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The Loan Industry’s Friends in Congress Go on the Attack

November 13, 2009 - 8:45am

Earlier this week, we called attention to the fact that some of the student loan industry's most fervent supporters in the financial aid world are potentially putting their schools and students at risk by refusing to take even the initial steps to prepare for the possible shift to direct lending next fall.

This is particularly worrisome, because as we wrote, no matter what happens with the student loan reform legislation that Congress is considering, the end of the Federal Family Education Loan (FFEL) program is coming. That's because an emergency law that is currently propping up FFEL, the Ensuring Continued Access to Student Loans Act (ECASLA), is set to expire this summer and neither the Obama administration nor Democratic Congressional leaders are interested in extending it. So unless the financial markets improve enough so that lenders do not have to depend on federal financing to make government-backed loans to students, colleges will likely have to shift to direct lending.

Department of Education officials have been trying to get that message out. Late last month, Secretary of Education Arne Duncan sent a letter to colleges that have not taken any steps yet to start preparing for a possible conversion. "While there are encouraging signs that financial markets are rebounding, the most prudent course of action is for you to ensure that your institution is Direct Loan-ready for the 2010-2011 academic year," he wrote. "That way, loan access to your students will be assured."

The Education Secretary's letter set off a firestorm of controversy on Capitol Hill, with the student loan industry's closest allies in Congress falling all over themselves to be the first to condemn the Obama administration of strong-arming colleges. Both the Democrat Ben Nelson and the Republican Mike Johanns from the great State of Nelnet (whoops, we mean Nebraska) sent letters to Duncan (see here and here) last week expressing their outrage.

"The Obama Administration seems intent on denying competition and ramming through a federally-run student loan system," Johanns said in a news release. "By encouraging institutions of higher learning to move quickly to a government-run system, it appears the White House is trying to end run Congress and strong-arm its way toward nationalizing the student loan industry." [Note to Johanns, the FFEL program is a government program too.]

Rep. John Kline (pictured top left), the lead Republican on the House of Representatives Committee on Education and Labor, went even further. In his own letter to Duncan, he accused the Education Department of violating a federal law that prohibits government agencies from distributing "literature that promotes public support for or opposition to any legislative proposal on which Congressional action is not complete."

"While this debate proceeds in Congress, the U.S. Department of Education must act as an impartial agent to assist colleges and universities, not as an advocate for its preferred legislative changes to the federal student loan program," Kline wrote.

At Higher Ed Watch, we believe these allegations are outrageous. Duncan is not asking colleges to flip the switch and make the shift to the Direct Loan program right away. He is simply urging colleges to prepare for the possibility that they will have to transition to direct lending when ECASLA ends. This is indeed the prudent course to take.

After all, Obama adminstration officials know that if there are any disruptions in student loan delivery next year, Johanns, Kline, and Nelson will be among the first to go on the attack, accusing the Education Department of being inadequately prepared. In fact, these lawmakers want to have it both ways. They want to impede the Department's efforts to get colleges ready for a possible conversion but then also be able to blame the administration if any mishaps occur.

These lawmakers' constituents -- the students and families in their states that rely on student loans to pay for college -- deserve better. They need to know that the colleges that serve them are adequately prepared no matter what happens next fall.

wow, Stephen Burd used to be

wow, Stephen Burd used to be a legitimate reporter before leaving the Chronicle. Now he sounds like Rachel Maddow with a deep voice (i.e., angry leftist).

What about the conference call?

I noticed this post conveniently did not mention the conference call with community college presidents addressed in Rep. Kline's letter. At the end of this post I have included the first few paragraphs of higher ed trade publication article on this teleconference, "Mutual Back Scratching." (http://www.insidehighered.com/layout/set/print/news/2009/10/05/cccall).

Higher Ed Watch claims the questions raised by Rep. Kline are "outrageous." How is it "outrageous" to ask if this type of activity on a controversial piece of legislation meets the White House counsel's standard to "avoid even the appearance of politicization in order to ensure people’s faith in the actions of the Administration"?

From INSIDE HIGHER ED

Mutual Back Scratching

Part pep rally, part support group -- and part lobbying effort.

All of those elements were present Friday as a team of Obama administration officials -- including the White House's special guest star for any and all community college events, Jill Biden -- held a conference call with about 80 two-year college leaders, which they characterized as a listening session. And it undoubtedly served that purpose, with presidents of community colleges praising the administration for the significant attention it is paying to the sector but also pointing out, in no uncertain terms, that the funds the increased federal government has directed to them have not nearly sufficed in protecting them from the harm inflicted by state budget cuts.

But the session and the stroking also had a subtle but plainly evident ulterior motive: letting an important constituency know that the administration very much needs its help as the White House pushes Congress to pass legislation to carry out a massive restructuring of the student aid programs that would, not coincidentally, pour $10 billion into community colleges.

At several points in the call, administration officials let the two-year college presidents know that priorities they favor are dependent on Congress passing the Student Aid and Fiscal Responsibility Act (and the community college focused American Graduation Initiative that is part of it) this fall. In response to a question from Jerry Weber, president of the College of Lake County, about whether the increased number of students seeking Pell Grants will continue to have their needs met, for instance, Robert Shireman, deputy under secretary of education, responded that "the student loan reforms are critical to our having the funds to do that."

The Loan Industry’s Friends in Congress Go on the Attack

Now that you the New American have put the lenders out of business with your one sided articles why don't you do something to help students and their families get some reasonable interest rates. You have such a one sided view that you forget that 65% of the kids will never see a Pell grant but they will see extreme interest rates.

Fight for the students and get them an interest rate that is affordable.

RESTRICTION ON LOBBYING WITH APPROPRIATED FUNDS

This blog entry references an allegation being made suggesting that officials at the Department might be engaged in activities for which the use of appropriated funds is prohibited. Here is the actual text of the limitation on propaganda and lobbying included in the Labor-HHS-Education Appropriations bill:

"Sec. 503. (a) No part of any appropriation contained in this Act shall be used, other than for normal and recognized executive-legislative relationships, for publicity or propaganda purposes, for the preparation, distribution, or use of any kit, pamphlet, booklet, publication, radio, television, or video presentation designed to support or defeat legislation pending before the Congress or any State legislature, except in presentation to the Congress or any State legislature itself.

(b) No part of any appropriation contained in this Act shall be used to pay the salary or expenses of any grant or contract recipient, or agent acting for such recipient, related to any activity designed to influence legislation or appropriations pending before the Congress or any State legislature."

Let's hope that the Department of Education's own Inspector General will look into whether this prohibition has been violated. Hopefully, the answer is "no." It may come down to how you define "publicity" or "propaganda" and whether any questionable grants are being made to Direct Loan-supporting organizations that just happen to be writing letters and making phone calls in support of the administration's proposal.

Stephen, please explain to your readership

what precisely is wrong with schools waiting to act in accordance with a law until that law is passed? I and I think many others are puzzled by this.

As I noted in my comment to your post yesterday, it is difficult to believe that Education or Congress is simply going to deny hundreds of thousands of students access to federal student loans so they can wag a finger at hundreds schools who haven't transitioned in time and say, "this is what you get for not listening to us."

I should think that punishing a voting population facing dim employment prospects and looking to develop marketable job skills for something they had not control over will simply not happen.

Jim Cooper

Yes, getting a lower interest rate would be nice, so would restoring standard consumer protections to student loans. I have contacted my rep Jim Cooper on several occasions...only to be ignored.