Scare Tactics

Now that Congress is taking action to make college more affordable for students and their parents, the loan industry is once again doing what it does best: spreading fear to try to protect the overly-generous subsidies that lenders get from the federal government to make student loans.

Courtesy of the American Federation of Teachers (AFT), Higher Ed Watch has learned that the Consumer Bankers Association (CBA) and the loan giant Nelnet have been spreading misinformation to labor union members to get them to join a campaign opposing legislation that the House Committee on Education and Labor approved on Wednesday that would increase spending on need-based student aid and make student loans less costly.

The AFT has released handwritten, personalized notes that the Consumer Bankers group and Nelnet had sent to local AFL-CIO union leaders in Colorado and in Indiana urging them to sign on to letters to Democratic lawmakers encouraging "Congress to continue making higher education accessible and affordable using the widest range of government- and private-sector loan programs and partnerships." Families have "reason to be concerned now," the notes go on to say, "because Congress is considering limitations on ways families and college students can fund college educations -- even as tuition costs rise faster than family incomes and inflation."

Sounds pretty bad. Luckily, it's not true.

The legislation that the House education committee approved doesn't limit "the ways families and college students can fund college educations." On the contrary, the bill, which was drafted by Rep. George Miller (D-CA), the House education committee's chairman, would expand the government's investment in higher education and make it easier for students and their families to pay for college. For example, the measure would:

• Raise the maximum Pell Grant by $500 over five years beginning in 2008-9. Combined with the $390 increase that the House is currently considering for the 2008 fiscal year, the maximum award would be $5,200 in 2014, up from $4,310 this year.
• Slash the interest rate on federally-subsidized student loans in half, to 3.4 percent in 2012-13.
• Raise the annual loan limits so that juniors and seniors can borrow up to $7,500 a year each, up from $5,500. Raise the aggregate limits to $30,500.
• Cap the amount of money that borrowers with unmanageable levels of debt would have to repay each month as a percentage of their income, and forgive their remaining debt after 20 years.
• Increase the amount of money that working students can earn before their aid eligiblity is reduced.
• Create new scholarships for students who agree to teach in high-poverty areas. and provide loan forgiveness for students who pursue careers in the public service.
• Provide incentives to colleges to curb the growth in their tuition increases, and disincentives to states to reduce spending on higher education.

The notes that the Consumer Bankers group and Nelnet sent to the unions also provide the misleading impression that the legislation would dismantle the Federal Family Education Loan (FFEL) program or, at the very least, lure colleges to enter the competing federal direct-loan program. "Students and their families need the fullest range of financing choices," the notes say. "This includes all government and private sector organizations with solid records of working with students, their famiies, and departments within colleges and universities."

A letter accompanying the notes goes even further. "Bills recently introduced in Congress may in fact limit both accessibility and affordability by inducing schools to switch from the private-lender based loan program favored by more than 80 percent of the nation's schools to the federal government's student loan program."

Again, not true. None of the Democratic bills introduced so far would kill the FFEL program. And Mr. Miller deliberately left out a provision he has championed in the past that would entice colleges to join direct lending. Sen. Edward M. Kennedy (D-MA) is also not expected to include that provision, known as the STAR Act, in student-loan legislation he is planning on introducing next week. [The editor of Higher Ed Watch used to work for Senator Kennedy].

And while Mr. Miller's bill would reduce lender subsidies to pay for the aid increases, the cuts are only slightly deeper than those proposed by President Bush in February. Financial analysts who study this industry don't believe that lenders will be forced to leave the program. Sameer Gokhale, an analyst with Keefe, Bruyette & Woods. told The Wall Street Journal that while the cuts are "marginally worse" than President Bush's proposal, they were, according to the Journal, "not nearly as bad as could be and were in line with what market analysts were expecting."

Luckily, union leaders are seeing through these efforts to mislead their members for what they are: cynical ploys to drum up grass-roots opposition to legislation that would cut lender profits. In a letter, Richard L. Trumka, Secretary-Treasurer of the AFL-CIO, warned his members that the claims that the Consumer Bankers and Nelnet were making were "disingenous."

"Contrary to these assertions, the changes under consideration in Congress would have virtually no impact on loan access or affordability," Mr. Trumka wrote.

"As recent press accounts have shown, the student loan program has been subject to abuses that harm, not help, students and their families," he stated. "The CBA's actions in spreading erroneous information continue that pattern."