Published Online: July 22, 2009

House Panel OKs Major Student-Loan Overhaul

A major overhaul of the federal student-loan program would be used to help finance a significant boost to early-childhood-education programs and school facilities, under a bill approved yesterday on a partisan vote by the House Education and Labor Committee.

The legislation—which is based largely on a proposal put forward by President Barack Obama in his fiscal year 2010 budget request—would scrap the Federal Family Education Loan Program, under which the government subsidizes private lenders to make federal loans. (“President’s Education Aims Aired,” Feb. 28, 2008.)

Instead, starting in July of next year, all loans would originate with the direct-lending program, in which students borrow right from the U.S. Treasury.

The change would save about $87 billion over 10 years, according to the nonpartisan Congressional Budget Office.

A portion of that savings, $10 billion over 10 years, would be used to create a competitive-grant program to help states boost the quality of their early-childhood programs, serving children from birth through age 5, the bill says.

The bill also includes more than $4 billion to help school districts revamp school facilities, including making them more environmentally efficient.

Rep. George Miller, D-Calif., the chairman of the House education panel, said during debate over the legislation that the measure would “write the next great education legacy for our country .... at no cost to taxpapyers.”

But Rep. John Kline of Minnesota, the top Republican on the panel, called the student loan changes a “government expansion initiative that crowds out the private sector in the name of a bigger, more intrusive federal government.” And he said the new initiatives created under the bill, including the early-childhood program, would mean “perpetual new entitlement spending.”

The measure was approved on a partisan vote of 30-17, with just two Republicans, Reps. Todd Platts of Pennsylvania and Thomas Petri of Wisconsin, crossing over to vote with the Democrats.

To qualify for the early-learning grants, states would have to rework their early-learning standards, step up program review and monitoring, offer comprehensive professional development, and screen children’s health, mental health, and disability needs.

States would also have to work on improving support to parents and assessing children’s school readiness. The program would be administered by the U.S. Department of Education, in collaboration with the Department of Health and Human Services, which operates the Head Start program.

It’s not clear how many states would be eligible for the grants, since they would be issued on a competitive basis.

The new early-childhood-education program created under the bill would be mandatory, meaning it would not be subject to the whims of the annual appropriations process. Earlier this month, the House Appropriations subcommittee that deals with education spending rejected a $500 million early-childhood-education proposal in the administration’s fiscal 2010 budget request because it was too costly.

The bill also includes resources for school facilities—a long-time priority for Rep. Miller. Under the measure, more than $4 billion in school facilities grants would go out under the Title I, Part A formula.

Every Title I district would get a grant of at least $5,000. The majority of the money would need to be used for projects that meet “green” building standards.

During the committee’s consideration of the bill, Rep. Mike Castle of Delaware, a moderate Republican, brought up one of his major concerns on the school construction piece: Congress is spending money on a brand-new program while it still hasn’t provided enough funding for special education.

Good Investment Seen

Another huge chunk of the projected savings, about $40 billion, would be used to boost Pell Grants, which help low-income students pay for college. The bill would index Pell Grants to the Consumer Price Index, plus 1 percent, as Mr. Obama had suggested in his budget. The maximum Pell Grant award would rise from $5,550 in 2010 to $6,900 in 2019 under the bill.

But the measure would stop short of making the Pell Grant program mandatory, as Mr. Obama had proposed in his budget.

Secretary of Education Arne Duncan called the legislation “a good compromise.” He said, “This is absolutely the right outcome for students. This puts us on the path where we need to go.”

Barmak Nassirian, the associate executive director of the Washington-based American Association of Collegiate Registrars and Admissions Officers, said he is “very supportive and very pleased with the big picture.” Still, he said he wishes that the bill had shifted Pell Grants to the mandatory side of the ledger.

While the early-childhood program and other new initiatives created under the bill are “worthy in their own right,” they should have “come second” to making Pell Grants an entitlement, he said.

Community-College Boost

Another portion of the projected savings—$10 billion over 10 years—would be used to pay for a major community-college proposal that Mr. Obama introduced earlier this week.

That proposal would include additional resources to improve school facilities and online course offerings. It would dole out grants of at least $1 million each for community colleges to help retool remedial and adult education programs and improve dual-enrollment offerings, such as early college high schools, among other activities.

President Obama has made community colleges a focal point of his economic-recovery strategy. Mr. Obama nominated a community-college official to serve as the undersecretary of education, the No. 3 slot at the department. Martha J. Kanter, who until recently served as the chancellor of the Foothill-De Anza Community College District, in Los Altos Hills, Calif., a system that serves 44,000 students a year, was confirmed as undersecretary by the Senate last month. (“Obama Unveils Picks for Key Ed. Dept. Jobs,” April 8, 2009.)

The bill also includes $2.5 billion for a College Access and Completion Fund, to help improve college graduation rates, a high priority for the Obama administration. President Obama said in a speech to Congress earlier this year that he wants the United States to have the highest proportion of college graduates in the world by 2020. An additional $10 billion in savings expected under the legislation would be used to help reduce the federal budget deficit.

However, as the partisan vote indicates, the measure is sure to face significant opposition from some student lenders and members of Congress, who worry about expanding the federal government’s role in originating loans.

And, in reacting to the president’s initial proposal, some college officials have said it might be tough to switch to the direct-loan program in such a short time frame.

Still, the bill would preserve a role for the private sector. It would establish a competitive-bidding process that would permit the Education Department to choose lenders to service loans, based on the quality of their service to borrowers. And nonprofit lenders would continue to service student loans.

Vol. 28, Issue 37

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