Pell, Cuomo, and a Good Week for Students

Blog Post
Feb. 1, 2007

It has been a banner week for students.

The week began with the surprising news that Democrats in the House and the Senate agreed to increase the maximum Pell Grant for low-income students by $260 to $4,310 as part of their clean up of the left over Fiscal Year 2007 budget. Higher Ed Watch noted that the Democrats' move was a shrewd one, because it set a high bar for the Bush administration to meet when the President releases his Fiscal Year 2008 budget request next week.

Senator Claiborne Pell and Attorney General Andrew CuomoWell, the White House apparently took up that challenge. On Thursday, Education Secretary Margaret Spellings shocked college leaders and advocates for students when she revealed that President Bush will propose on Monday raising the maximum Pell Grant by $550, to $4,600 -- the largest single-year jump in the top award in more than 30 years. In addition, she said, that the administration will call for increasing the maximum grant by $1,350, to $5,400 over the next five years.

But Ms. Spellings did not indicate how the Administration plans to pay for the increase. Advocates for students and college lobbyists are legitimately concerned that the Administration will propose to finance it by killing other important federal student aid and early intervention programs, such as the Supplemental Educational Opportunity Grant (S-E-O-G) Program, which augments Pell Grants for low-income students, and GEAR Up, which concentrates on helping financially needy middle-school students prepare for college.

Still, Congressional Democrats and the Republican White House are now officially in a bidding war on Pell Grants and that's great news for low-income students. The last time the country had a divided government -- in the late 1990s with President Clinton in the White House and the Republicans in control of Congress -- the maximum grant rose by nearly $1,500.

Contrast that level of growth with the last four years, in which the maximum grant has remained stuck at $4,050, and you can understand why some student-aid supporters are having trouble believing the news. Its almost like, Pinch me, pinch me, said Cynthia J. Littlefield, director of federal relations at the Association of Jesuit Colleges and Universities, told Inside Higher Ed this week. We couldn't agree more.

But that was not the only good news for students last week.

Federal and state policy makers are finally taking a closer look at the sweetheart deals that some lenders have struck with financial aid administrators to win student loan business.

Attorney General Andrew M. Cuomo of New York announced this week that he has requested information from six student loan companies and 60 colleges around the country to examine the types of arrangements lenders are making with schools.

Among the lenders that the Attorney General's investigation, which was first reported in Higher Ed Watch in January, is focusing on are loan giants Sallie Mae and Nelnet. Mr. Cuomo has also requested information from a couple of private student-loan providers: EduCap, which received a lot of bad publicity in the Fall for inviting financial-aid administrators on an all-expense-paid, four day trip to the Caribbean to promote its loan product Loan to Learn, and Education Finance Partners, which offers some colleges a share of the revenue the company makes on each private loan taken out by their students. (Note: Higher Ed Watch broke the Caribbean junket story as well.)

The Attorney General's Office didn't identify the colleges he has targeted or explain how they were selected. But in an article about the investigation in The Chronicle of Higher Education, a spokesman for the office said the colleges were selected for a reason. "It wasn't random. It wasn't blind," the spokesman said.

According to the news release announcing the investigation, the Attorney General's Office is interested in the "financial arrangements the schools have with the lenders that help the lenders get placed on the preferred lists, including records of any compensation lenders have given in exchange for placement on the lists."

"My office is seeking to ensure that students are being steered toward lenders offering the most competitive rates, not those who offer the best perks to schools or financial aid administrators," Mr. Cuomo stated.

Allegations of improprieties have abounded for years, but the U.S. Education Department has mostly turned a blind eye toward them. Until now.

According to The Chronicle of Higher Education, the Education Department has circulated draft regulatory proposals that would, among other things, prohibit colleges from recommending fewer than three lenders to students who are seeking federal loans. The Department sent the package of proposals, which also clarifies "what lenders can and cannot offer colleges and prospective borrowers to secure loan applications or loan volume," to members of a negotiated-rulemaking panel that will meet next week to discuss them.

The draft proposals are not perfect, but they are an important step forward. Meanwhile, a bill that Sen. Edward M. Kennedy (D-MA) introduced on Thursday would go even further by introducing important protections for students taking out private student loans.

More money for financial aid and proposals for greater protections of students--If only all weeks were like this.