With budgets tight, watch for doublespeak on student aid

In his State of the Union address, President Bush promised to cut 150 domestic programs that “are not getting results, or that duplicate current efforts or do not fulfill essential priorities.” A week later, he delivered on that promise in the fiscal year 2006 budget he proposed to Congress Feb. 7.

The good news was the administration’s increase in the Pell Grant program, a boost of $724 million—or 5.6 percent over the funding level in 2005. Bush has called for the maximum grant, now set at $4,050, to increase by $100 a year in each of the next five years. This would be a 2.5 percent increase in the face of tuitions that are increasing, on average, 8 percent to 10 percent.

His proposal also would provide full funding for the program to get rid of a yearly deficit that occurs when there’s a shortfall between the money allocated and how much is paid out to all who qualify. Bush’s proposal also would increase the amount students and their families can borrow in their first two years of college through guaranteed and direct loans.

But the increases come at a steep price for other popular aid programs, five of which would be eliminated, while 14 others would be reduced or level-funded. The programs targeted for elimination are:

• Perkins Loans, which this year provided $1.26 billion to cover average loans of $1,875 to 673,000 borrowers, according to the Chronicle of Higher Education. The proposal would phase out the program over the next 10 years, for a total cut of $6.6 billion.
• Tech-prep education, funded at $106 million in 2005, which provides money to community colleges for career and vocational programs.
• Leveraging Educational Assistance Partnership grants, funded at $66 million in 2005, which match dollars to states supplying need-based aid.
• Upward Bound and Talent Search, as well as GEAR-UP, all programs that help disadvantaged secondary school students find their way to college.
• Teacher Quality Enhancement Grants, for teacher recruitment and preparation, funded at $68 million in 2005.

In the overall preK-12 and higher education budget, one in three programs slated for elimination is in education, notes AFT president Edward J. McElroy. This represents “a huge reversal in the federal government’s commitment to education at a time when new, rigorous requirements for students and teachers need to be met.” In addition, he adds, it “flies in the face of [Bush’s] re-election campaign that stressed family values and compassion.”

House members resurrect College Access bill

In February, House Republicans reintroduced the College Access and Opportunity Act (H.R. 507), a bill that came out of the House Education and the Workforce Committee last year as part of the process to reauthorize the Higher Education Act. When it was first introduced last spring, AFT strongly opposed it. The reintroduced bill is little changed.

It would freeze the appropriation for the maximum Pell Grant at $5,800 for the next six years. The AFT had hoped to see that amount double. It would end the ability of borrowers to consolidate their loans at a fixed rate, thus increasing the cost of the loans for people already burdened by large debts. One very controversial provision would make institutions accountable in punitive ways if they raised tuition more than twice the rate of inflation in a limited period.

Of great concern to the AFT is a provision that would change the rules and definitions by which for-profit institutions and distance education providers get access to federal aid dollars. The bill would eliminate a requirement that for-profits take in at least 10 percent of their revenue from sources other than federal aid.

In a letter to the House committee last May, the AFT laid out its concerns about the bill, writing that it “promotes the financial interests of the for-profit higher education industry at the expense of the needs of students.”

Who should profit from student loans?

The federal student loan program has been under increased scrutiny lately as lawmakers and the president look for ways to find more funds for student aid. Many in Congress and in the higher education community would like to see the direct loan program expanded, but they are up against a powerful lobby made up of banks and lenders that stand to lose billions if the direct/guaranteed loan balance changes from its current 25/75 percent standing.

Direct loans, created under the Clinton administration 10 years ago, allow colleges and universities to make direct loans to students using federal funds. The low interest payments are used to cover the costs of the program. With guaranteed loans, banks lend students the money and benefit from interest payments, government subsidies, and almost no risk because the government pays when borrowers default.

Numerous studies by the Congressional Budget Office (CBO), Office of Management and Budget and the GAO have all found that switching to a direct loan program would save billions. The CBO says that switching from the current student loan split of 25 percent direct loans to 40 percent direct loans would save $12.3 billion in the next 10 years. Switching completely to direct loans would save $60 billion in 10 years.

Rep. Thomas Petri (R-Wis.), House Education and the Workforce Committee vice chairman, and Rep. George Miller (D-Calif.), ranking Democrat on the committee, have introduced a bipartisan bill called the Direct Loan Reward Act that is designed to eliminate bank subsidies and free up nearly $12 billion for institutions to provide to students as grants and aid.

Banks and lenders think the bill is a bad idea and they are letting their friends in Congress know. (An investigation conducted last year by the Chronicle of Higher Education revealed that the student-loan industry gave $632,000 to the representatives on the House education committee, with close to 80 percent going to Republicans.)

A Feb. 2 Wall Street Journal article, “Bush Faces Crunch in College-Aid Goals,” notes that Republican leaders deny that borrowing from banks costs more. The article quotes one committee staffer, Dave Schnittger, as suggesting that it is “entirely possible” that guaranteed loans may even cost less. Republican leaders have asked the GAO to look into it.

“We supported the creation of direct loans,” says AFT legislative analyst Gabriella Gomez, “and we still support them. We agree that the profit from loans should be used for students. Banks use profits to line the pockets of shareholders. Last time I looked, shareholders were not students. Congress will have to decide who they want to be the recipients of these profits.”