NAICU Washington Update

Duncan’s Efforts to Help Colleges Prepare for Direct Lending Come Under Scrutiny

November 10, 2009

The leading Republican lawmaker on the House Education and Labor Committee has sent a detailed request to Education Secretary Arnie Duncan regarding the administration's efforts to ensure that colleges are ready to convert to direct lending.

At the heart of the request is Rep. John Kline's (R-Minn.) concern that Duncan may have violated federal rules regarding the use of public funds to lobby for legislation.

"While this debate proceeds in Congress, the U.S. Department of Education must act as an impartial agent to assist colleges and universities, not as an advocate for its preferred legislative changes to the student loan program," Kline said in the letter.

Kline's request comes after several news organizations reported that Department of Education employees may have crossed the line in encouraging colleges to weigh in on pending legislation.

As the student loan reform bill continues to lag in Congress (see related Washington Update story "Senate Rule Precludes Private College Protection in Student Aid Bill") there is growing concern about whether colleges will have enough time to convert to direct lending if a mandate is passed only months before the deadline.

So, the Department of Education must walk a tightrope between ensuring that it can handle a mass conversion and not encouraging anyone outside of government to lobby for quick passage of the bill.

For budgetary reasons Congress is unlikely to modify the proposed July 1, 2010, implementation date for the switch to direct lending, if such legislation is approved.

With health care dominating the Washington policy agenda, the student loan bill has taken a back burner, meaning that if and when it passes, the lead time for colleges to convert could be very short.

In the meantime, the Bank of America-one of the largest FFELP lenders-announced last week that it would exit the program on December 5.

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