E.D. Presses Ahead on 'Phase Two' of Student-Loan Reform

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After a year that ushered in some of the most dramatic changes ever made in the 30-year-old federal student-loan system, the Education Department is forging ahead with a second wave of reforms that could prove even more controversial.

Beginning this month, officials will hold a series of regional meetings to solicit feedback from higher-education leaders on a set of proposals that they are calling "phase two" of student-loan reform.

Over the past 12 months, the department has launched a new direct-lending program under which the agency lends money to students through their institutions, cutting lenders and guarantee agencies out of the picture.

It has also released a complex series of regulations intended to strengthen its ability to weed out of the program schools with high loan-default rates, poor management practices, or suspect curricula, with the help of accrediting agencies and new oversight bodies known as State Postsecondary Review Entities.

The Administration hopes that these changes will eventually save taxpayers billions of dollars, by eliminating subsidies to lenders, reducing default rates, and stemming fraud and abuse.

The department expects to draft further legislation during the winter and introduce it by February as a part of the fiscal 1996 budget.

Phase Two

While those plans are not firm, Maureen A. McLaughlin, a policy adviser to Assistant Secretary for Postsecondary Education David L. Longanecker, outlined a set of proposals in a recent interview that she called "phase two and beyond."

She said the Administration plans to propose a "guaranteed aid" system, under which all students would be guaranteed a minimum amount of federal aid. The balance between grants, subsidized loans, and unsubsidized loans would vary depending on a borrower's need, and the neediest students could be eligible for more aid.

In another effort to improve access to higher education for at-risk students, the department hopes to expand the existing National Early Intervention Scholarship and Partnership program. The incentive program, created in 1992, gives federal matching grants to states to pay for scholarships for at-risk students who participate in programs that aim to increase their readiness for college.

The program received about $1.8 million this fiscal year, and will receive $3.1 million next year under pending appropriations bills. So far, 10,000 elementary and secondary students in six states are participating in early-intervention activities, and 230 students from two states have been awarded scholarships.

The Administration is likely to run into far greater opposition if it proposes using different sets of rules to govern different types of institutions participating in student-aid programs, which Ms. McLaughlin said officials are considering.

Trade Schools Targeted

The notion of differential standards is a divisive one. Trade schools and their supporters will strongly resist any effort to apply stricter standards to them than to degree-granting colleges and universities, as tighter rules would drive some schools out of business.

In addition, lawmakers and organizations that are advocates for low-income and minority students argue that such measures unfairly limit those students' opportunities for education and training.

Higher-education groups are also likely to raise concerns about plans to expand the use of measures such as graduation rates and default rates to assess the effectiveness of loan programs and the institutions participating in them.

In the past, Ms. McLaughlin said, "we have tended to focus too much on access as access to getting in the door." With the new reforms, she said, the department will emphasize "access to success," and measure how well students perform once they arrive in college.

Many higher-education officials say is it too early to assess the new proposals.

"I think that they've talked about a lot of important issues, but so far at a level of generality that makes it hard for us to respond," said Terry W. Hartle, the vice president for governmental relations at the American Council on Education. "Right now we are taking a 'wait and see' attitude."

Meanwhile, Mr. Hartle and others say that keeping up with the first round of reforms has been overwhelming for many colleges, and suggested that the department should first concentrate on alleviating existing regulatory burdens.

"The financial-aid community is still trying to cope with the changes that have transpired in the last year," agreed Marc L. Brenner, the president of Ohio Auto/Diesel Technical institute, a for-profit school of that teaches auto, truck, and motorcycle mechanics to about 600 students.

"Right now, everyone's just busy putting out the little fires without looking at what's on the horizon for us," he said.

Expending Political Capital

Lawrence S. Zaglaniczny, the executive assistant to the president of the National Association of Student Aid Administrators, said such problems are not entirely the department's fault, as the rules are based on laws enacted by Congress.

"In far too many cases the laws become too prescriptive, and it's making a lot of quality schools jump through hoops and perform actions that clearly are aimed at a minority of institutions that abuse the programs," he said.

"I think among our members," he added, "there's the feeling among some that this is an opportunity to make some progress and go forward, and others feel that the department needs to give it a rest."

Meanwhile, some observers questioned whether the Administration would be willing to expend sufficient political capital on provisions likely to face tough opposition. With new aid dollars scarce, for example, shifting grant aid to the neediest students would likely entail taking it away from middle-class borrowers.

One lobbyist noted that the Administration had failed to muster strong support for even "modest" reforms such as the so-called "85-15 rule." It is a provision enacted in 1992 amendments to the Higher Education Act that aims to eliminate "Pell Grant mills" by requiring that schools obtain no more than 85 percent of their revenues from federal student aid.

In debate on an appropriations bill earlier this year, some lawmakers argued that the rule would hurt legitimate proprietary schools, and the House approved a measure that would delay implementation for one year. The Senate version of the bill includes no such provision, and its fate will be decided in an upcoming conference.

Vol. 14, Issue 02, Page 22

Published in Print: September 14, 1994, as E.D. Presses Ahead on 'Phase Two' of Student-Loan Reform
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