would be cut from the bill, which has passed the House but not the Senate.
"That's a matter of discussion between Senator Harkin and myself and the leadership," Mr. Miller told The Chronicle. "I'm not going to answer the question because I've got to sit down with them."
The prospect of such cuts has been recognized by higher-education lobbyists as a steadily growing possibility for months, as Senate leaders refused to act on the bill out of concern that they could not overcome worries among fellow Democrats under pressure from loan-industry lobbying.
The bill would save the government money by ending the subsidies given to private lenders that distribute student-loan money, and would instead require all colleges to use the Education Department's own direct-lending system.
The delay by the Senate, combined with many colleges' decision to switch voluntarily into direct lending, has produced for Democrats an irony in which they will now reap a lower amount of taxpayer savings if the bill is enacted.
Reconciliation and Health-Care Reform
The bill has been further complicated by the months-long delays in Mr. Obama's health-care bill. Senate Democrats have long known they have only enough support in the chamber to pass the student-loan measure by using a procedure known as reconciliation, in which a bill that reduces overall federal spending can be approved by a simple majority of 51 votes, rather than the 60 necessary to end a filibuster.
The White House and fellow Democrats writing the health-care bill have concluded more recently that they may need to use reconciliation to pass that legislation, too. And because reconciliation can be used only once each budget cycle, Democrats are faced with the proposition of whether the health bill and the student-loan bill can be combined into a single package.
Sen. Kent Conrad of North Dakota, as chairman of the Senate Budget Committee, is a key player on the strategy. Senator Conrad told The New York Times he believes the student-loan bill should be delayed for a few months, until Congress begins a new budget cycle by starting work on the federal budget for the 2011 fiscal year.
The Senate Democratic leader, Harry Reid of Nevada, has not yet given up on the idea of combining the health-care and the student-aid bills in a single reconciliation measure. "No, not yet," Mr. Reid's spokesman, Jim Manley, told The Chronicle when asked if the student-aid bill would be excluded from reconciliation. And Senate Democrats told The Washington Post on Thursday that combining the bills in one reconciliation measure was increasingly likely.
And Senator Conrad seemed to ease his concerns about combining the bills late Thursday. Citing a preliminary ruling by the Senate parliamentarian, which suggested that combining the bills could work, he told the Post, "I'd say yes, we're leaning toward it."
Mr. Reid officially told Senate Republicans on Thursday that he planned to use the reconciliation procedure in order to pass the health-care bill. Mr. Manley said it was not decided whether the student-loan legislation would be part of that effort.
Democrats, though, do appear resigned to Senator Conrad's assessment that they now must use the $67-billion estimate of savings under the student-loan bill, rather than an $87-billion estimate from last year, even though they can technically keep using the old figure until Congress passes a budget resolution for fiscal 2011.
The Top Priority for Higher Education
Mr. Conrad's views touched off the negotiations involving Mr. Harkin and Mr. Miller over what they should remove from the bill to make up for the $20-billion drop in savings. Those negotiations do not appear to include anyone outside Congress, said Terry W. Hartle, senior vice president of the American Council on Education.
Mr. Hartle said he believed that Mr. Obama's proposal to increase the maximum Pell Grant award each year, by an amount equal to the rate of inflation plus one percentage point, should be recognized by Democrats as the most essential element.
"It's not that the other things are not good ideas," he said. "It is simply that the top priority within the higher-education community is the president's Pell Grant proposal."
But Mr. Harkin may have signaled some loss of commitment to the president's plan, telling reporters at a news briefing Thursday on Capitol Hill that he expected the student-aid bill would raise the maximum Pell Grant from $5,550 to the range of about $6,400.
A failure by Congress to pass any bill "is a catastrophe waiting to happen," Mr. Harkin said. It would mean 500,000 students would lose their Pell Grants, and others would have their awards cut by 60 percent, he said.
His job may have grown tougher this week with the release of a letter from six Senate Democrats urging their party's leaders to "consider potential alternative legislative proposals" rather than the current student-loan bill.
At least some of the senators signing that letter and similar letters have said they had signed at the urging of Sallie Mae, the nation's largest student-loan company, and would not necessarily vote against the final bill. Some of those senators have Sallie Mae operations in their states, and they have expressed concern about possible job losses.
"Sallie Mae has hired an army of lobbyists," Mr. Harkin said after the news briefing, "and they are going to the states in which they have employees and stirring up a lot of misinformation. But the facts are on our side, the savings are on our side."
A spokesman for Sallie Mae, Conwey Casillas, said Democrats could avoid any misinformation by taking even more time to hold hearings on the legislation. "We agree there is too much misinformation being spread," Mr. Casillas said, "including the false claim that lenders are pocketing billions in subsidies."
Comments
1. greeneyeshade - March 11, 2010 at 07:01 pm
Mr. Casillas, why would you be in business if you weren't making a healthy profit? Why shouldn't "We the People" run the program and distribute those profits to students?
2. 11132507 - March 12, 2010 at 06:32 am
The only misinformation in this article is what Sallie Mae is trying to spread. Unfortunately, the health care debate delayed everything in DC enough so the FFELP community could target its army of lobbyists and truckloads of money at enough key legislators that real student loan reform ultimately had no chance of happening. Good work Republicans - your wealthy donors will keep getting their corporate welfare from the taxpayers at the expense of higher education access for the needy. But hey, you handed Obama a defeat...somehow you believe that's exactly what the public wanted, despite your being trounced in the 2008 election.
But to be fair, there are a few Dems to thank for this too. As always in DC, money talks, common sense walks.
3. atana09 - March 12, 2010 at 09:37 am
Interesting that there is obstruction in the Senate, premised on the usual lobby tactics by SMC and other educational lenders. Although the amount to be saved has been revised downward, it is still 67 billion. There is no realistic possibility that keeping the corporate lenders system would save anybody, any money, ever.
