House Panel Approves $15-Billion Cut in Student-Loan Programs.

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Author: Field, KellyBurd, Stephen

Dateline: WASHINGTON

THE U.S. HOUSE of Representatives education committee voted 22 to 19 last week in favor of a bill that would wring $15billion from the government's student-loan programs over the next five years.

The savings â€" which would largely come from reductions in government subsidies to private lenders and student-loan-guarantee agencies â€" would help the panel play its part in a broader Congressional effort to cut federal spending in order to lower taxes, pay down a portion of the federal deficit, and provide relief to victims of Hurricanes Katrina and Rita.

But Democrats and many college lobbyists said the bill would balance the budget on the backs of students because other provisions would make it more expensive for borrowers to acquire and consolidate their loans.

During debate on the bill, members of two student lobbying groups lined the back wall of the hearing room wearing T-shirts emblazoned with stop signs and the slogan "Stop the Raid on Student Aid."

"Student financial-aid programs are not a slush fund for Congress to raid whenever it wants tax cuts for the wealthy," said Rep. George Miller of California, the top Democrat on the Committee on Education and the Workforce.

Republicans said Democrats were resorting to scare tactics and misleading claims in their attempt to derail the bill. The Republicans argued that the measure would actually help students by raising loan limits and reducing the origination fees that students pay to lenders to 1 percent over five years.

"The fact is that we're increasing student benefits while meeting the savings targets," said the committee's chairman, Rep. John A. Boehner, of Ohio. "I know people wish every day were Christmas and I were Santa Claus, but it's not, and I'm not."

During a full day of debate, Republicans rejected four amendments sponsored by Democrats, including a proposal to use savings achieved through the bill's cuts to boost the maximum Pell Grant from $4,100 to $5,100 by 2010. That amendment, offered by Mr. Miller, also would have eliminated a 1-percent fee that borrowers would have to pay to consolidate their loans under the Republican bill.

Critics have said the fee is unfair because the bill would require borrowers who obtained their loans through the direct-lending program to pay the fee, but would allow private lenders to pay it for students who took out guaranteed loans.

The other measures from Democrats, which also failed on party-line votes, were:

• An amendment by Rep. Chris Van Hollen, of Maryland, that would have eliminated a 1-percent fee that borrowers would have to pay to guarantee agencies.
• An amendment by Rep. Susan Davis, of California, that would have frozen origination fees in the direct-loan program at 1.5 percent through 2010, when the Republican-proposed reduction would be fully phased in. Without this freeze, borrowers would be required to pay a 3-percent fee in the 2006-7 academic year, double what students with direct loans now pay upfront.
• An amendment by Rep. Timothy H. Bishop, of New York, that would have provided a rebate to students whose aid was cut under recent revisions in a federal formula for determining how much a family can afford to contribute to a student's college costs. The revisions, which updated the amount families can deduct for state and local taxes when calculating their expected contributions, cost 1.3 million students all or part of their Pell Grants, according to Mr. Bishop.

Two Republicans also offered amendments.

Rep. Vernon J. Ehlers proposed an amendment that would require the National Academy of Sciences to conduct a study of the quality of distance education. It was approved by voice vote.

Thomas E. Petri sponsored an amendment that would reward colleges that entered the direct-lending program with extra federal financial-aid dollars for their low-income students. It was defeated on a mostly party-line vote.

In explaining his proposal, Mr. Petri cited a Government Accountability Office study released earlier in the week that found that, per $100 borrowed, guaranteed loans have cost the government five times as much as direct loans over the last decade.

"It's a no-brainer," he argued. "It's a win for the treasury, for the schools, and the students."

But Mr. Boehner, who has long argued that government analyses underestimate the true cost of direct lending, urged his colleagues to defeat the amendment.

"The idea that the federal government can provide this service cheaper than the private sector is, on its face, not possible," Mr. Boehner said.

Under the direct-loan program, the Education Department provides loans directly to students through their colleges, bypassing the banks and student-loan-guarantee agencies that make up the rival guaranteed-loan program.

Direct-loan supporters were also unhappy with a proposal in the bill that would allow lawmakers, through the annual appropriations process, to determine how much the Education Department could spend each year to administer the direct-loan program. Department officials now set that budget each year, based on the program's projected mandatory costs. By putting the program's budget under the control of the appropriators, lawmakers would ensure that direct lending would have to compete each year with other Congressional priorities for spending increases.

In a bill summary, the panel's leaders said that the change â€" which would also affect the administrative funds that the Education Department spends to run other student-aid programs â€" would "inject greater accountability into the administration of federal student aid" and would allow Congress to "have greater opportunities to ensure programs are running efficiently and effectively."

But direct-loan supporters said the proposal would give the program's enemies in Congress the chance to starve its budget.

The budget-reconciliation bill now heads to a vote by the full House, where it is expected to be approved, and then on to a conference committee that will resolve differences between the House bill and its Senate counterpart. The Senate is expected to consider its version of the reconciliation legislation as early as this week.

As currently configured, the Senate measure would use a portion of the savings achieved through program cuts to create two new grant programs for students from low-income families.

Senate Democrats lobbied vigorously for those programs and are expected to fight efforts to eliminate them in conference committee.

The Senate education committee's top Democrat, Sen. Edward M. Kennedy of Massachusetts, fired the first shot last week, blasting the House bill in a speech on the Senate floor. "As we took strong steps forward," he said, "the House is taking giant leaps backwards."

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By Kelly Field

Contributed by Stephen Burd