Two long-standing student loan industry veterans provided context and predictions about the upcoming election year at the SASFAA annual conference on Monday. With elections approaching, pending landmark Higher Education Act reauthorization legislation, and a student loan financing crunch, National Council on Higher Education Loan Programs (NCHELP) President Brett Lief and Education Finance Council (EFC) President Kathleen Smith gave the audience plenty to think about.
Because nearly 30 members of Congress are not seeking reelection, Lief predicted a volatile year where Democrats could see significant gains in both the House and Senate. He likened the 2008 election year to 1992, when a number of Democrats did not seek reelection and the Republicans swept into power with their "contract with America" proposals.
But Lief also pointed out that whoever is in control of the Congress and the While House will have to deal with stark realities in student financial aid.
"Regardless of who is president, there will be roughly 3 million more students in college in 2013 than we have today," said Lief. He went on to explain that in recent years Congress has been taking money from some federal student aid programs to pay for others. "All of the Pell Grant increases have come without taking any new money out of the Treasury," he said, alluding to the more than $40 billion taken out of lender subsidies.
"The funds that have come out of the FFEL program in the last several years are running dry and they will have to come up with significant new funds to continue increasing financial aid," said Lief. "Congress has to recommit for new funding instead of recycling from one financial aid program to another."
Lief also predicted that in the face of a pending recession, many states could face severe budget shortages, meaning that state financial aid and higher education appropriations will likely remain flat or decline.
Smith said she is hopeful that we will see an HEA reauthorization bill before the end of March, before the House goes on spring break, but logistically and more realistically places a final HEA bill in April. The House overwhelmingly passed an HEA reauthorization bill in early February. The Senate passed its own version of an HEA reauthorization bill last summer. Both bills are currently being conferenced together before receiving a final vote and going to the president for his signature.
But Smith also pointed out that a new presidential administration could significantly rework the Higher Education Act even if reauthorization is completed this year. Leif added that legislators need to be thinking about a comprehensive federal student aid policy.
"Loans used to be for choice and grants were for access," said Lief. Loans have become a normal part of most students’ financial aid package and have become just as important to access as grants in recent years.
"We need to reevaluate government’s, states’, colleges’, and family’s role in funding higher education... and work from there," added Smith.
Smith encouraged schools to get involved and make sure their voices are heard on the Hill. "No matter who wins the presidency, Congress will likely see a lot of new members who will require financial aid education or re-education," said Smith.
Lief called on schools to also plead their case to their college presidents and urge them to get other higher education associations involved. "We need to get some extra lift from those associations who have not given a strong voice to student financial aid," said Lief.
Turmoil in the Capital Markets, Sufficient Funding in the Fall?
"The financial markets stink," said Lief. "The financial markets are so skittish that they've shattered the markets that lenders need to raise capital to continue making loans to students."
Smith said she’s hopeful that action will be taken soon to stave off any interruptions that could take place in federal student loans. She explained that one sign that legislators are engaged in this issue is a letter submitted by 21 members of Congress to Secretary of Education Spellings and Secretary of Treasury Paulson requesting that they provide liquidity in the market to ensure uninterrupted supply of low costing capital.
She also pointed out that Federal Reserve Chairman Ben Bernanke believes that the investment tools used by lenders to raise cash for loans are sound investments. "The underlying credit is good... this is not a student loan specific issue, this is a market issue," explained Smith. Bernanke said Thursday in front of the Senate Banking Committee that the underlying quality of municipal and student-loan debt securities is strong.
"A positive statement from the Department or the Treasury could be enough to bolster the mood of the market to indicate that these are good investments and show that there is liquidity," said Lief.
Both Lief and Smith stopped short of saying there would be no interruptions in the fall. They both said they hoped that markets would self-correct in the near-term and that hopefully the Departments of Education and Treasury would get involved before it comes to that point.
By Justin Draeger
NASFAA Assistant Director for Communications
Posted 02/20/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
