Higher Ed Roundup: Week of March 23 – March 27

Budget Fight Ahead Over Obama’s Plan to End FFEL

Default Rates are Up, Particularly in FFEL

New America to Host Event on “Future of Federal Student Loans”

Briefly Noted…

Budget Fight Ahead Over Obama’s Plan to End FFEL

The budget committees in the U.S. House of Representatives and Senate are headed for a showdown over President Obama’s proposal to eliminate the Federal Family Education Loan (FFEL) program next year and use the savings to turn the Pell Grant program into a true entitlement for low-income students by financing it entirely through mandatory funding. Both panels approved separate versions of the fiscal year 2010 budget resolutions on party-line votes this week that would allow Congress to significantly increase spending on Pell Grants. However, the two chambers parted ways on the question of whether to include budget reconciliation instructions that would make it significantly easier for Democratic Congressional leaders to move forward with the President’s plan to end FFEL. The House committee’s spending plan includes the instructions, while the Senate panel’s version does not. The Obama administration has been pushing Congress to include the instructions because reconciliation bills, unlike regular legislation, cannot be filibustered in the Senate and need only a simple majority to pass. The fight is expected to come to a head next month when House and Senate negotiators meet to work out differences between the two different versions of the resolution.

Default Rates are Up, Particularly in FFEL

Preliminary data released by the U.S. Department of Education on Thursday shows that the student loan default rate is climbing, but that the rate is growing faster in the Federal Family Education Loan (FFEL) program than in Direct Lending. Department officials said that the data shows that the downturn in the economy is taking a toll on recent college graduates and others who have entered repayment over the last two years. Overall, 6.9 percent of federal student loan borrowers who entered repayment in the 2007 fiscal year have defaulted on their loans, compared to 5.2 percent who started paying back their loans a year earlier. According to the department, the rate increased by less than one percentage point in the Direct Loan program from the 2006 fiscal year rate but by 2 percent points in FFEL.

The department’s release of the data particularly caused a stir because it showed that, contrary to claims by the student loan industry, borrowers in FFEL default on their loans at higher rates than those in the Direct Loan program. In 2007, for example, the default rate for borrowers with FFEL loans was 7.3 percent – two percentage points higher than that of borrowers with direct loans. The data appears to contradict claims made by student loan industry officials about the alleged superiority of default prevention efforts in the bank-based program. FFEL advocates, however, claimed that the Department’s data was flawed, and accused the Obama administration of releasing it now to score political points in its efforts to eliminate the FFEL program.

New America to Host Event on “Future of Federal Student Loans”

The New America Foundation is hosting an event on Tuesday on “The Future of Federal Student Loans.” Representatives from the Obama administration, the student loan community, and New America’s Education Policy Program will discuss the pros and cons of the President’s proposal to stop guaranteeing federal student loans and to instead make the loans directly. Featured speakers at the event will be Robert Shireman, a senior advisor at the U.S. Department of Education; Scott Fleming, director of the lobbying firm Chartwell Education Group; Jason Delisle, research director of NAF’s Education Policy Program; and Paul Combe, the president and chief executive officer of student loan guaranty agency American Student Assistance. The event will start at 9:30 a.m. on Tuesday at New America’s offices at 1899 L St, NW, Suite 400.

Briefly Noted…

• Senate passes bill to reauthorize and expand national service programs.
• The Government Accountability Office predicts increased usage of the federal Academic Competitiveness and SMART Grant programs as a result of changes in eligibility requirements.

Editor’s Note:

Beginning next week, the weekly news roundup will be shifting over to our sister blog Ed Money Watch. Check it out every Friday.