Delay or No Delay, Change is on the Way

Back in September, we predicted that we’d all be in for “a wild ride” as legislation to overhaul the federal student loan programs makes its way through Congress. Boy, were we wrong.

Instead, progress on the legislation, which would eliminate the Federal Family Education Loan (FFEL) program in favor of 100 percent direct lending, has come to a grinding halt. Senate Democratic leaders have put the student loan bill on hold until they come to a resolution on the sweeping health care reform legislation that has deeply divided the chamber. Senate Majority Leader Harry Reid’s recent admission that he may not be able to get a vote on the President’s top domestic priority by year’s end means that the student loan measure may not make it to the Senate floor until next January or February at the earliest.

The fate of the student loan and health care measures are intertwined because Senate leaders continue to hold out the possibility of using the budget reconciliation process (the vehicle through which the student loan bill will ultimately be moved) to push through the health care overhaul. While it seems unlikely that they will go down this route (as many of the reforms they are proposing would not survive this type of parliamentary maneuver), they may not have any other choice if they can’t get the votes they need to defeat a Republican-led filibuster of the measure.

For the moment, the seemingly interminable delay appears to be playing into the hands of the student loan industry and their allies in the financial aid world. It has given industry officials (and their friends at Qorvis Communications) time to launch a large-scale effort to try and manufacture “grassroots” opposition to the legislation. It has also helped them stoke fears in Congress that colleges will not be ready to switch to direct lending before the peak student aid processing season begins.

But student loan industry officials can not take comfort in this delay. As we wrote in April, no matter what happens with this legislation, the end of the FFEL program is coming. That’s because an emergency law that is currently propping up FFEL — the Ensuring Continued Access to Student Loans Act (ECASLA) — is set to expire next July and neither the Obama administration nor Democratic Congressional leaders are interested in extending it. So unless a miracle occurs, and the financial markets improve enough so that lenders do not have to depend on federal financing to make government-backed loans to students, colleges will have no choice but to shift to direct lending anyway.

Most loan industry officials recognize that reform is inevitable. That’s why they have been pushing Congress so aggressively to adopt an alternative student loan proposal that would achieve some of the President’s objectives but would preserve as much of the status quo as possible — through carve outs and set asides for different student loan players.

Unfortunately, some of the industry’s most fervent supporters in the financial aid world have not gotten the message. Instead they have buried their heads in the sand, and declined to take even the initial steps needed to prepare for the possibility that their schools will have to shift to direct lending. These school officials are the first to rail at Congress about the risk of transitioning so many schools to direct lending in such a short period of time. Yet, because of their ties to lenders, they are leaving their schools and students dangerously unprepared for such a change. If there are disruptions in loan delivery on their campuses, they will have only themselves to blame.

At Higher Ed Watch, we remain confident that Congress will eventually get the student loan reform bill back on track and pass it. But to use the delay for an excuse for inaction is simply irresponsible — because no matter what lawmakers do, change is on the way.