Plus the corporate/government subsidized lending system has propagated a massive bubble which cannot be sustained. The 580 some billion in student debt they hold, and have massively over leveraged cannot be inflated for too much longer. Especially in our current depression. So to hand these companies yet more subsidies will only encourage the reckless behavior which led to this point. And feed yet another generation into that particular leviathan. Which has been detrimental to families, students, and academe. And when this beast belches out the detritus of its excesses it will be an economic disaster equivalent to, or worse than the mortgage debacle. Probably worse, in that at least a foreclosed party can eventually go on to rebuild their lives and their role in the economy. Those subject to corporate student loans have no rights, no hope, and no way out. And there are millions more of them than homeowners in troubled mortgages.
About SMC and like companies spreading lobby disinformation well they are legendary for those tactics. After all that's how that system was brought into being, by claiming the old lending program had too many defaults and that its corporate subsidized replacement would be cheaper for the taxpayer. Somehow it did not work out that way. But nonetheless the spreading of misinformation goes apace. In the larger cities there are now billboards placed showing a urban woman and two kids and stating that reforms of student lending must be blocked to 'save her job". Of course that lie ignores the fact that due to student debt and credit checks for employment many cannot get jobs. Or make enough to pay their escalating debt. I hope that model was paid really, really well because she betrayed the class of people she was posing to represent.
Because of all that, these companies do have to spread the lie and the lobby influence. Assessing their system on any rational basis of monetary costs or social costs would inescapably led to the conclusion of 'my god what have we done'.
4. jmichaelis - March 12, 2010 at 10:08 am
I get tired of seeing these stories and the comments that follow slamming FFELP and talking up Direct Lending. As usual, the reports of "government savings" (a term that has a lot of credibility because government programs never cost more than projected) are vastly overestimated. And of course the businesses, like SMC, are making a healthy profit.....it's called business. By definition, they would not be in business if they were losing money. Do you not think the government will be making money? Of course they will. Oh, wait, you actually think the money the government makes will be passed along to the students who need it most, don't you? Wrong. It will be used, and then some, to feed the machine called Direct Lending. The difference being that the government will provide awful service to both the students and the colleges. How do I know this? Because it happened in the '90s under Clinton and most schools that went to Direct Lending back then didn't stay in it for very long. I know the private lenders, especially SMC, abused the system and essentially "bought" business. That should absolutely have been dealt with, but there is no need to throw the baby out with the bath water. I mean, come on, a politician displaying righteous indignation at the thought of someone getting business through favors.....does no one see the irony here?
5. atana09 - March 12, 2010 at 11:04 am
"And of course the businesses, like SMC, are making a healthy profit.....it's called business"
Only to a degree, because the only reason these companies exist and have their formally massive profits is because they are artificial condition of government subsidized business. They don't compete in the open market, and have expended a great deal of effort to make sure that others dare not tread onto their protected turf. Additionally because they exist as a result of sweetheart lobbying and have propagated unique rules regarding their handling of debt, they are unique in the financial industry. If a mortgage owner, or car buyer were subject to the type of treatment inflicted upon student borrowers no one in their right mind would ever buy a car or a house. But for a generation the edudebt industry has had a captive clientele and they have treated them worse than sharecroppers or the bound customers of the old company town stores.
The invisible hands of the market here, is only invisible because it has been so deep into the government treasury's pockets grabbing for every bit of change it can get. And the other hand is even deeper in the pockets of our representatives handing out a few pennies to make sure no one stops what the other hand is doing.
As far as throwing the baby out with the bathwater. Well this particular baby possesses the avarice of Boss Tweed, the kindness of Simon Legree, and the propensity for deceit of Satan himself. So maybe it is time to throw the baby out with the bathwater, and then burn the tub...
6. jungianscholar - March 12, 2010 at 01:54 pm
It is more than obvious that we need affordable, accessible financial aid for hundreds of thousands of American students. During Bill Clinton's presidency, I took out a few Stafford loans and consolidated at a rate below 4%. George W. Bush jacked the rates up into the obscene category, and now, at sixty years old, I owe almost $150,000 for my Ph.D.. All of my loans are Perkins and Stafford, and average 8% or more. My program cost about $20,000 per year.
My son, who is pursuing his Ph.D. in Europe, said he is paying about the same; however if he were a citizen or resident of almost any European country, his graduate school tuition would be about $3,000 per year. In the UK undergraduate tuition at one of the great universities is about $3,100 while Ph.D. studies are $5270 for Europeans, and $23,622 for Americans!
Now, my question is "Why are we looking in the U.S.A. at absurdly high interest rate loans, a very small number of Pell grants, when it seems what we really need to know is how can European, Asian and South American universities offer quite often superior education so much cheaper?"
That indeed, seems to be the conversation that we are missing!
Jungian Scholar
7. 22286504 - March 14, 2010 at 05:31 pm
During the 1990s, during the Clinton administration, the private lending programs and the direct student loan program were both readily available; and campuses could make a choice. When the Republicans took over Congress and especially during the Bush administration, the private lending companies repeatedly got legislation passed that virtually disabled the direct student loan program, leaving the private lending organizations in the dominant position. They contributed generously to politicians who helped them; and they substantially raised costs to students, always with the support of Congress or at least with congressional and administration acquiescence. It should surprise no one that, with the Democrats in power, the private lenders (mostly banks) are being curbed and costs to students being lowered. If the private lenders had left undisturbed the original dual track system--private lenders and the direct student loan program--they wouldn't now be faced with virtual extinction by Congress. Given their behavior, it is now difficult to find sympathy for them.