Department of Ed Defense Won't Win Championships

After months of reform-oriented, positive action involving the student loan industry, the U.S. Department of Education has started to backpedal. What was an organization taking proactive stances on student loan reform has now become a reactionary operation. Sure, there were a few reasons in recent weeks for the Department to get back on defense. But where did the offense go?

Heres a quick review of the Departments recent work: In 2005, Secretary of Education Margaret Spellings began drawing up the Departments offensive playbook with her Commission on the Future of Higher Education. The Commissions broad recommendation that "the entire student financial aid system be restructured" set the stage for a more in-depth look into the student loan industry.

And unlike many commission reports, Spellings (and in conjunction, the Bush administration) didnt let its work get lost in policy wasteland, at least in the realm of student loans. President Bush followed up with a Fiscal Year 2008 budget request that proposed slashing student loan bank subsidies, including a 50 basis point reduction in the government guaranteed rate of return to lenders. The saved money would go towards the largest Pell Grant increase in over 30 yearsa long-awaited, and done correctly, desperately needed investment.

Spellings took steps to ensure that the Department of Education would play a role in student loan reform independent of budget and Congressional action. She established a negotiated rulemaking committee to address Higher Education Act Title IV loan issues and included both "the use of preferred lenders" and "prohibited inducements" on its agenda. And the Department advanced several aggressive proposals to the negotiators for stricter regulation of the student loan industry (in the face of opposition from lenders and some financial aid officials), including requiring a minimum of three lenders on preferred lender lists and clearly specifying the definition of illegal lender inducement.

Then, all at once, the Department found itself saddled with some bad press and went on damage control. The Departments disclosure requirements and oversight of employee conflicts of interest came under fire. Lender abuse of the National Student Loan Data System (NSLDS) to mine student data was exposed. And harsh criticism of the Departments management of the student loan program started piling up from top ranking Members of Congress. The criticism and negative press culminated with the biting testimony of New York State Attorney General Andrew Cuomo at a House Education and Labor Committee hearing last week.

Instead of fessing up and working to fix past mistakes in a productive manner, the Department quickly went on the defensive. It has been churning out reactive letters and press releases. Spellings called Cuomo "ill-informed," and her spokeswoman painted criticisms by Representative George Miller (D-CA) as extreme proposals to "abruptly [pull] the plug" on the student loan industry, in contrast to the Departments "more deliberative and comprehensive approach."

And Spellings is reaching to find ways to paint the Department in a rosy light. In a press release responding to Cuomos testimony:

<li>She highlights the Departments collection of $13.5 million resulting from Inspector General audits. Has she forgotten the <a href="http://higheredwatch.newamerica.net/blogs/2007/01/spellings_shuts_down_student_loan_scandal_prospectively" target="_blank">almost $300 million</a> in overpayments the Inspector General identified that <a href="http://higheredwatch.newamerica.net/blogs/2007/01/steves_nelnet_follow_up" target="_blank">she allowed Nelnet to keep</a>? </li>

<li>She commends Federal Student Aid for reducing student defaults, but her data is incorrect (<a href="http://www.ed.gov/offices/OSFAP/defaultmanagement/defaultrates.html" target="_blank">the default rate was <em>not </em>nearly 10% in Fiscal Year 2000, but rather 5.9%</a>). And while the default rate has declined since the mid-1990s, the decrease primarily occurred before this Bush administration took office, and in recent years has hovered around 5-6%. </li>

<li>She points to the work of her negotiated rulemaking committee and the Commission on the Future of Higher Education. Great. But the negotiated rulemaking process broke down because <a href="http://chronicle.com/temp/reprint.php?id=wt9bp75kzbsxzxntctflvmlztrsgpqkk" target="_blank">negotiators failed to reach agreement</a>, leaving Spellings with the authority to craft the student loan regulations herself.  And instead of moving forward, the Secretary is treading water. She appointed another internal <a href="http://www.ed.gov/news/pressreleases/2007/04/04242007.html" target="_blank">Student Loan Task Force</a> to study the issue, and created <a href="http://www.insidehighered.com/news/2007/03/23/summit" target="_blank">another steering committee</a> to study the implementation of the recommendations of the Commission. Thats a lot of bureaucracy and inaction from a normally no-nonsense, can-do Secretary of Education.</li>

Finally, we have been told that Department of Education higher-ups have spent much energy in recent months trying to figure out who is giving Higher Ed Watch information instead of trying to solve the bigger student loan problems on which we are commenting. For example, why are some of students even thinking about taking out very costly and risky private student loans when they havent exhausted their federal loan eligibility? And what does the Department of Education suggest we do to stop it?

We understand that defense is a normal first reaction to a perceived attack. But the responsible next step is to move past denial of responsibility and figure out a proactive way to fix identified problems.

Go back on offense, Madame Secretary. With so many student loan players in the penalty box, the time is ripe for a Department of Education (or Congressional) power play. Were willing to bet that you've got a tough slap shot.