Historic Victory for Student Aid Is Tinged by Lost Possibilities

Charles Dharapak, AP Images

President Obama, who arrived to speak at the U. of Iowa on Thursday, succeeded in pushing legislation through Congress that ended the bank-based system of federally subsidized student loans.
March 25, 2010

So, in the end, how much was really accomplished?

More than a year after President Obama proposed eliminating the bank-based system of distributing federally subsidized student loans and giving the savings to education, Democrats are finally beginning to savor victory.

The Senate approved the student-loan bill, which was combined with Democrats' health-care overhaul, on Thursday afternoon by a vote of 56 to 43. Because the Senate made a couple of small changes in the version of the legislation approved by the House of Representatives last Sunday, the bill went back to the House for another vote. That came later Thursday, when lawmakers endorsed the final bill, 220 to 207. All that remains is for President Obama to sign it into law.

Yet for all the drawn-out battle over the landmark student-loan bill, the measure will result in limited gains, providing only a portion of the money the president had sought for some of his key higher-education goals. Pell Grants, the government's main aid program for financially needy students, got billions of dollars less than expected. Community colleges, seen by the president as key to his hopes for a broad expansion of college attendance and graduation rates, also got a fraction of the intended amount. Other programs fared even worse in the final legislative compromise.

Nonetheless, administration officials say, the crucial fact is that, at a time of severe economic stress, college has become more affordable for millions of students.

"This is a great step forward for us," said Martha J. Kanter, under secretary of education, "even though it's not everything we want."

The bill ends a decades-long debate over the best method for the government to deliver its low-interest student loans, terminating a complicated system of subsidizing private loan companies in favor of the Education Department's method of distributing the money directly to colleges and students.

Savings from the switch were originally estimated at $87-billion over 10 years. The bill, in the version that first passed the House of Representatives last September, would have given most of that money to education programs, primarily the Pell Grant, but also historically black colleges and other minority-serving institutions, community colleges, and a grant program to help states and institutions improve college-completion rates.

In the end, the compromise legislation provided less than half that much money, about $43-billion, for spending on education programs. Most of it, $36-billion, is going to bolster the Pell Grant, and the largest additional chunk, about $2.5-billion, has been allocated to minority-serving institutions.

Future of Pell

Even though the Pell Grant program is the overwhelming beneficiary of the student-loan bill, it remains unclear just how far the budget increases will go toward achieving the broad goal of expanding access to college.

The need for the aid is growing rapidly, as more students enroll in college and more people become eligible for the grants in a struggling economy. In the 2008-9 academic year, the government spent $18.3-billion delivering Pell Grants to about 6.2 million students. By the 2010-11 academic year, it expects to spend nearly twice that much, $32-billion, on 8.4 million students.

At the same time, more than a third of the Pell Grant money in the bill will be used to cover past shortfalls in appropriations for the program, rather than to pay for future increases.

As a result, the maximum Pell Grant award, set at $5,550 for 2010-11, will remain at that level for the following two years. It will then increase by the rate of inflation in each of the next five years. Mr. Obama had asked for 10 years of annual increases at a rate of inflation plus one percentage point, which would have brought the maximum value to an estimated $6,900 by 2019-20, or about $1,000 more than the final version of the bill will now provide.

"The president's initiative has moved from a vast expansion to an effort to maintain and sustain the Pell program," said Terry W. Hartle, senior vice president for government and public affairs at the American Council on Education.

That change in scope leaves very much in doubt the ability of the nation to meet the president's goal for the United States to be atop the world by 2020 in measures of college completion, Mr. Hartle said. The funds that the bill provides for higher education will mostly be enough only to help compensate for cuts to colleges and student aid on the state level, rather than to finance any broad expansion of college enrollment.

Even so, colleges and students cheered the increases the bill does contain for the Pell Grant and the effort to make sure the maximum Pell award at least tries to keep pace with inflation.

"These types of programs are the reasons why I'm in school," Kortney McBride, a junior at the University of California at Berkeley, said this week at a Capitol Hill rally to press Congress to approve the student-loan bill.

Alongside her, Tommy Le said he would graduate from the University of California at Santa Cruz this year with $32,000 in student-loan debt, even with all the Pell Grants he has received. As his tuition has increased, he said, he has had trouble making ends meet and has even been receiving food stamps since January.

World-Leadership Goal

Beneficiaries and programs other than the Pell Grant suffered even deeper cuts in the final version of the bill, with Congress excluding billions of dollars the president had sought for community colleges and for his ambitious college-completion goal.

