A Banner New Year Ahead?

Dear Readers,

We hope you had a very nice winter break. Now that the holidays are over, get ready to brace yourself because the beginning of this New Year promises to be a very busy one for those who care about higher education policy.

Over the next several weeks, Congress and the Department of Education are expected to resume their efforts to try and reform the federal student loan programs, strengthen the integrity of the federal student aid programs, and safeguard students from predatory private student loan practices.

If lawmakers and Department officials are successful, 2010 could be a banner year for both students and taxpayers. But as we’ve said all along, achieving these goals will not be easy as there are powerful industries with deep pockets and plenty of friends on Capitol Hill that are doing all they can to derail these reform efforts.

Here’s a brief rundown of what’s expected to come down the pike in the coming weeks and months:

• Student loan reform legislation takes center stage

Now that the health care overhaul bill has made it through the Senate, the chamber’s leaders are hoping to move quickly (if that’s possible!) to consider legislation that would eliminate the Federal Family Education Loan (FFEL) program and replace it with 100 percent Direct Lending. Sen. Tom Harkin, the Iowa Democrat in charge of the Senate Health, Education, Labor and Pensions Committee, is committed to introducing a bill that, like its House counterpart, achieves the goals that President Obama laid out for student loan reform nearly a year ago. However, some moderate Democrats are reportedly flirting with an alternative “reform” proposal that loan industry officials, led by Sallie Mae, have been aggressively shopping around Capitol Hill for several months. As we recently stated, the “Student Loan Community Proposal” does not represent real reform. Instead, its main goal is to maintain a vital role for all the existing FFEL players so that the industry is well-positioned should the political tide shift back in its favor. Nevertheless, it seems likely that there will be a big showdown between the two competing plans when the legislation reaches the Senate floor. Assuming that the legislation is approved, it will have to be reconciled with the House bill before coming up for a final vote in each chamber. Democratic Congressional leaders are hoping to send a final bill to the President in February.

• Efforts by the Education Department to strengthen the integrity of the federal student aid programs move forward

Several weeks from now, the Department of Education will hold the third and, as of now, final meeting of a negotiated rule-making panel it convened in the fall to help rewrite regulations aimed at strengthening the integrity of the federal student aid programs and stopping unscrupulous proprietary schools from deliberately recruiting and admitting unqualified students. At this gathering, the panel, which is made up of non-profit and for-profit college leaders, student advocacy groups, and consumer watchdogs, will at least begin to decide whether it can reach consensus on proposed regulatory changes. If the group fails to reach agreement — which seems like an almost foregone conclusion at this point — the Department will be free to propose whatever it wishes. Department officials have already indicated that they plan to toughen rules that bar colleges from compensating recruiters based on their success in enrolling students. The Department is also considering making it easier for the agency to crack down on schools that willfully mislead prospective students about their programs, costs, and the students’ job prospects, and adding teeth to rules requiring proprietary colleges to show that graduates are finding “gainful employment” in their field of study. The Department must publish draft rules by July 1 and final rules by November 1. The rules will not go into effect, however, until July 2011. For-profit college lobbyists will likely use this lag time to try and persuade friendly lawmakers to stop the Department from enforcing the rules they believe would be most onerous on their schools.

• Battle ahead over the creation of a new federal agency that would significantly expand government oversight over the private student loan marketplace

In the coming weeks, the Senate Banking Committee will take up legislation the House approved in December that would create a new federal watchdog agency in charge of regulating all forms of consumer credit, including private student loans. The aim of the Consumer Financial Protection Agency (CFPA) is to protect consumers from the types of predatory lending practices that led to the near collapse of the financial markets a little more than a year ago. For the first time, private loans would be regulated by a single entity, rather than the patchwork of federal agencies that have done little to curb abusive practices. Significantly, the House bill aims to make it more difficult for students to unnecessarily take on private loan debt without first exhausting their lower-cost federal student loan options. The legislation would do this by requiring all private loans to be certified by college financial aid offices before they can be issued. The prospects for the creation of the CFPA are uncertain, however, in the Senate. While Sen. Chris Dodd, the Connecticut Democrat in charge of the Banking Committee, supports the creation of this new agency, he may not have the votes he needs to get the legislation through the chamber. The financial services industry and the U.S. Chamber of Commerce have been lobbying furiously to kill the proposal and some moderate Democrats are sympathetic to their concerns.

Conclusion

2010 will certainly put lawmakers to the test. Will they stand on the side of students and taxpayers? Given the speed with which they must act, we should know soon enough.