[link to www.insidehighered.com]

The Shrunken Student Aid Bill
March 15, 2010

WASHINGTON -- As Congressional Democrats and the White House begin a last-ditch push to pass legislation to overhaul health care this week, it remains far from certain that a plan to revamp the student loan programs will be merged into the health legislation. While the odds of that happening are better than not, it is still possible that Democrat leaders will decide to ditch or postpone action on the student aid measure if they conclude that it could discourage even a few key lawmakers from supporting the health care bill.



But after several intense days of behind-the-scenes negotiations, a few things have become clear(er) about the stripped-down student aid bill that Congress may consider in the coming days:

* The measure will fall well short of the Obama administration's original proposal to transform the student aid programs, giving President Obama and Education Secretary Arne Duncan few of the policy changes and accountability tools they'd hoped for.
* Pell Grants would remain the legislation's top priority, although because of the program's rapidly escalating costs, the value of the maximum grant would rise less than originally planned.
* Community colleges will get little or none of nearly $10 billion they'd been slated to receive.
* Historically black, Hispanic and other colleges could benefit because Democratic leaders are afraid of angering small but powerful blocs of minority members of Congress.
* Some of the savings from the loan overhaul may be used to help pay for health care reform.

As of late Sunday, the situation surrounding the health/financial aid legislation remained very fluid. Congressional Democrats and the White House were still scrambling to find ways to make the student aid legislation work financially, and higher education lobbyists whose priorities appeared to be losing out were urging their advocates to make last-minute pleas.

Here's what has happened in the last few days, since we reported last week that the White House and Democratic Congressional leaders were leaning toward linking the student loan overhaul with the health care bill in a process, known as budget reconciliation, that would allow them to pass the legislation with only a majority of lawmakers instead of the 60 votes required under regular Senate rules (presented with the caveat that all of this is subject to change in the coming hours and days):

The most significant development was the decision by Sen. Kent Conrad, the North Dakota Democrat who heads the Senate Budget committee, to use the more recent and lower estimate provided by the Congressional Budget Office of the savings that would be generated by the student loan overhaul. The White House and Congressional Democrats had counted on producing $87 billion in revenue over 10 years by ending the lender-based Federal Family Education Loan Program and initiating all federal student loans out of the competing Direct Loan Program.

The administration had won support for (or at least minimized opposition to) that move from the two-thirds of colleges that participate in the lender-based loan program by planning to spread that $87 billion to a wide range of popular priorities: a huge boost and a permanent, steady stream of funds for the Pell Grant Program, a massive new grant program (combined with high-profile visibility) for two-year colleges, an expansion and remaking of the Perkins Loan Program, and a new $3 billion "Access and Completion Fund" designed to reward states and institutions that found ways to increase degree production.

But in the months since the House of Representatives approved the Obama student loan plan as the Student Aid and Fiscal Responsibility Act last fall, increases in the number of colleges switching to the direct loan program (because of the pending legislation) had the effect of reducing the estimate of savings that would be produced by the full-blown abandonment of the lender-based program, to $67 billion over 11 years ($61 billion over 10 years), instead of the original $87 billion.

At the same time, the huge numbers of students flooding into higher education because of the economic downturn -- and the fact that so many Americans find themselves in worse financial shape -- have sent sky-high the projected costs of the administration's plan to increase the maximum Pell Grant and tie future increases in it to changes in the Consumer Price Index plus 1 percentage point. Those developments have also created a massive shortfall in the Pell program for the current 2010 fiscal year and next year -- money (roughly $19 billion) that Congress must find a way to cover at some point, if not through this measure.

Those economic assumptions have wreaked havoc on the legislation's bottom line (budget reconciliation bills must be cost-neutral to the government, meaning they must produce enough in savings to offset their costs). So what should have been good news for the measure and its supporters -- the decision to release it from its months-long purgatory by conjoining it with the health reform legislation in the process known as budget reconciliation -- has had negative implications as well.

Given that health reform is the Obama administration's absolute No. 1 domestic priority, many Democratic lawmakers have been wary of linking the student loan legislation to the health care bill, for fear that opposition to the loan provisions could discourage even a handful of lawmakers from supporting the overall twinned measure (and potentially sinking health reform). Some have also been swayed, or at least made cautious, by loan industry and Republican assertions that the Obama plan would kill thousands of jobs or put colleges that can't make the switch to direct lending in time (and their students) in harm's way.

