House Panel May Have to Reduce Student Benefits in Higher Education Act.

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Author: Burd, Stephen

Dateline: Washington

A key committee of the U.S. House of Representatives appears to have come up more than $2-billion short in its attempt to wring savings from the government's student-loan programs to meet its obligations as part of a broader Congressional effort to reduce the federal budget deficit.

According to a Congressional Budget Office analysis, which was obtained by The Chronicle, legislation that the House Committee on Education and the Workforce approved in July to renew, or reauthorize, the Higher Education Act would save the government $8.6-billion over the next five years.

But that is unlikely to be enough to satisfy Republican Congressional leaders who had directed the committee to find savings from the student-loan programs, as well as others, as part of a process known as budget reconciliation. In that process, lawmakers would have to raise taxes or cut entitlement programs to help reduce the federal budget deficit.

The reauthorization bill (HR 609) would achieve most of the $8.6-billion in savings from the loan programs by reducing the subsidies private lenders receive from the government and by making it more expensive for borrowers to lock in low, fixed interest rates when consolidating federal student loans.

Student advocates and some college lobbyists have complained that the reauthorization bill would do little to make college more affordable for students. Now they worry that the House panel's leaders will have to trim student benefits even further to find greater savings. At the same time, lenders fear that the lawmakers will propose larger cuts in their subsidies.

"The student-loan programs already are bearing more than their fair share of the reductions," said Kate L. Rube, a higher-education adviser to the State Public Interest Research Groups, a consumer organization that advocates for students.

The organization was one of six groups representing students and consumers that announced last month that they would oppose the House bill.

Alexa Marrero, a spokeswoman for the House committee, said that the panel's leaders were still working on their reconciliation proposals, which must be sent to the House Budget Committee by September 16. She would neither confirm nor deny whether the panel would look to the loan programs for further savings. "It's an ongoing process," she said.

But the top Democrat on the education committee â€" Rep. George Miller of California â€" said in a written statement that he believes "there's a good chance those cuts will increase significantly when Congress comes back" from its summer recess.

This past spring Congress narrowly approved a budget resolution calling on lawmakers to cut about $35-billion from federal mandatory spending programs, like Medicaid and welfare programs. As part of that effort, the resolution directed the House education committee and the Senate Committee on Health, Education, Labor, and Pensions to cut about $13-billion from programs under their jurisdiction.

The Senate committee's leaders said that they would seek to reduce spending on the student-loan programs by $7-billion, with the rest coming from other entitlement programs, such as one that protects pension benefits for private-sector employees. However, Rep. John A. Boehner, the Ohio Republican who heads the House education committee, told some loan-industry officials and college lobbyists that he would seek the bulk of the savings â€" potentially as much as $11-billion â€" from the loan programs.

Mr. Boehner and other Republicans on the panel say that, despite the proposed reductions in spending on the student-loan programs, the reauthorization bill will make college more affordable for students from low- and moderate-income families by, for example, raising the limits on what students can borrow from the federal student-loan programs and reducing the fees that borrowers must pay to obtain their loans.

College lobbyists and student advocates now fear that the committee's leaders will have to cut those provisions. "This bill is already harsh in reducing some benefits for borrowers," said Patricia Smith, director of federal-policy analysis for the American Association of State Colleges and Universities. "It would be unfortunate and unfair to students if they have to pare these back further."

The advocates also worry that, in their need to find extra savings, the panel's leaders could reconsider a proposal by the Bush administration to shut down the Perkins Loan Program. Under that plan, which was included in President Bush's budget request for the 2006 fiscal year, colleges would be required to return the federal share of their Perkins revolving-loan funds. Colleges use those funds, which consist of federal "capital contributions," institutional matches, and repaid Perkins loans, to make new loans.

To the relief of college leaders, Mr. Boehner did not include that plan in his reauthorization legislation. Revisiting it now, Ms. Smith said, "would be a very unpopular idea."

Meanwhile, last month a half-dozen groups that lobby on behalf of students and consumers sent a letter to lawmakers opposing the House-passed reauthorization bill.

"This legislation would, on the whole, increase the costs of college for millions of American students," the organizations wrote.

The groups particularly took the House committee's leaders 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 leaders reached. The lobbyists complained that the proposal would require borrowers to pay significantly more to obtain a fixed-rate loan than a variable-rate 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.

In a conference call announcing their opposition to the bill, the group's leaders said they would work hard to get their message out to students who are unaware of the legislation. They noted that a version of the bill is expected to be introduced in the Senate in September. "It is now critical for us to get the word out that the House bill would have a disastrous impact on students," said Ms. Rube.

Ms. Marrero dismissed the criticism. "The bill will expand college access," she said.

The groups sending the letter were: the American Medical Student Association, the Consumer Federation of America, the National Association of Graduate-Professional Students, the National Education Association Student Program, the State Public Interest Research Groups, and the United States Student Association.

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By Stephen Burd