Memo to Democrats: Just Say No to ECASLA

As most Higher Ed Watch readers know by now, Congressional Democrats stepped back from brink last week and agreed to consider a scaled-back version of a landmark student loan reform bill through the budget reconciliation process. The lawmakers are hoping to push the legislation, which would eliminate the Federal Family Education Loan (FFEL) program and use the savings to boost spending on Pell Grants, through both the House of Representatives and Senate by the end of next week. But it remains unclear whether they have the votes to pass it.

With that in mind, we believe that it is absolutely essential for Obama administration officials and Congressional leaders to tell wavering Democratic lawmakers that they will not, under any circumstance, consider renewing the Ensuring Continued Access to Student Loans Act, an emergency law propping up FFEL that is set to expire in July. The lawmakers need to understand that the end of the FFEL program is coming no matter what happens with the student loan overhaul legislation. The only question is whether they want to pass the bill and use the tens of billions of dollars the government would save by moving to 100 percent direct lending to significantly expand the Pell Grant program for low-income students or reject the measure and forfeit the savings to deficit reduction [and leave the non-profit student loan agencies many of them are so worried about protecting much worse off in the process].

This is certainly not the message that the student loan industry is sending. Industry officials are trying to convince Democratic allies that if the bill is defeated, the White House and Congressional leaders will have no choice but to either renew ECASLA and allow FFEL to continue, or embrace the alternative “Student Loan Community Proposal” that Sallie Mae has championed and allow lenders to continue to receive subsidies for making federal student loans. In making these arguments, the industry is wagering that the Obama administration will not have the guts to simply let the clock run out and force all schools to make the transition to the Direct Loan program on July 1.

But don’t take our word for it. Just take a look at a comment that Carlo Salerno of BridgeSpan Financial LLC, a student loan industry proponent, wrote on the Finaid-L listserv last fall:

Regardless of whether there is political will to extend ECASLA, if the timing makes a 100 percent transition [to Direct Lending] impossible then the question becomes who is harmed more, colleges or the [Education] Department and Congress, by a Washington Post article in August that potentially reads, “Up to half a million college students estimated to be ineligible for federal student aid this year: Congress and Department of Education denies help, tells colleges ‘we warned you to shift last fall.’” My hunch is that it’s the latter.

This is typical of the kind of brinkmanship that the student loan industry and its allies on Capitol Hill have used so effectively over the years to scare policymakers from making meaningful changes to the program that could benefit students and taxpayers.

To its credit, the Obama administration has so far refused to be intimidated. Despite protests from the loan industry and top Republicans, the U.S. Department of Education has worked overtime to try and ensure that schools are prepared to make the switch without disruption. This work has paid off. According to Student Lending Analytics, only two percent of colleges that it recently surveyed have not taken any steps to prepare for a possible transition to the Direct Loan program. As we’ve said before, any schools that have declined to take even the initial steps to prepare for the possibility of switching to direct lending because of their allegiance to the loan industry will have only themselves to blame if there are disruptions in loan delivery on their campuses. The Education Department has given them ample warning.

Now with a possible victory in sight, the White House and Democratic Congressional leaders must let their Members know that they are not bluffing. Because truth be told, when it comes to the future of the FFEL program, they hold all the cards.