Are Federal Grants Taking a Back Seat to Student Loans?
[The Chronicle of Higher Education, 8 November 2002]
By RICHARD MORGAN
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Washington – While college lobbyists have yet to draw a line in the sand as they discuss their goals for next year's reauthorization of the Higher Education Act, they are beginning to sketch the face of the debate. And one striking feature of the conversation these days is its focus on federal student loans.
In the past, when higher-education lobbyists discussed the law that governs most federal student-aid policies, loans were almost always a secondary priority to grants. For many of the lobbyists, grants were truer to the mission of the federal government's education policy: access for students from low-income families who could not otherwise afford to attend college. Federal student loans, by contrast, were seen by some lobbyists, especially those for needy students, as tools of convenience for middle- and high-income families, many of which had other ways to pay for college.
But this year, most higher-education lobbyists concede that the current limits on what students can borrow from the federal government -- $2,625 for a first-year student, and $23,000 over an undergraduate career -- are financially out of date and politically out of touch with today's levels of student need. Loans are now "essential" as "second-chance programs" for "lots of students, not just students who are better off," says Becky Timmons, director of government relations at the American Council on Education, an umbrella group that lobbies for colleges.
Students already borrow more money than the government limit by going to private lenders, which charge higher interest rates, many college officials note. It's a "no-brainer" to recognize that the federal government needs to increase the limits on student loans, Ms. Timmons says. In years past, strong support for increasing loan limits has typically come only from lobbyists for private colleges, given their generally higher tuitions. But this time around, Ms. Timmons and most higher-education lobbyists are also taking that view, although some do so grudgingly.
Edward M. Elmendorf, senior vice president for government relations and policy analysis at the American Association of State Colleges and Universities, was part of a vocal group that opposed increasing loan limits during the last reauthorization of the Higher Education Act, in 1998. This year, however, he concedes that "as much as we'd like to hold hard and fast to no increase at all in loan limits, looking down the road five, six, seven years, students will just need to have some kind of increase."
'A Band-Aid Solution'
So far, only one notable camp of dissenters has emerged over the issue. National groups that represent students "have put a marker down, and they do not want to talk about increased loan limits," says Ms. Timmons. "But everyone else wants to at least talk about it, see what the responsible thing to do is. But with students putting this marker down, it makes negotiation difficult."
Lobbyists for students have always pushed for increases in government spending on grants, and most student leaders express frustration with what they call waning support among politicians for programs like the Pell Grant. In 1975, the maximum Pell Grant award covered 84 percent of the annual cost of attending an average four-year public college; in 2000, the maximum Pell award paid for only 39 percent of that cost, according to the Education Department's most recent National Postsecondary Aid Study.
Rebecca J. Wasserman, vice president of the United States Student Association, argues that loans shift the responsibility for paying for a college education away from the government and onto the shoulders of students and their families. "Loans are intended to be the stopgap, the fallback, not the foundation for education that grants were meant to be," she says.
A focus on student loans will inevitably distract lawmakers from the grant programs, Ms. Wasserman argues, and is "a Band-Aid solution" to "unmanageable levels of debt." But in the face of a sputtering economy and increased federal spending on defense programs, legislators say it is unclear where they will find more money for student grants.
"Unfortunately, to many people, the easy answer is that money should come from students and families," says Kate L. Rube, higher-education adviser for the State Public Interest Research Groups. "You're either (a) forcing students from going to college at all or (b) taking on greater debt and finding out down the road all the problems that comes with."
Some college lobbyists privately express the fear that the student groups' stance may end up fragmenting higher education's voice and alienating allies in Congress. But Brian K. Fitzgerald, staff director of the Advisory Committee on Student Financial Assistance, which reports to Congress on student-aid issues, says student organizations would be "remiss" if they did not push for larger grants. He warns, however, that the mixed messages from higher-education lobbyists could result in a "stalemate" in which Congress did relatively little to fix either problem: increasing grants to ease unmet financial need, or raising loan limits to help students in debt.
The Outlook From the Hill
Rep. John A. Boehner, the Ohio Republican who heads the House of Representatives Committee on Education and the Workforce, says that increasing student-loan limits is "clearly something we need to address." He cautions, though, that it is "too early" to know which direction the discussion will follow.
"We've already heard from some who think it is absolutely necessary to increase loan limits," he says. "However, we've also heard from some who do not want the limits altered at all."
For their part, private lenders are largely silent in the debate.
Stephen M. Heyman, director of public affairs for Sallie Mae, the nation's largest private financer of student loans, says that the lending giant has not formed an official opinion on increasing federal loan limits. But, he adds, "We plan to work closely with [higher-education officials] to ensure the continued success of a federal student-loan policy that has helped make college possible for millions of students."
Larger Role for Colleges
Another loan-related idea -- and a radical one at that -- is being bandied about by some key players in the reauthorization debate. The proposal would expand colleges' lending authority through the Federal Family Education Loan program. The expansion would allow colleges, rather than just banks, to own -- and profit from -- loans. It would also allow colleges to provide loans to undergraduates; right now, colleges are allowed to do so only as a "lender of last resort." (Graduate students can already receive such loans from colleges.)
Many colleges, battered by the recession, see the interest income from lending as an untapped revenue stream, says Mr. Fitzgerald, of the Congressional advisory committee. "I wouldn't want to be the financial-aid officer who has to stand before the college president and the VP for financial affairs and explain why this idea that would bring in millions of dollars is bad. Colleges will jump on this."
Mr. Fitzgerald adds that the colleges most likely to be able to afford to make such loans are those with many borrowers and low rates of student-loan default -- in other words, he says, private colleges and the flagship campuses of well-endowed public universities.
Critics of that plan argue that colleges would face a blatant conflict of interest. If colleges became lenders in that way, the institutions would have a vested interest in raising tuition, because as tuition increased, so would students' need to borrow.
Representative Boehner says only that "there has been an increase in the conversation" about the idea of expanding colleges' lending authority, declining to be more specific. "We know we need to pursue changes that will result in reduced costs and improved access to higher education," he says.
Ms. Timmons, of the education council, expresses concern that the federal budget deficit and the delicate balance in both the House and the Senate will mean that "Congress might be afraid to dream big and set noble goals" as it considers the higher-education law.
"It'll be disheartening," she says, "if good ideas are met with skepticism and cynicism just because the funds aren't there. One thing that we have to hold on to through this process is optimism, optimism in the face of a Congress that isn't going to have a lot of money. Every reauthorization has to be about the art of the possible."
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