The Final Push to Overhaul Student Lending

Congress returns from its August recess this week to tackle an ambitious agenda that includes Democrats' efforts to overhaul the student loan programs by eliminating the Federal Family Education Loan Program (FFELP) and restructuring the Perkins Loan Program.

The Obama administration's student loan proposal -- used as the template for the Student Aid and Fiscal Responsibility Act (H.R. 3221) -- would be the most dramatic overhaul of the student loan system since the creation of the Direct Loan Program more than a decade ago. The House Education and Labor Committee approved SAFRA by a 30 to 17 vote on July 21. The bill's sponsor, education committee Chairman George Miller (D-CA), referred the bill to the Budget Committee and to the House floor. This gives Democrats the option to pass the bill through the reconciliation process or through the normal legislative process.

The bill has moved fairly smoothly through the House, but it will likely be more difficult for the Senate to pass its version of the bill. Democratic Senators with large FFELP lenders in their states have expressed hesitation about embracing the Administration's plan outright and have pushed for alternatives to 100 percent Direct Lending. It is also unclear how the recent passing of Sen. Edward Kennedy - an outspoken FFELP critic and Direct Loan supporter -- will affect the outcome of this legislation.

Democrats' ability to pass student loan reform legislation will likely depend on their use of the reconciliation process to pass the bill. Budget reconciliation would make it tougher for Senate Republicans to block the bill using a filibuster. However, the reconciliation process also makes the bill vulnerable to "points of order" on the floor to block "extraneous matter," which could put portions of the bill that don't deal directly with higher education at risk. This possibility would become even more likely if student loan legislation is combined with health care legislation to create a large reconciliation bill. This would tie the fate of any student loan overhaul to the success of health care reform.

The reconciliation instructions require the House and Senate education committees to report reconciliation bills by Oct. 15. If the Senate committee misses this deadline, then Democrats would have to use the normal legislative process to pass loan reform legislation.

NASFAA continues to advocate for changes in SAFRA with both the House and Senate by seeking several changes to the newly proposed Direct Perkins Loan program, increasing proposed asset caps for certain need-based aid, providing a safety net for schools that may not be able to make a transition into the Direct Loan program by the proposed mandated date of July 1, 2010, and allowing all entities that have a demonstrated capability to provide default prevention and financial literacy services to compete for ED contracts.


Publication Date: 9/9/2009

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