The House Education and Labor Committee held a hearing yesterday titled "Increasing Student Aid through Loan Reform." The topic of discussion was the administration's proposal to increase Pell Grant funding and fund the increase through cost savings associated with eliminating the FFEL program.
Witnesses testifying before the committee were:
- Christopher Chapman, President and Chief Executive Officer Access Group Wilmington, Delaware
- René Drouin, President and CEO New Hampshire Higher Education Assistance Foundation Concord, New Hampshire
- Anna M. Griswold, Assistant Vice President for Undergraduate Education and
Executive Director for Student Aid Pennsylvania State University
- Dr. Charles Reed, Chancellor the California State University
- John F. Remondi, Vice Chairman and Chief Financial Officer Sallie Mae
- Robert Shireman, Deputy Under Secretary U.S. Department of Education
- Dr. Richard Vedder, Professor of Economics Ohio University Athens, Ohio
As we reported yesterday, NASFAA CEO Philip Day submitted written testimony on behalf of the association.
In his opening statement, Committee Chairman George Miller (D-CA) said, "We, as a Congress, need to re-focus our efforts back on grant aid, rather than loans. Today, our committee will examine how we can continue to make college more affordable by significantly increasing grant aid for students. We can do this at no cost to the taxpayer by transforming the way our student loan programs operate." Referring to last year's liquidity crisis, Miller said that several proposals for loan reform would be considered, but that "any workable plan must meet two basic benchmarks. It must increase the efficiency of the loan program so that we have more to invest in our students. And it must increase reliability so that students and families are never again left wondering where to turn in a difficult economy."
Shireman outlined the basics of the administration's plan for strengthening Pell Grant through cost savings from eliminating the FFEL program.
"We need to be able to tell students in middle school that the Pell Grant program is strong, and will be there for them in four to six years when they're ready to go," Shireman said. "That is why the president's budget calls for making the Federal Pell Grant program an entitlement... Today's discretionary funding of Pell Grants leads to future uncertainty regarding the availability of student financial aid, and the near-term funding shortfalls of mandatory increases in the Pell Grant maximum award provided in the College Cost Reduction and Access Act (CCRAA) only increases that uncertainty. We firmly believe that concrete assurances today about the future availability of financial aid play a critical role in encouraging families to be certain their children undertake the academic preparation necessary for college."
On the topic of loan reform, Drouin proposed a modification to the administration's plan and testified to the important role of locally based agencies. Drouin testified that never sells its loans and over the life of the loan, NHHEAF is the only constant, from early awareness to final payment.
"We have a better mousetrap," he said, because of the long-term relationship that curtails delinquency.
"I see clearly, that the student aid program is in need of transformation," Drouin continued. "However, to suggest, as the President's 2010 budget proposal does, that the federal government, or its big contractor located outside of New Hampshire, could do a better job of supporting NH college students, their schools and their parents is unimaginable."
During questioning, Shireman was pressed on the role of non-profit agencies by Congresswoman Carol Shea-Porter (D-NH).
"Isn't NHHEAF exactly what we want?" she asked.
She asked Shireman if there was "life" for organizations like NHHEAF under the administration's plan? "Are organizations like these going to be at the table? How can they compete with big contract bidders?"
Shireman replied that more discussion on this needs to occur over the coming months. He said that the administration sees the value in such an approach to borrower relations, but that in the future, the mechanism by which such agencies are funded would be different - invoking the proposed Access and Completion fund - and the entity type of organizations might need to change.
Congressman Mark Souder (R-IN) asked Chapman, "Isn't it true that at one time Direct Lending had an 8 month delay in processing and schools had to go out to private lenders as their source of backup funding?" Chapman concurred and pointed out the common standards development among the lending community that now allows them to offer excellent service. He said in response to another question that 74% of colleges chose FFEL lenders over Direct because of "service provided customer service, loan delivery, value added programs like financial literacy, and outreach".
There was also some contention over which program, had the lower default rate. Shireman said that Direct Loan defaults by school are comparable or lower than FFEL, but some loans are inherited and it takes in defaulted loans from FFEL, so the numbers can appear inflated.
While the fate of the loan programs was the focus of much discussion, only one of the witnesses disagreed with strengthening the Pell Grant program. Vedder testified, "The idea that federal financial aid promotes college access is a myth." He said emphatically that the fiscal benefits of the administration's proposal were "illusory" and that expansion of Pell Grants was irresponsible and would lead to increased college costs. Asserting that it would be "immoral" to increase federal spending and liabilities, Vedder stated that expanding aid would only contribute to the "tuition price bubble ... when someone else pays bills, cost rise," adding that the funding would go simply to "bloated university bureaucracies."
During questioning, a committee member asked Vedder how he would design a system of federal aid. "Get out completely," Vedder replied, continuing that the government has "corrupted higher education" and has contributed to their "arrogance and elitism."
When asked about Vedder's position, Reed disagreed, saying students represent the future of the American workforce, and that aid for education is a good economic investment in the future of this country. He elaborated by saying that it a shared responsibility between states and the federal government, and that rising college costs were due to the states' having withdrawn a lot of their support for higher ed. Chairman Miller made a point of stating that investment in education returns more than any other investment. "The idea of dismantling the program "is not a credible position and would not serve the nation well."
In his closing remarks, Miller highlighted the gravity of moment noting that student aid reform is a serious decision.
"We have good evidence that students decide not to pursue higher education because they are not convinced they can knit together all the necessary resources," he said. He continued, that it was clear that "fundamental change" is needed in the loan programs as a result of the credit market failures.
"That's part of the tragedy of this - and now we have to decide what do," He said. "We can't leave money on the table when students and families are struggling. Whether it's an entitlement or not, [we need] a significant increase in Pell funding over time. There's a consensus in the country that taking on debt is not the answer. We need partnerships - states have walked away from their levels of support. We are not taking this lightly, and it's very important the committee address this matter."
Resources
View archived webcast of the hearing
Watch video excerpts at the Committee's YouTube Channel
Witness testimony
Media coverage
House Education Committee Considers Overhaul of Student Loan Programs The New York Times
The Future of Student Loans Inside Higher Ed
Congress Hears Arguments for and Against Bank-Based Lending The Chronicle of Higher Education
No Quick Fix to Student LoansMedill Reports
By Darrill Anderson
NASFAA Associate Director of Communications
Posted 05/22/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.
