President Barack Obama鈥檚 proposals to significantly reshape the two main federal college-access programs鈥擯ell Grants for low-income students, and higher education loans鈥攁re generating debate in Congress and in the education community.
Mr. Obama is seeking to scrap the Federal Family Education Loan Program, or FFELP, under which the government subsidizes private lenders to make federal student loans. (鈥淧resident鈥檚 Education Aims Aired,鈥� Feb. 28, 2009.)
Under his plan, which is part of the administration鈥檚 proposed fiscal 2010 budget, all loans beginning in July 2010 would originate under the government鈥檚 direct-lending program, in which students borrow from the U.S. Treasury. The interest rates for both programs are generally set by Congress. Subsidized undergraduate loans will be offered at an interest rate of 5.6 percent beginning July 1 of this year. Right now, colleges can choose which program to offer.
The savings projected under Mr. Obama鈥檚 plan would be used to help provide steady, annual increases for Pell Grants, which provide financial help for low-income students.
The proposal comes as state institutions, private universities, and families are feeling the pinch of the sputtering economy, Secretary of Education Arne Duncan told reporters last week.
鈥淕oing to college has never been more important, and it鈥檚 never been more expensive,鈥� Mr. Duncan said. President Obama鈥檚 plan would allow the government to tell low-income students, 鈥渋f you work hard, if you do the right thing, you are going to college,鈥� the secretary said.
Thirty-one states cut their fiscal 2009 budgets for higher education, according to a report released this month by the National Governors Association and the National Association of State Budget Officials. And some states are experiencing shortfalls in their so-called 529 plans, which help families save for college.
Changes to Pell Grants
Projected annual savings from the Obama plan vary: The Office of Management and Budget puts the estimate at about $40 billion, and the Congressional Budget Office, at $94 billion.
The savings would be used to help pay for a technical鈥攂ut significant鈥攃hange to the Pell Grant program. Its funding would become a mandatory, rather than a discretionary, part of the budget, making grant aid much more predictable for students, proponents say.
The size of an individual Pell Grant would rise at a steady rate each year, linked to the U.S. Consumer Price Index, plus 1 percent. Right now, the maximum Pell grant is $4,731; next school year, it will be $5,350.
The proposal would help preserve the purchasing power of the grant, which has diminished since its inception in the 1970s, as appropriations have not kept up with increased college costs, said Edie Irons, a spokeswoman for the Institute for College Access and Success, in Berkeley, Calif.
And it would give low-income students a better idea of how much money they could expect to receive under the program, she said.
The change would help high school students鈥攁nd their counselors鈥攑lan better, said Sandra Gilbert, a guidance counselor at Highland Park High School in Highland Park, Ill.
鈥淵ou would at least know what鈥檚 coming down the pike,鈥� she said. 鈥淜ids start thinking about applying a year before they鈥檙e going to college, so it would be very nice if they had a picture of what they could afford.鈥�
Alternative Proposal
But supporters of the government-subsized loan program are worried about President Obama鈥檚 plan to use savings from the elimination of that program to pay for the change to the Pell program.
Preserving competition between the direct-lending and FFELP programs鈥攁s well as between different FFELP lenders鈥攚ould mean more choice, and more user-friendly service, for colleges and students, said Kevin Bruns, the executive director of America鈥檚 Student Loan Providers, a coalition in Washington that represents student lenders.
Some lenders, led by Sallie Mae, a private-sector student lender based in Reston, Va., have put forth an alternative proposal.
It would allow companies that now act as lenders to originate loans through the direct-lending program. They would be paid a fee for 鈥渟ervicing鈥� a loan鈥攂eing the point of contact for the student鈥攗ntil it was repaid. If borrowers defaulted on the loans, the companies would share in the risk, along with the government.
Such a proposal may be easier to implement than the president鈥檚 plan because Sallie Mae and others have years of experience in servicing loans and making sure they don鈥檛 go into default, said Martha Holler, a spokeswoman for the company.
There鈥檚 some question about whether the direct-lending program could absorb all student loans in the time frame President Obama has proposed, she said. The Sallie Mae plan, she said, could be implemented 鈥渨ith the flip of a switch.鈥�
But Barmak Nassirian, the associate executive director of the Washington-based American Association of Collegiate Registrars and Admissions Officers, said the alternative proposal would likely be more helpful to entities such as Sallie Mae than it would be to students. Lenders often use FFELP as a way to market private loans and other financial services, he said.
The program has 鈥渞eally devolved into corporate welfare,鈥� Mr. Nassirian said. He expects that the president鈥檚 proposal would have the potential to provide more grant aid than Sallie Mae鈥檚.
Rocky Patch
The Federal Family Education Loan Program has run into some trouble in recent years.
In 2007, New York state Attorney General Andrew M. Cuomo uncovered questionable student-loan practices and allegedly improper ties between colleges and student-aid lenders. (鈥淪tudent-Loan Controversy Is Drawing Wide Concern,鈥� May 2, 2007.)
Just last year, Congress had to create a temporary program to make sure FFELP loans would still be available despite problems in the credit markets.
The House Education and Labor Committee expects to move a bill on student lending sometime this summer, said Rachel Racusen, a spokeswoman for Rep. George Miller, D-Calif., the panel鈥檚 chairman.
Rep. Miller thinks the president鈥檚 proposal 鈥渟ets an extremely high bar鈥� in terms of savings that could be passed along to low-income students, Ms. Racusen said. But she said Rep. Miller is open to looking at all options, including the Sallie Mae proposal. His ultimate goal is to make student loans 鈥渕ore dependable and cost-efficient,鈥� she said.
Sen. Edward M. Kennedy, the chairman of the Senate Health, Education, Labor, and Pensions Committee, 鈥渃ompletely supports the president鈥檚 proposal,鈥� an aide to the senator said.
Although Mr. Kennedy is willing to consider alternatives, he is looking at them in the context of how much they鈥檒l benefit students, the aide said.
