Student Loan Blog : Federal Pell Grant Program

Overhaul of Student Loan System in the Works

Student Loan Girl — Mon, 22 Jun 2009 15:30:00 GMT

A bill to overhaul the student loan industry may reach Congress as early as next week; education-committee chairs are working behind the scenes on a piece of legislation that would eliminate the third-party student loan system called the Federal Family Education Loan Program, The Chronicle of Higher Education reports (“Behind the Scenes, a Student-Loan Overhaul Takes Shape,” June 16, 2009).

Although few details have been released about the proposed legislation, lenders and a large number of Congressmen are hoping the FFEL program won’t end up on the chopping block like President Obama has proposed. Already as many as 13 counterproposals to the elimination of FFELP have begun circulating Congress, including a detailed plan from lending giant Sallie Mae.

It’s not likely, however, that the FFEL program will survive this legislative session, some Congressmen say, considering taxpayers could see as much as $94 billion in savings over the next 10 years if FFELP were eliminated, according to estimates from the Congressional Budget Office.

Obama had originally suggested that these savings, which have been readjusted down to $87 billion, could be used to increase Pell Grants award amounts each year at a rate equal to the Consumer Price Index. It now looks like Congress will, instead, propose that the money be infused into the Pell Grant program to allow appropriators to “continue to set the maximum [Pell Grant] award” so as not to end up capping the maximum award amount.

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Federal Student Loan Lenders Fight for Survival

Student Loan Girl — Mon, 30 Mar 2009 23:52:00 GMT

In what is being viewed as a direct hit to private third-party lenders in the Federal Family Education Loan Program who are fighting to keep the program alive, the U.S. Department of Education’s preliminary data paints the FFEL program as a costly and ineffective system with a 7.3-percent student loan default rate, two whole points higher than the default rate for the Direct Loan Program (“Private Lenders Brace for Fight Over Student-Loan Role,” The Wall Street Journal, March 27, 2009).

Since its launch in the 1960s, FFELP has been the primary source of federal student loans. This year the FFEL program has already lent more than $56 billion in student loans, while the Direct Loan Program has lent just $20 billion. But President Obama has proposed axing the FFEL program, which costs the federal government billions of dollars in subsidies each year, in favor of the government’s Direct Loan Program, through which families borrow directly from the government.

FFELP lenders have said that the Education Department’s untimely release of the student loan default rate data — taken from fiscal year 2007 — was purely political since the government has never released preliminary default rate data and has never broken down the data by the two programs. Industry analysts say the data reflects the differences in the two programs: FFELP lenders typically cater to more students from for-profit schools who tend to default at a higher rate than students in the Direct Loan Program.

Department of Education officials have said they released the data in response to a U.S. Freedom of Information Act request from The Wall Street Journal and inquiries from Congressional leaders.

“It’s unfortunate the rates are being released before there is an analysis of them,” said Brett Lief, president of the National Council of Higher Education Loan Programs, a trade group that represents FFELP lenders and federal loan guarantee agencies. “This is very serious stuff and I’m saddened that it has come out like this.”

No Cut-and-Dry Solution to the FFELP Dilemma

While the Consumer Bankers Association, which represents certain FFELP lenders, has sent Congress a 2,500-signature petition asking legislators to reject the president’s proposal to eliminate the FFEL program, industry observers don’t see the battle over FFELP ending quickly or simply.

The Congressional Budget Office has said eliminating the program would save the government nearly $100 billion over the next 10 years, which President Obama plans to redirect to the Federal Pell Grant program. This potential funding boost for Pell Grants, which are awarded to the nation’s neediest students, could make it harder for legislators who support FFELP to successfully argue to keep the program alive.

However, some legislators who oppose the FFEL program face strong opposition from their home-state guarantee agencies that work with FFELP lenders to service college loans for students in their state. Legislators may also have to battle student loan giant Sallie Mae, which has said that keeping certain elements of FFELP might actually make it possible for the government to draw additional Pell Grant funding from FFELP itself. Sallie Mae has also pointed out that its borrowers, who partake in default prevention programs through state loan-guarantee agencies, are 30 percent less likely to default than direct loan borrowers.

“It’s certainly possible Congress would eliminate the program,” said Terry Hartle, a senior vice president of the American Council of Education, a trade group representing colleges and universities. “But it’s equally possible — and perhaps more so — to wring more savings out of the [FFEL] program and put the savings into Pell.”

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House Dems Get Second Crack at Higher Education Appropriations Bill

Student Loan Girl — Wed, 25 Feb 2009 23:23:00 GMT

Just days after President Obama signed a $787 billion economic stimulus bill into law, House Democrats have reintroduced a $410 billion overdue appropriations measure that would finance dozens of federal agencies and programs, including many related to higher education, whose budgets went unapproved during the last session of Congress, reports The Chronicle of Higher Education (“Delayed Appropriations Bill Would Increase Pell Grant and Research Funds,” Feb. 24, 2009).

During the tail end of the Bush administration, democratic lawmakers chose to put the original appropriations bill on the back burner after President Bush threatened to veto any measure that would exceed his fiscal budget. Instead, legislators passed a “continuing resolution” to fund the budgetless organizations at fiscal 2008 levels through March 6, so that legislators could revisit the appropriations bill under a new administration.

Lawmakers, after being delayed by work on the stimulus bill, are finally taking a second look at the appropriations bill just days before the continuing resolution’s termination date and President Obama’s scheduled release of his fiscal year 2010 budget.

The proposed spending bill will “keep the government running and finish last year’s business,” said David Obey D-Wis., head of the House Appropriations Committee, as wells as complement the Obama administration’s economic recovery package.

While the proposed budget measure will provide expanded funding to a variety of agencies and programs, it currently offers few specific financing details. The Fund for the Improvement of Postsecondary Education could get $133.7 million to fund projects intended to model improvements to college education and accessibility, the Gear Up program could get $313.2 million to help financially needy middle and high school students prepare for college, and the government’s student financial aid programs could get a $19.2 billion boost.

The House Appropriations Committee bill would also expand research funding for the National Institutes of Health by $938 million, and provide an additional $347 million in funding to the Federal Pell Grant Program, drawing on the budget previously allocated for the underutilized, and Bush administration-supported, Academic Competitiveness and National Science and Mathematics Access to Retain Talent grant programs.

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