House Committee Passes Student Loan Bill

The House Education and Labor committee voted 30-16 on Wednesday to pass H.R. 2669, the College Cost Reduction Act. The bill will reduce federal subsidies to college loan lenders by $19 billion over five years and transfer $18 billion of the savings to financial aid programs geared toward making college more affordable to students. It would direct $750 million in savings to deficit reduction, as required by the Fiscal Year 2008 budget resolution’s reconciliation instructions. This is the latest in a series of actions regarding student loans and college affordability, though it remains unclear whether the bill signals more momentum for eventual reauthorization of the Higher Education Act, which Congress just extended last week to run through October 1st.

The House Education and Labor committee voted 30-16 on Wednesday to pass H.R. 2669, the College Cost Reduction Act. The bill will reduce federal subsidies to college loan lenders by $19 billion over five years and transfer $18 billion of the savings to financial aid programs geared toward making college more affordable to students. It would direct $750 million in savings to deficit reduction, as required by the Fiscal Year 2008 budget resolution’s reconciliation instructions. This is the latest in a series of actions regarding student loans and college affordability, though it remains unclear whether the bill signals more momentum for eventual reauthorization of the Higher Education Act, which Congress just extended last week to run through October 1st.
While the bill attempts to help students and graduates, the bill also aims to help students by enforcing changes on the very institutions they attend. The legislation requires significantly more reporting by colleges about their prices and their performance, including data on completion rates and faculty/student ratios. The bill also puts in place a series of steps institutions would have to go through if they increase tuition significantly, along with some provisions aimed at discouraging such increases. Universities have consistently opposed this provision, claiming that “price controls” always prove to be poor public policy.
Another opponent to the legislation, the student loan industry, claims that the new bill will almost immediately make higher education less affordable for middle and low class families. The proposed cuts to lender subsidies will be passed onto the families in the form of increased loan costs. Another possible consequence is that with loans being unprofitable for a majority of lenders, many private companies will simply leave the student lending field, lowering options and competition, which is usually a driving force behind lowering costs.
Although the bill obviously garnered some bipartisan support, Republicans argued that the bill, which spends $5 billion to increase the maximum Pell Grant by $500 over five years, shortchanges needy students. They proposed, somewhat uncharacteristically, to double the Democrats’ increase on Pell grants. The majority of the increased spending in the Democrats’ bill goes towards cutting student loan interest rates. Rep. Howard “Buck” McKeon (R-CA), the ranking Republican on the committee, suggested that the Republican proposal is more in line with the Democrats’ stated aims of helping students than their own proposal, which focuses much of its attention on cutting loan payments for borrowers after they’ve left college, rather the helping current students pay of college. McKeon used the same argument when Congress passed H.R. 5, which cut student loan interest rates, earlier this session.
However, the biggest Republican opposition centered on the fact that the spending increases are set to come in the form of mandatory spending, rather than the traditional discretionary spending reserved for these types of programs. Republicans argue that Democrats are simply creating new entitlements that help college graduates, rather than shifting discretionary priorities to help current students.
Overall, the bill will:
• Increase the maximum Pell Grant to $5,200 by 2001-12 (at a cost of $5 billion).
• Cut the interest rate on federally subsidized student loans in half, to 3.4 percent, by 2012-13. (Total cost: $6 billion.)
• Institute a system of “income-based repayment” for borrowers, in which their student loan payments would be capped at a manageable percentage of their income and their debt canceled after 20 years of repayment.
• Raise the amount that working students can earn — through the “income protection allowance” — without reducing their financial aid awards.
• Lift the annual and aggregate limits on how much individual students can borrow from the federal loan programs, with the goal of reducing borrowers’ dependence on private (and typically more expensive) loans.
• Forgive up to $5,000 in loans, and otherwise easing the loan repayment burden, for students who enter public service fields and fulfill other national needs.
• Create a new grant program for students who are planning to be teachers.
• Create a new program ($500 million over five years) for institutions that serve large numbers of Hispanic, American Indian and other minority students. This new provision, added to the legislation very late in the game, just before committee members voted on it, would allow for the provision of funds to “predominantly black” institutions — those that meet a variety of standards, including having at least 40 percent of their enrolled students be black.
Resources:
Doug Lederman, “The Competition to Aid Students,” Inside Higher Ed, June 14, 2007.
Patti Mohr, “Panel Advances Student Loan Reforms,” Education Daily, June 15, 2007.
Author: SAS