Roundup: Week of July 9 - July 13

House Passes Bill to Cut Lender Subsidies and Help Students

Amid cheering, jeering and impassioned speeches, the House of Representatives approved legislation on Wednesday that would reduce lender subsidies by about $19 billion over five years and use the savings to increase the maximum Pell Grant and slash the interest rates on federally-subsidized student loans. Despite a highly partisan debate, 47 Republicans broke ranks to vote in favor of the budget reconciliation bill, which passed by a vote of 273 to 149. Still, the Democrats fell 17 votes shy of the number they will need to override a veto threatened by President Bush. In addition to increasing spending on student aid and making federal loans less costly for students, the bill embraces the New America Foundation's proposal to use an auction mechanism to set student loan subsidies. The Senate is expected to vote on its version of the legislation later this month.

Even With Subsidy Cuts, Sallie Mae Will Still Turn Large Profits

Despite its protests to the contrary, Sallie Mae appears to having nothing to fear about the legislation Congress is considering cutting lender subsidies. An analysis by the nonpartisan Congressional Research Service revealed that the subsidy cuts proposed by Congress would not leave the student loan giant unprofitable, as some company officials have claimed. According to the study, Sallie Mae earns an estimated profit of 72 basis points (or 0.72 of a percentage point) on each government-backed loan. As a result, if Congress moves ahead with its proposed cuts, the company will continue to earn about 20 basis points on these loans -- and that's without having to reduce its excessive executive salaries. In addition, many industry analysts believe that the legislation could actually help Sallie Mae because some of its competitors may not be able to afford the subsidy cuts. Still, Sallie Mae stock holders were not mollified by the report. Following Wednesday's vote in the House, the company's stock price fell 9.8 percent, the sharpest decrease in 14 years.

Education Department Warns Hundreds of Colleges Not to Limit Student Choice of Lenders

More than 900 colleges have received letters from the Education Department over the last several weeks warning them that they are not providing students with enough options for taking out government-backed loans. The letters went out to 921 institutions that participate in the Federal Family Education Loan (FFEL) program and have one lender who holds at least 80 percent of their students' federal loans. "That was a little flag to us that perhaps the institution isn't quite being open enough to their students and parents," Jeff Baker, policy liaison at the Education Department's Federal Student Aid office, on Monday told college officials gathered at the annual meeting of the National Association of Student Financial Aid Administrators (NASFAA). According to a report in The Chronicle of Higher Education, the problem may in fact be even worse: the article states that the market research firm Student Marketmeasure has found that 1,412 colleges across the country have one provider who holds 80 percent of their students' federal loans, with 531 of those colleges recommending only a single lender to their students.

A Dirty Trick?

NASFAA has often been accused of being too close to the student loan industry. So when a "NASFAA Talkings Points" e-mail began circulating around Washington this week condemning the Democrats' plans to cut lender subsidies, no one was too surprised. No one, that is, except officials at the aid-administrators' group. As first reported by Inside Higher Ed, the e-mail -- which also called for raising the interest rate on PLUS loans in direct lending -- was a hoax. "God no, it's not ours," Larry Zaglaniczny, NASFAA's director of Congressional Relations told the online publication. "It is fiction and we are amazed and angry that someone is using our name to promote positions that we either have not yet taken or that are opposite of our views." It's still unclear who sent the mysterious document. Inside Higher Ed speculated that it could have been produced by a loan company like Sallie Mae (which denied it) hoping to build opposition to the Democrats' efforts, or by critics of NASFAA who were attempting to discredit the group. Don't look at us -- we didn't do it!

State Spending on Aid Increases, but at Slower Rate

States spent an additional 7 percent on student financial aid in the 2005-06 school year, though the actual growth was just 3.4 percent with inflation factored in, according to a report released this week by National Association of State Student Grant and Aid Programs. This increase is substantially less than the previous year, in which aid rose 5.4 percent after inflation. All told, states spent almost $8.5 billion in aid, with around 60 percent of that amount going to grants for low-income students. Merit aid spending, however, increased by 15.6 percent -- a rate nearly three times higher than grant aid, which rose 5.4 percent.