Most people know the final health-care battle will play out in the Senate budget reconciliation process, but there's another key Obama administration goal whose fate depends on the arcane process: student-loan reform. In September, the House passed the Student Aid and Fiscal Responsibility Act (SAFRA), a bill that would kill subsidies for private lenders, expand the federal direct-lending program, and channel the money saved into bolstered Pell grants for low-income students. Because further delay could doom SAFRA, its success will likely require bundling it with health care and passing it through reconciliation -- and that might not be easy.
What will it take, and why does it matter? The Prospect talked to Pedro de la Torre III, advocacy senior associate and higher education expert with Campus Progress, about SAFRA and the fight to improve students' access to affordable education.
Campus Progress has come out in staunch support of passing the SAFRA through budget reconciliation. Why this bill at this time?
It's extraordinarily important for students because, first and foremost, there's a funding shortage for the Pell grant program. And if this bill doesn't pass, then Congress is either going to have to find a lot of money -- which is very difficult right now -- to make up that shortfall, or a lot of students are going to see their grants cut by up to 60 percent, according to the [Obama] administration. Half a million students might actually lose their grants altogether.
What's your assessment on the bill's chances?
It's a tough fight. The lending industry is now going to be joining with the insurance industry to do whatever it can to stop this bill. I do think that it has a pretty decent chance. The student-loan legislation actually had more support in the House than health care. In the Senate, it might be the other way around, but it kind of depends on how you add it all up. I'm cautiously optimistic that this bill will pass.
How do SAFRA policies specifically help students, and what happens if this bill fails?
[One] consequence is that we continue using a broken, wasteful, and corrupt system to get loans to students when we have another alternative that already exists. The benefit to students is that if it passes, there will actually be an increase to the Pell grant. There will be additional funding for minority-serving colleges. There will be more money for programs to promote college access. So this is a big benefit for young people.
Because Congress was forced to wait so long, the savings on paper that this bill would create [over the next 10 years] were reduced [from $87 billion to $67 billion, according to Congressional Budget Office figures from July 2009 and March 2010]. So a lot of the great education priorities that were in the early House bill, like the investments in early learning and in community colleges, may not make it into the final bill. The reason for this is that we have these two systems. One is wasteful and gives subsidies to banks in order to make loans, and in the other, the government does it on its own. A lot of schools have been switching [since the first CBO score was released] to the program that is cheaper and more efficient for taxpayers. So while the savings are actually there for the government and for the taxpayers, unfortunately, it doesn't really show up on paper.
What are the bill's shortcomings? Are there any important issues left insufficiently or not at all addressed?
We don't have the actual text as far as what's going to be passed through reconciliation. ... We're not sure what made it in, what didn't. One thing we were concerned about before was that it set aside business for some nonprofit loan companies. ... We thought it did a disservice to students and that it was unnecessary, but it was still a good bill despite those set-asides.
As far as being inadequate, of course this bill is not a silver bullet. College is still going to be very unaffordable after this passes, even if it's a big help and a big step forward. And so there's still going to be a lot to do, especially now that some of the best policies have been taken out of the bill because of the necessary focus on Pell grants.
Some activists have expressed reservations with the bill, suggesting that protections like bankruptcy should be restored to student borrowers. They have also argued that by keeping the door open for a public-private partnership, SAFRA doesn't really cut out the lending middlemen at all. What's your response to that?
We absolutely think that especially private student loans need to be protected with bankruptcy, but this bill doesn't do that. I'm not even sure if that's the kind of thing that could go into a reconciliation bill. But we're definitely supportive of looking at ways to help people who already have high student-loan volume. I don't see how that's really a critique of a bill that will make college a lot more affordable for people that are going in, and hopefully for some people will avoid student debt, or at least a high level of this debt.
This bill definitely does cut out the middlemen. By doing so, the Congressional Budget Office shows it would save $87 million. I think what [these activists] are referring to is that [the government] contracts out servicing to private companies. In the direct-loan program, that is how it's always been done.
What I think the Department of Education does need to watch, and I think some of these activists have a point, is that the loan companies that have been given these contracts don't always have the best track record of being open and honest with taxpayers and helping borrowers. ... So the department has to be very careful, to keep a very close eye on how it's structuring and how it's giving out these contracts to make sure that it's punishing student-loan companies who aren't doing the right thing.