NAICU Washington Update

HEA Redux Begins

May 31, 2009

Secretary of Education Arne Duncan testified before the House Education and Labor Committee on the administration's "cradle to career" plan for education on May 20.  A day later, the committee held a hearing on the administration's proposal to eliminate the Federal Family Education Loan Program (FFELP) in favor of the Federal Direct Loan Program (DLP).

Secretary Duncan Testifies

After warmly welcoming the Secretary, Committee Chair George Miller (D-Calif.) expressed the need for both state and the federal government to do more in education, and highlighted early education, standards and assessments, improving teaching, and controlling college cost. 

Miller termed Education and Labor the most bipartisan committee in Congress, and promised to consider the administration's proposals in such a manner.  Ranking Minority Member Buck McKeon (R-Calif.) reiterated the bipartisan theme, but went on to cite several areas where Republicans differed with the administration, such as small colleges being required to convert to direct lending from the FFELP program.

In his testimony, Duncan defined education as the "civil rights issue of our time," and detailed the proposed changes from pre-K through college.  He alluded to the $32 billion increase in student financial aid since President Obama took office, and his goal for the U.S. to have the highest number of college graduates in the world by 2010.  Duncan outlined the administration's proposal to move Pell to the mandatory side of the budget to provide a guaranteed increases to offset inflation, using savings from the elimination of FFELP.  He also suggested that private companies might provide the servicing for DLP loans.

Regarding the Perkins Loan Program restructuring, Duncan explained that the change would boost the number of Perkins recipients from 500,000 to 2.7 million, and would increase the number of participating colleges from 1,800 to 4,000.  He also noted that Perkins funding would favor colleges that keep tuition down or provided a high level of institutional student aid, and suggested that the forthcoming tuition "watch list" in the Higher Education Act could be used to identify those institutions.


A half-dozen witnesses spoke at the May 21 hearing on "Increasing Student Aid through Loan Reform."  After some light sparring between Miller and McKeon on the benefits and drawbacks of Direct Lending, witnesses generally spoke either in support of a complete conversion to DLP, or for a hybrid configuration that would retain some FFELP elements.

Robert Shireman, Department of Education Deputy Under Secretary, restated the administration's goals to ensure future growth in the Pell Program, continue access to federal student loans, and foster federal/state partnerships to improve college retention and completion.  He said the conversion to DLP would be relatively painless, and that the department could contract with private companies for loan servicing.  Reinforcing the administration's position, Chancellor Charles Reed explained why all California State University  campuses would be switching to Direct Loans. and Anna Griswold, Penn State, described PSU's transition to DLP as "no greater effort than to bring up any new aid program."

Chris Chapman, president of the Access Group, Inc., a nonprofit student loan provider, argued that keeping FFELP lenders in the program would give students choice and good service, and could be financed through the current federal liquidity support structures.  Jack Remondi, chief financial officer at Sallie Mae, offered a similar proposal "to originate, service, and collect student loans on behalf of the government, on a fee-for-service basis, using low-cost federal funding."

As the last witness, Ohio University economics professor Richard Vedder condemned student financial aid in general.  He argued that it led to increased costs, slowed enrollment growth, and caused greater disparity of college attendance between higher and lower income students.  He expressed doubt that the conversion to the Direct Loan Program would save as much money as projected, viewed increased federal borrowing as immoral, and stressed the importance of student choice.  Committee members' questions of the witnesses tended to follow their party-line philosophy on student loan programs.


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