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A Wild Ride Ahead
Congress is back from its summer break and that means that we will soon be entering the final act of the drama surrounding President Obama's plan to eliminate the Federal Family Education Loan (FFEL) program and provide all federal student loans directly from the government. The fate of the President's proposal will be decided over the next two months.
At Higher Ed Watch, we have never said that achieving this essential goal would be easy. In fact, from the start we warned that the Obama administration and its allies in Congress would face a pitched battle -- not only with Republicans but also with entrenched interests in their own party who support the status quo.
So far, progress on legislation enacting the President's plan has moved surprisingly smoothly. In July, the House of Representatives Committee on Education and Labor approved its version of the bill by a comfortable margin. And despite a massive lobbying effort by the student loan industry, passage of the measure by the House as early as next week seems fairly assured.
The real battle is expected to be in the Senate, where Democrats with ties to student loan companies have expressed misgivings. The Senate Committee on Health, Education, Labor and Pensions has yet to introduce its version of the bill, but must do so by October 15, according to the budget resolution that Congress approved this past spring.
Getting the bill through the Senate was always going to be tough, but the events of the last month -- the death of Sen. Edward M. Kennedy, the Massachusetts Democrat who led the Senate Health, Education, Labor and Pensions Committee, and the seeming breakdown of bipartisan negotiations on the health care bill -- have made it only that much more difficult.
The loss of Senator Kennedy can not be underestimated. He was not only a master legislator but also the member of Senate and perhaps of all of Congress most dedicated to the cause of student loan reform (with the possible exceptions of Reps. Tom Petri, the Wisconsin Republican, and George Miller, the California Democrat who is chairman of the House education committee). His leadership will sorely be missed.
In addition, the increasingly polarized debate on the President's top priority -- reforming the nation's health care system -- looks like it could complicate the student loan bill's progress. Democratic Congressional leaders have said that if they can't reach a bipartisan compromise on a health-care overhaul, they will try to push many of the proposed changes through by using the budget reconciliation process (which prevents bills from being filibustered in the Senate because they require only a simple majority to pass). If this happens, the health care and student loan proposals will be included on the same bill, tying the fate of these two extremely controversial measures together.
At Higher Ed Watch, we remain confident that Congress will approve legislation to dismantle FFEL and provide federal loans entirely through the Direct Student Loan program. But we are also certain that this will come down to the wire and be decided by only a handful of votes.
In other words, hold on to your hats because we are in for a wild ride.
Setting the record straight D.C. style!
"So let me set the record straight. My guiding principle is, and always has been, that consumers do better when there is choice and competition."--Barack Obama 9/9/09 speech b/f Congress
Maybe NAF can set the record straight for us? How does a man whose "guiding principle is, and always has been, that consumers do better when there is choice and competition" stomach the elimination of choice and competition in student lending? Sounds like somebody is talking out of both sides of his mouth folks! What say the scholars at the NAF?
Health care
The market for medical care, in one form of another, has been around for hundreds, if not thousands, of years, depending on how you define it. On the other hand, there was no market for student loans until the government got involved. That's why the states, and then quickly, the federal government got involved. Even well after the Higher Ed Act was first enacted, subsidies had to be sweetened numerous times, for example, when it was discovered that not enough states were starting guaranty agencies and not enough states were starting secondary markets. Even with all this federal involvement, there was no measurable choice and competition until direct lending started. Borrowers were almost invariably charged the highest level of interest rates and up-front fees allowed under the HEA. This was in spite of the fact that most observers would agree that lender subsidies were much higher in 1993 than in, say 2006. Yet that T-bill + 3.5% guaranteed yield was simply redistributed to investors rather than to students.
Why should taxpayers attempt to support a 1965 social welfare program, FFEL, not only at a very basic level of sustenance but, as some have suggested, at greatly increased levels, to provide "choice and competition"? There are a lot of government programs which sound great until you are asked, "How much of a tax increase would you support in order to provide each school a choice of 5 equally-qualified lenders?"
On the other hand, if "things have changed," as people said about the stock market in 1999 and the real estate market in 2005, then there is no need for any cash from Washington to any lenders or state government agencies, and thus we could end the federal student loan programs and the free market is ready to provide choice and competition with great loan products that offer loan interest rates and benefits such as deferments, forbearances and loan discharges. Why would they even want government involvement? You can expect to hear the old argument that they need some "sweetener" to deliver loans to "high risk" groups of students. That has always been the trump card. Someone needs to ask them to turn over the trump card and then bring in a bunch of independent auditors to read what is on the other side of that card and see whether it is true or not.
This bill would eliminate
This bill would eliminate choice, competition and innovation of student lending. This is just another example of the government trying to completely control something.
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