Close

In Short

Covering the Battle Over Student Loan Reform

View as PDF

As our readers know, Higher Ed Watch has followed the debate over President Obama’s proposal to eliminate the Federal Family Education Loan (FFEL) program and shift to 100 percent direct lending quite closely. In fact, we have written 60 blog items on that topic over the last year. Now that Congress is on the cusp of completing work on legislation enacting the president’s plan, we thought it would be a good time to highlight the best of our coverage. We have chosen a dozen posts that we hope brought clarity to a complex debate and kept our readers informed of the back-room deals and political maneuvering going on behind the scenes:

In our initial report on President Obama’s student loan reform proposal, we praised the White House for recognizing “a couple of hard truths about the federal student aid system”: that the way the federal government had been financing Pell Grants is a huge mess and that turmoil in the financial markets has caused irreparable damage to the FFEL program. We wrote that the president’s plan deserved credit for trying to solve both problems at once.

This post laid out the battle lines that the Obama administration would face in trying to advance its proposal. We noted that the president’s toughest fight was not going to be with the Republicans but with “entrenched interests in his own party” who had close ties to the student loan industry. We also predicted that guaranty agencies and state-based non-profit lenders were going to be a particularly powerful force on Capitol Hill against reform.

Higher Ed Watch contributor Jason Delisle, the director of the Federal Education Budget Project, took on some of the student loan industry’s most dubious arguments against having the government move to 100 percent direct lending. His comments were excerpted from remarks he made at a New America event last March on “The Future of Federal Student Loans.”

In this post, we explained why the White House had the upper hand in its battle against the student loan industry. We argued that with the expiration of an emergency law that had been propping up the FFEL program fast approaching (and the Obama administration and Democratic Congressional leaders opposed to extending it), preserving the status quo was no longer a viable option.

We were the first to make public Sallie Mae’s alternative student loan reform proposal, which sought to preserve the ability of FFEL lenders to originate federal loans on behalf of the government. In the post, we outlined the proposal and showed how it was aimed at  keeping Sallie Mae as the predominant student loan company in the country.

Higher Ed Watch revealed a proposal that the Education Finance Council (EFC), a trade association for non-profit student loan providers, had been quietly shopping to a select group of Congressional officials. Under the plan, non-profit lenders would be guaranteed a no-bid contract to service the loans of up to 100,000 student loan borrowers in their home states. In the post, we asked whether EFC had “compromised on its key loan program principles — competition and borrower choice — to guarantee its members a role in the new loan program.” Democratic Congressional leaders ultimately included this proposal in the student loan reform legislation to win over wavering Democrats.

Jason Delisle, a former Republican Congressional staffer, argued that the Republicans’ fervent support for FFEL showed that the party is “deeply confused about its core values” and about how the federal student loan program operates. “In their support for the FFEL program, it appears that House Republicans want big government too – they just want to dress it up as private enterprise,” he wrote.

After learning that some of the student loan industry’s most fervent supporters in the financial world were potentially putting their students and schools at risk by refusing to take even the initial steps to prepare for a possible shift to direct lending, we decided to write up this fictional account of of how these aid officials might explain themselves.

In this post, we outlined our main objections to the “Student Loan Community Proposal” that Sallie Mae was championing. Overall, we argued that the plan did not represent real reform but instead would keep as much of the status quo in place as possible.

This post revealed that the Pell Grant program was facing a budget emergency that would require a massive infusion of funds to keep the maximum award level funded at $5,550 for the 2011-12 school year. Ultimately, this crisis brought the student loan reconciliation bill back from the dead as Democratic lawmakers realized they needed to use savings from ending FFEL to shore up the Pell Grant program in order to prevent students from having their grants cut by as much as half.

In this post, we gave our readers an early heads-up about the central role that Sen. Kent Conrad, the North Dakota Democrat in charge of the Senate Budget Committee, would have in determining the student loan reform bill’s fate. We correctly predicted that Conrad, a budget hawk with ties to a student loan provider in his state, would object to the Democratic Congressional leaders’ strategy of using an outdated Congressional Budget Office direct loan savings estimate to score the bill when a more recent, albeit less favorable one, was available.

In this post, we argued that the massive lobbying campaign that Sallie Mae has launched in favor of the “Student Loan Community Proposal” was not, as Sallie Mae argued, about preserving “choice” and “competition” in the federal student loan program, or even about protecting jobs. Instead, it was about ensuring that Sallie Mae would be able to keep originating federal loans at these colleges so that it could continue to cross-sell its more expensive private loans to students through their schools’ financial aid offices.

As always, we appreciate your readership, no matter what side of the debate you’ve been on.

Programs/Projects/Initiatives

Related

Close

Covering the Battle Over Student Loan Reform

View as PDF