But the bill's most visible Senate supporter, Sen. Tom Harkin of Iowa (who with Rep. George Miller of California has argued passionately for the legislation), reportedly helped persuade his colleagues to link the two measures with a heartfelt speech at a Democratic caucus lunch on Thursday warning that without passing the legislation, Congress could find itself in the uncomfortable position of actually having to cut the size of Pell Grants for existing students by about half. That's because the maximum grant for the last two years has been raised (and arguably inflated) by funds from a 2007 budget reconciliation legislation and last year's economic stimulus package; without that money, which the current SAFRA bill would essentially replace and supplement, the maximum grant would tumble.

That fact aside, part of what led Democratic leaders (at least to this point in time) to combine the two bills is the reality that the health care legislation, standing on its own, cannot produce enough budgetary savings to meet a requirement in last spring's budget resolution that it reduce the deficit.

So a major element of what made it attractive for Democrats to incorporate the student loan provisions into the health legislation -- the fact that they could use some of the billions generated by the loan changes to meet deficit reduction requirements -- is likely to result in even less money being available for students and colleges if the legislation ultimately passes.

What's In the Bill (as of Now)

Democrats have had to get their knives out to get the student loan measure's costs under the $61-billion-over-10-years ceiling. Some of the casualties -- like $8 billion for early childhood education, and $4 billion for school modernization -- didn't trouble college leaders a bit, as they quietly opposed using savings from the student loan programs for those non-college purposes all along.

But some of the other cuts would prove enormously painful. Foremost among them is the apparent excision of the entire American Graduation Initiative, which would pour as much as $12 billion over 10 years into grants and construction funds for community colleges. President Obama has put two-year institutions at the center of his higher education agenda, a major change from previous administrations, and the American Graduation Initiative was designed not just to provide more money to the colleges, but to link the money to a set of quality indicators aimed at increasing accountability demands on them.

The American Association of Community Colleges sent out an "urgent alert" to its members via e-mail on Friday, warning of the initiative's possible demise and asking them to call their Congressional representatives.

David S. Baime, the association's vice president for government relations, expressed dismay over the program's seeming fate, noting that two-year colleges "have been planning around this program" and that the institutions "were openly embracing a program that required a new kind of accountability toward the federal government" (a stance that troubled representatives of other sectors of higher education, especially those at independent institutions, who feared that the approach of tying federal money to a set of indicators determined by the government could become a staple of other federal aid programs).

Also missing from the final legislation, as of now, is the administration's plan to revamp the Perkins Loan Program, through which it hoped to institute accountability provisions that would reward colleges that enrolled and graduated significant numbers of low-income students.

In setting their priorities for what to do with the $61 billion available through SAFRA, Democrats have put the Pell Grant atop the list, and about $50 billion of the bill's spending would go to the program, including paying off some but not all of the program's shortfall for 2010. But because of the grants' exploding price tag, even that vast infusion of money won't go nearly as far as the Obama administration had originally hoped. The legislation that is likely to start moving its way through Congress today would, as planned, link increases in the maximum Pell Grant to the Consumer Price Increase.

But Democrats have dropped the idea of adding 1 percentage point to that increase annually, amid other changes that would leave the maximum grant at no more than $6,400 by 2019, rather than the $6,800 originally envisioned.

Besides the Pell Grant funds, the rest of the $61 billion would go toward providing grant funds for historically black and Hispanic-serving colleges (roughly $2 billion to $3 billion), extending a program created in 2007 that gives grants to colleges and others for improving students' access to college (the administration would be forced to abandon its plans for revamping that program into a bigger and broader one that would hold grant recipients accountable for innovations that help students graduate from college), and giving students more options for repaying their loans, including tying the size of their payments to their income.

In addition, as much as $5 billion would be set aside to meet the deficit reduction requirements for both the education and health care portions of the budget reconciliation legislation.

The next steps for the legislation this week: The Congressional Budget Office will release a revised accounting (or "score") of the budget bill late today or tomorrow, which will make clear the exact cost and savings of the legislation and determine once and for all whether the numbers add up -- and what's in or out.




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