NAICU Washington Update

President's Student Aid Proposal Includes Special Recognition for Private Colleges

September 28, 2009

The president's student aid proposal to eliminate the bank-based student aid program and convert all loans into direct lending gained final House approval on September 17, by a vote of 253-171.  Included in the bill is a special provision recognizing the special governance structure of  independent colleges. 

This important provision makes it possible for the private college sector to participate in the President's 2020 graduation initiative without the threat of inappropriate government intrusion.  The bill also provides a $40 billion increase over 10 years for the Pell Grant program, and a six-fold increase in Perkins loan capital.

Private College Protections

The bill envisions a new role for state government in federal higher education policy.  Both Congress and the president believe that it essential to have all sectors of higher education engaged in state-level conversations if college completion rates are going to improve.  Congress also believes these conversations must include other parties, such as state employment agencies, non-profit groups, and K-12 education.

While such statewide collaborative conversation have merit, they also could present dangers for private colleges, which don't come under the control of state governments.  This danger is greatest in those states where state bureaucrats have long sought to control private colleges, while offering little support.  In response to our concerns, administration officials and House committee staff negotiated throughout the summer with NAICU to find a solution. 

In an effort led by Education and Labor Committee Chair George Miller (D-Calif.), the result is that the House bill includes a provision to give private colleges the right to opt-into any state-based efforts to improve completion, while still protecting them against inappropriate state control as a result of participating.  The provision also specifies that private colleges can't be forced into state student unit record systems as a result of such efforts. 

This provision is extremely important if there is to be a new federal relationship with states in higher education.  NAICU believes that it would be more efficient and effective for the federal government to work directly with colleges on national goals such as completion.  However, if states are brought into the mix, it is essential that the state-private college relationship be clarified.

We don't know how the provision will fare in the Senate, which is exploring a different model of college completion grants for states.  It's also not clear that the administration will support including the provision in the final bill, since they have already raised concerns about the provisions on data systems in their official message to Congress on the bill. 

Student Aid Increases

The most important victory for students in the House bill is the $40 billion increase in funding for the Pell Grant program.  The program faces a dramatic growth in cost, given the explosion in the number of Pell-eligible students as a result of the recession.  In this bill, the maximum Pell Grant is projected to increase from $5,550 to $6,900 by 2019.  Driving the increase is a new funding formula an annual bump of CPI plus one percent over the appropriated base.  This will go a long way toward helping low-income students stay in college, dislocated workers retrain for a new job, and low-income families plan for their children's college futures.

The bill also proposes a sixfold expansion of Perkins Loan program funding and participation, so that students with a gap between their final aid packages and cost of attendance will have access to more low-interest federal loans.

These student benefits, and the other programs included in the bill, are to be paid for by the mandated conversion to direct lending.  NAICU has always vigorously defended institutional choice in lending.  In fact, since 2008 private banks participating in the federal student loan program have been using federal capital almost exclusively, under emergency legislation that NAICU helped secure (see NAICU Washington Update: "Prospects for Federal Student Loans Improve").  However, this legislation expires in another 12 months and is not likely to be renewed.  In short, there is soon likely to be limited liquidity in the FFELP program, and many institutions are already converting to direct lending.

Community College Initiative

The House bill also includes special funding for community colleges.  NAICU initially asked for private two-year programs and two-year colleges to be eligible.  We were told, though, that the purpose of this fund was to "reform community colleges" through the states, and that two-year privates would have to agree to that purpose if they were to participate. 

We ultimately decided that seeking inclusion would entail potential control over private two-year colleges that would be too risky to their independence.  As the Senate prepares to write its version of the bill in the next two weeks, NAICU is working on an alternative proposal that would include private two-year institutions without state-based controls.   

Next Steps

The Senate Health, Education, Labor and Pensions (HELP) Committee must now meet the October 15 deadline for producing a student aid reconciliation bill.  Latest word is that the committee will hold a mark-up the week of October 5, but this schedule could still slip.  Once the committee has crafted legislation, how the bill moves to the Senate floor becomes more complicated. 

There is talk about the bill being split into two pieces - one to meet the reconciliation rules, and one to "implement" the reconciliation bill.  This would be an important procedural move. The reconciliation bill requires a simple majority for passage under special Senate rules.  However, the "implementation bill" would require 60 votes for passage under regular order, meaning it would most likely need bipartisan support to succeed. 

Also, the rules set forth in the FY 2010 budget resolution allow for a student aid reconciliation bill and a health care reconciliation bill to be crafted by the Senate.  The resolution stipulates, however, that if separate bills are written, they must be combined into one piece of legislation for final passage.  This means there will have to be support for both student aid and health care reform for the student aid improvements to pass.

Stay tuned!  There could be many more twists and turns in the days ahead and NAICU may be calling on members for their help.

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