Brushback

Behind the scenes, Congressional Democrats took a bold step this week that should make it significantly easier for them to fulfill their party’s campaign pledge to increase significantly federal spending on need-based grant aid for students from low-income families.

After several weeks of internal debate, House and Senate Democrats agreed, as part of a $2.9-trillion budget blueprint for 2008, to exercise a little understood parliamentary procedure that will allow them to fast-track, filibuster-proof legislation to cut excess government subsidies to student loan banks and use the savings to pump up financial aid for students and families.

Under the agreement, the Budget Resolution includes “reconciliation” instructions for higher education that require $750-million in deficit reduction, “while enhancing student benefits.”

So what does that mean and why is it significant?

As Higher Ed Watch recently noted, reconciliation instructions enable the United States Senate to advance tax or spending legislation without being subject to a filibuster. Historically, reconciliation has been employed primarily to reduce the budget deficit. But the reduction need only be a net figure. Spending could increase by $30 billion as long as revenues or offsetting spending cuts increase, in this case, by at least $30 billion plus $750 million.

With reconciliation, Senate Democrats, led by Health and Education Committee Chairman Edward M. Kennedy, will need only a majority vote to pass legislation whacking taxpayer subsidies to lenders like Sallie Mae and Nelnet and shift tens of billions of dollars in savings to increased financial aid for kids. Without reconciliation, Kennedy and his allies would have had to compromise in order to pick up at least nine Senate Republican votes and beat a threatened filibuster. (Disclosure: Higher Ed Watch staff used to work for Kennedy.) Even if Democrats were successful in picking up necessary votes, Senate Republicans would have almost invariably demanded smaller cuts in banks subsidies.

We at Higher Ed Watch pegged the value of a non-reconciliation compromise in the $10 billion to $15 billion range over five years — an estimate based on how much President Bush recommended in student loan bank subsidy cuts in the budget, how much in cuts it has been leaked publicly that Kennedy has considered while working with Senate Republicans, and how much more its possible to cut.

We’ll never know for sure how much reconciliation cost the loan industry, because it now exists as a threat if nothing else. Regardless, you can be certain that Congressional Democrats decision to play political hardball with the minority — dramatically eroding their filibuster power on student loan reform — was a huge defeat for the loan industry.

In fact, the industry and its allies in Congress lobbied hard against the reconciliation instructions. “This is much less about reducing the deficit than it is abusing a pocess to make policy changes that could not otherwise be accomplished through regular order,” Reps. Howard P. (Buck) McKeon (R-CA) and Ric Keller (R-FL) wrote in a letter to House Budget Committee leaders this week.

Funny, that’s exactly what Democrats said a little more than a year ago when Congressman McKeon and other Republican Congressional leaders used the reconciliation process to shift $12 billion out of the student loan programs and voted soon after to extend certain tax cuts.

The student loan company with potentially the most to lose from the Democratic efforts is Sallie Mae. Last month, the student loan giant announced that it had agreed to be sold to two private equity firms as well as two banks, Bank of America and JPMorgan Chase, for $25-billion. The purchase agreement, however, has an “out clause” — the buyers can back out if the government adopts new laws affecting the student-loan business that are “in aggregate more adverse to the company and its subsidiaries” than legislation that was pending when the deal was made.

According to the newspaper Roll Call, lobbyists with Sallie Mae, Bank of America, and JPMorgan Chase have combined their lobbying efforts in recent weeks to try to persuade Democrats not to include the reconciliation instructions in the Budget Resolution.

They obviously were unsuccessful this time. But you can bet that they will spend the next several months digging into their deep pockets to try to persuade individual Senate Democrats to stray from the party leadership’s plans.

Higher Ed Watch hopes that these lawmakers will keep their eyes on the prize, and put the needs of students and families first.