House Committee Approves Bill to Extend Higher Education Act.

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Author: Burd, Stephen

Dateline: Washington

The education committee of the U.S. House of Representatives has approved a sweeping piece of legislation that would set federal higher-education policy for the next six years.

The bill to renew the Higher Education Act was approved by the House Committee on Education and the Workforce in late July on a party-line 27-to-20 vote, sending it to the floor of the House for a vote this fall. The leaders of a key Senate panel hope to unveil their version of the legislation in September.

Over two long days and one long night of debate, Republicans and Democrats on the House education committee clashed over a number of issues, including the regulation of for-profit colleges, the structure of the federal student-loan programs, and the limits of academic freedom.

Among other things, the panel resolved a fight â€" at least temporarily â€" over whether students consolidating their loans should get a fixed or a variable interest rate by proposing to offer both options but charging students extra for the privilege of a fixed rate. The panel also agreed to soften a provision in the Higher Education Act that requires for-profit colleges to receive at least 10 percent of their revenue each year from sources other than federal student aid in order to participate in the government's student-aid programs.

The chief source of conflict between Republicans and Democrats on the committee remains whether the legislation does enough to help low-income students go to college.

The panel's Republican leaders say the bill makes college more affordable by, for example, raising the limits on what students can borrow from the federal student-loan programs and reducing the fees borrowers must pay to obtain their loans.

"Four decades ago, Congress established the Higher Education Act to ensure all students, regardless of financial circumstance, would have the opportunity to pursue a college education," Rep. John A. Boehner, the Ohio Republican who is chairman of the education committee, said in a news release. "The bill we approved today lives up to that legacy."

The Bush administration threw its support behind the bill. Education Secretary Margaret Spellings applauded the panel's leaders for "making it easier for students to attend college."

But Democrats and student advocates denounced the bill, saying it would do little to help students.

Rep. George Miller of California, the top Democrat on the panel, noted that the bill's potential savings of $11-billion from cuts in the student-loan programs would be used to reduce the deficit. He said that it was irresponsible for the panel's leaders to make such large reductions without directing that the savings be used to increase student aid. "House Republicans missed a golden chance to expand college opportunities for students," he said.

Lobbyists for students said the bill would actually raise the cost of loans for students.

They took the Republicans to task for keeping the cap on the interest rate students pay on their loans at 8.25 percent, rather than lowering it to 6.8 percent. Under current law, the interest rate on student loans is scheduled to change on July 1, 2006, from a variable rate that is based on market conditions but capped at 8.25, to a fixed rate of 6.8 percent. But the House bill would head off that change.

Lobbyists for students also said they were extremely unhappy with the compromise on loan consolidation that the committee's Republican lawmakers reached. They complained that the proposal would require borrowers to pay significantly more to obtain a fixed-rate loan than a variable one when refinancing. In addition, they attacked the panel's leaders for including provisions in the bill that would increase the upfront fees that students at colleges in the federal direct-loan program would have to pay to obtain their loans over the next several years (The Chronicle, July 29).

"This bill goes against the very principles of the Higher Education Act," said Kate L. Rube, higher-education adviser to the State Public Interest Research Groups, which lobbies on behalf of students. "Instead of opening more doors, this legislation slams shut access to affordable higher education for millions of students and families."

The battle over the federal student-loan-consolidation program has been raging for the last several years, as borrowers have been refinancing their loans in record numbers. In order to lock in rates of about 3.5 percent for the life of their loans and save thousands of dollars each, borrowers consolidated about $44-billion worth of loans in 2004, almost four times as much as in 2000.

On one side of the debate have been the Republican leaders of the House education committee. They have been pushing a plan that would change how the interest rate is calculated for borrowers who consolidate their debt. The government, they say, has made the loan-consolidation program too attractive â€" and too costly to taxpayers â€" by allowing borrowers to lock in low, fixed interest rates for up to 30 years. Instead, the panel's leaders think that the interest rate for consolidation loans, like that for all loans, should vary from year to year but be capped at 8.25 percent.

On the other side have been the panel's top Democrats, as well as companies that specialize in refinancing loans, and lobbyists for students. They have argued that Congress should not make it harder for borrowers to repay their loans, by eliminating the fixed-rate option, when so many students are buried in debt.

Having received only lukewarm support for their proposal from their GOP colleagues, the committee's leaders decided early in July to embrace an alternative one by Rep. Thomas E. Petri, a Republican from Wisconsin. Under that plan, borrowers would have the choice of consolidating their loans using a variable rate or a fixed rate. Both rates would be capped at 8.25 percent.

Mr. Petri's proposal sought to model the loan-consolidation program on the mortgage market, where borrowers must pay more to lock in an interest rate and have the advantage of knowing what their monthly payments will be. The lawmakers did not make clear, however, how much more borrowers who chose a fixed rate would have to pay.

Under the amendment that the committee approved on a party-line 26-to-20 vote, those borrowers would be charged an interest rate that was one percentage point more than that charged to those who chose the variable-rate option. In addition, to obtain a fixed-rate loan, borrowers would have to pay an origination fee equal to 0.5 percent of the amount they borrowed.

"Fixed interest rates are a popular option for college graduates and have helped many manage their student-loan payments. I am pleased that we have come up with a way to preserve this option while adding new repayment choices for borrowers," Mr. Petri said upon introducing the amendment.

The amendment, however, did not win the backing of the panel's Democratic lawmakers, who blasted the proposal, saying it would force the typical student borrower who wanted to lock in an interest rate for the life of his or her loans to pay nearly $2,800 more in interest than under current law. They said the Republicans were not offering borrowers a real choice.

Mr. Miller offered an alternative amendment, which was defeated on a party-line vote, that was identical to the Republican plan except that borrowers who chose a fixed rate would have been charged an interest rate that was only one-half of a percentage point more than that paid by those who chose a variable rate, and they would not have had to pay an origination fee. "We believe this would make the fixed-rate option more attractive and allow more students to take advantage of that," he said.

But Mr. Boehner opposed the amendment, arguing that borrowers should not be encouraged to take out fixed-rate loans because the government has to make up the difference when interest rates exceed those that borrowers have previously locked in. "We are putting the American taxpayer at a great risk in even offering a fixed-rate option," he said.

During its deliberations, the House committee approved several other amendments to the bill that would make significant changes in federal student-aid policy. The lawmakers agreed to proposals that would:

• Remove from the student-aid programs any college, whether it be for-profit or nonprofit, that failed to receive at least 10 percent of its revenue from sources other than federal aid for three years in a row. As it stands now, for-profit colleges can lose their eligibility if they fail to meet that threshold for a single year.
• Place tighter controls on a program that allows universities to turn a profit from the guaranteed-student-loan program by making the loans themselves. The "school as lender" program allows universities to lend money directly to their graduate students.
• Simplify the student-aid application process, by allowing low-income students whose families qualify for food stamps, welfare benefits, or free and reduced-price lunches to fill out an "EZ Fafsa," a shortened version of the Free Application for Federal Student Aid form, which the government uses to assess a student's need for financial aid.
• Require colleges to disclose fire-safety information about dormitories and campus buildings to current students and employees and to prospective students.

"Congress established the Higher Education Act to ensure all students … would have the opportunity" to go to college.

"Instead of opening more doors, this legislation slams shut access to affordable higher education for millions of students."

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By Stephen Burd