Mr. Obama propelled community colleges into the limelight last July when he went to Macomb Community College, near Detroit, to outline a plan to spend $12-billion over 10 years to rebuild and expand two-year institutions. The president said he wanted community colleges to increase by 50 percent their current annual output of about one million graduates, both to help more workers get vital job skills and to create a more-robust student pipeline into four-year colleges.

Mr. Obama's plan included $9-billion in grants to encourage job-specific training programs, $2.5-billion for facility improvements, and $500-million to help develop online curricula.

The effort is central to the administration's goal of making the United States the world's leader by 2020 in the proportion of its residents with college degrees. About 39 percent of 25- to 34-year-olds in the United States have associate degrees or higher, putting the nation 10th among 30 countries ranked, according to the Organisation for Economic Co-operation and Development. In the top-ranking country, Canada, 55 percent of people in that age group hold associate degrees or higher.

But rather than the $12-billion suggested by Mr. Obama, the original House bill had $10-billion for community colleges, and the final legislation had only $2-billion.

The president of Macomb Community College, James Jacobs, is among the many two-year-college leaders lamenting the lost opportunity. "A lot of us were very enthusiastic" about Mr. Obama's proposal for community colleges, said Mr. Jacobs, who had stood alongside the president at last summer's announcement. Mr. Jacobs had talked of using the proposed federal infusion of money to develop new programs in hybrid technology for cars and other "green technology" jobs.

He said this week that he was appreciative of the money that is in the bill, but that "while it's a victory, it's not all that could have been won."

Ms. Kanter, who served as chancellor of the Foothill-De Anza Community College District, in California, before joining the Obama administration, shares the regret. With limited resources, the decision by Congress to favor the Pell Grant program makes sense, she said, because helping more students, even less-than-optimally financed ones, to be able to enroll in college, is at least preferable to their being shut out of higher education entirely.

Still, she acknowledged, the failure by Congress to finance the president's vision for community colleges through the student-loan bill hurts at a time when cash-strapped states are reducing their support for public education. The $2-billion for community colleges does not include money the president proposed for facility improvements and online curricula. Instead, all of the money will go to help the colleges with general efforts to produce more job-ready graduates.

Examples of the need in that area include the many community-college nursing programs that lack the "high-end simulation labs" in use at many four-year universities, Ms. Kanter said. Even with just $2-billion to spend on such projects, "we can do a tremendous amount of things for students in this country," she said.

Beyond the scaled-back funds for community colleges, the Obama administration's efforts to put money behind its 2020 benchmark also took a hit in other parts of the final bill. The legislation includes only $750-million for grants to improve college access and completion, down from $3-billion in the original House version.

Loan-Industry Lobbying

The sense of lost opportunity for higher education is magnified by the fact that the value of the student-loan bill might not have been scaled back if Congress had acted more quickly. In fact, the Obama administration itself contributed to lowering the projected savings of ending the bank-based loan program by encouraging colleges to voluntarily shift into the Education Department's direct-lending system ahead of the final vote. As colleges made the change on their own, Congressional budget rules reduced the amount of money that could be credited to a bill mandating the switch.

President Obama did win his politically difficult battle with banks, largely cutting them out of the federal student-loan system, but the tough fight added to the delays that led to the lower levels of spending for education.

Student-loan companies spent millions of dollars lobbying Congress and contributing to lawmakers' campaigns. The bank-based system, they argued, produced better service and benefits for colleges and borrowers than the direct-loan system could. And concerns about job losses, raised at high-profile rallies organized by lenders in a number of Democrats' home states, tempered support for the bill.

Amid such arguments over jobs and budget priorities, research makes clear the benefits of spending more federal money on education, said Mark Kantrowitz, publisher of FinAid, a Web site that provides student-aid advice. He has proposed that Congress add significantly more money to the Pell Grant than it did in the student-loan bill. Doubling the value of the Pell Grant, as he suggests, would produce an average 14-percent return on investment when considering future income-tax revenue.

It's "a wise investment for the federal government," Mr. Kantrowitz said.

But that discussion may not be revisited anytime soon. The student-loan bill was seen as the main vehicle for the president to advance his higher-education agenda and may have been the last big chance for colleges and students to win any major increases in federal money for some time. The Obama administration has already set off on its next big education battle, and that fight is focused on elementary and secondary education and an overhaul of the No Child Left Behind law.

Andrea Fuller contributed to this article.