Financial Aid and Student Access: Key Issues Before Congress.

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Author: Burd, Stephen

President Bush this month released a budget request for the 2006 fiscal year that includes proposals that would fundamentally change the way many of the federal student-aid and college-access programs operate. In the coming months, the leaders of the committees in the U.S. House of Representatives and the Senate that are in charge of drafting legislation to renew the Higher Education Act, the law that governs most federal student-aid programs, will review the president's plans and decide whether to include them in their reauthorization bills. Among the president's key proposals:

THE ISSUE

As part of his 2006 budget request, President Bush has proposed increasing the maximum Pell Grant by $500, to $4,550, over the next five years and eliminating a $4.3-billion shortfall in the program. Normally Congress sets the maximum each year. Under the plan, Pell Grants would operate more like a true entitlement program, with scheduled increases in the top grant--of $100 a year for five years--taking effect automatically. To pay for his proposal, the president is asking Congress to eliminate the Perkins Loan program, which gives colleges money to lend to needy students at a fixed interest rate of 5 percent; reduce some of the subsidies that lenders receive from the government to make guaranteed loans to students; and require students to pay a fee, equal to 1 percent of the amount they have borrowed, to student-loan-guarantee agencies.

BACKGROUND

President Bush made increasing spending on Pell Grants a key priority in his campaigns in 2000 and 2004. During his first term, he asked Congress to increase appropriations for Pell Grants by 47 percent. Still, the maximum grant has remained at $4,050 for the past three years because of an unexpected surge in demand for the awards. Although the grant program was not created as an entitlement, it functions like one: Grants are awarded to all eligible students, even if the program runs in the red. Administration officials and Republican Congressional leaders have been reluctant to call for increases in the maximum award until the program's deficit is covered. College leaders are pleased that Mr. Bush has proposed increasing the maximum Pell Grant and wiping out the shortfall, but they were alarmed by his plan to scrap the Perkins Loan program as a way to pay for it. Loan-industry officials and student advocates are also not enamored of his proposals to pay for the plan.

OUTLOOK

The odds do not appear to be in the president's favor: It is especially uncertain whether a Republican-led Congress--which has received millions of dollars in campaign contributions from bankers and other types of lenders--will back the plan.

THE ISSUE

President Bush has proposed increasing the amount students in their first two years of college can borrow from the federal student-loan programs. Under the plan, the loan limits for freshmen would be increased to $3,500, from $2,625, and for sophomores to $4,500, from $3,500. The total borrowing ceiling for undergraduates would increase to $24,875 from $23,000. Among other ways, the president would pay for his plan by restructuring the federal student-loan-consolidation program so that borrowers who refinance their government-backed loans would no longer be able to lock in a low fixed interest rate for up to 30 years. Instead, borrowers would be charged a variable rate.

BACKGROUND

For many college leaders, the most important student-aid issue during reauthorization of the Higher Education Act is getting the student-loan limits raised. The current ceiling was set more than a decade ago and lags far behind today's levels of student need, they say. The president's proposal is a little more generous than the one the Republican leaders of the House Committee on Education and the Workforce are offering in their legislation. Under the House bill, the loan limits for freshmen and sophomores would also be increased to $3,500 and $4,500 respectively, but the overall amount students could borrow while in college would remain at $23,000. As a result, students who remain in college beyond their fourth year would have to take out smaller loans than they can currently get.

OUTLOOK

Most college lobbyists and lenders would like to see larger increases in the borrowing limits than either the House committee or Mr. Bush is proposing. But with little new money on the table, they realize that the president's proposal is probably the best they can get.

THE ISSUE

The Bush administration, as well as many student-aid experts, agree that the federal campus-based aid programs no longer serve the country's neediest students well. A select group of institutions--mainly private colleges and public flagship universities--have benefited the most from the programs because funds are divided largely on the basis of a formula set more than 20 years ago, which essentially guarantees colleges the same share of aid that they have received from the programs since the 1970s and leaves little new money available for low-cost colleges, particularly community and for-profit colleges. Those two types of institutions now enroll greater proportions of financially needy students than most four-year colleges. In his budget request, the president calls on Congress to phase out the base guarantees in order to better serve needy students.

BACKGROUND

Republican leaders of the House education committee included a similar proposal in their reauthorization legislation. When they offered their bill, prospects for changing the formula appeared dim, as they faced a major stumbling block: the Senate. The Senate Health, Education, Labor, and Pensions Committee has long been dominated by lawmakers from New England, who tend to protect the interests of established higher-education institutions in their states. The panel's Republican chairman, Sen. Judd Gregg of New Hampshire, was expected to lead the opposition to changing the formula this year, but he has stepped down from his position to take charge of the Senate Budget Committee. His replacement--Sen. Michael B. Enzi of Wyoming--is expected to view the proposal more favorably, as he has no private colleges in his home state.

OUTLOOK

With Senator Enzi at the helm of the Senate higher-education committee, the proposal's prospects are much improved. Still, Sen. Edward M. Kennedy of Massachusetts, the top Democrat on the panel, is expected to wage a fierce fight, and he could block the bill until the provision is removed.

THE ISSUE

The president's proposed budget would end several popular programs that help motivate and prepare low-income students for college. Under the plan, the savings from terminating the programs--Upward Bound and Talent Search, which are part of the federal TRIO programs for disadvantaged students, and Gear Up, which concentrates especially on helping financially needy middle-school students--would be transferred into block grants that states could use in a variety of ways "to increase the achievement of high-school students," according to budget documents.

BACKGROUND

Bush-administration officials say that the three precollege programs are either ineffective or haven't yet proven their worth. The funds would be better spent, they say, on a new "high-school intervention" program, which would send money to states to help schools design their own strategies for helping low-income students and holding high schools accountable. TRIO and Gear Up supporters defend the programs and say the president's plan would not obligate states to use the funds to raise the college aspirations of low-income students. They also warn that all three programs have strong bipartisan support on Capitol Hill.

OUTLOOK

With Congressional support--and a reluctance by Republican lawmakers to revisit the president's elementary- and secondary-education reforms until the No Child Left Behind Act expires in 2008--it is highly unlikely that Congress will act on this proposal.

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By Stephen Burd