September 7, 2007
Congress Approves Student Loan Bill
By DIANA JEAN SCHEMO, NY Times

WASHINGTON, Sept. 7 — Congress gave final approval to a broad overhaul of federal student loan programs today, sharply cutting subsidies to lenders and increasing grants to needy students.

In quick succession, both the House and Senate approved the changes, allowing Democrats to say they had made good on one of their campaign promises last year to ease the strain of rising college costs. In the Senate, the bill passed 79 to 12, reflecting broad bipartisan support. In the House it passed in a voice vote, after which a 292-to-97 roll-call vote was taken.

The Education Secretary, Margaret Spellings, said that she was recommending that President Bush sign the bill because it “answered the president’s call to significantly increase funding” for Pell grants for low-income students. The administration had issued a veto threat against an earlier House version of the legislation.

Republicans in the House expressed disappointment at the administration’s change of course, arguing that the cuts in lender subsidies went too far.

The legislation, hammered out in a House-Senate conference committee this week, alters many of the ground rules for financing higher education, offering forgiveness on student loans to graduates who work for 10 years or more in public service professions like teaching, firefighting and the police, and limiting monthly payments on federally backed loans to 15 percent of the borrower’s discretionary income. It also raises the maximum Pell grant, the basic federal grant for middle- and low-income students, to $5,400 from its current level of $4,310 over the next five years. To pay for the changes it slashed federal subsidies to lenders by roughly $20 billion over the same time.

Democrats likened the legislation to the G.I. bill that sent millions of veterans to vocational training and college after World War II. “Today we’ll need a similar bold new commitment to enable the current generation of Americans to rise to the global challenges we face,” said Senator Edward M. Kennedy, the Massachusetts Democrat who is chairman of the education committee. “Today will help millions of students achieve the American dream.”

Representative George Miller of California, the Democratic chairman of the House education committee, said that last year, Republicans took nearly $12 billion from student Pell grants. “We took $11.39 billion and put it back into Pell grants,” Mr. Miller said. “That’s the difference that an election makes.”

Campaign trail promises aside, the changes reflect the steep and sudden decline in the fortunes of the $85 billion student loan industry, after years of generous subsidies and support in Congress. Investigations by Congress and the New York attorney general revealed a series of potential conflicts of interest as lenders had provided free travel, gifts, and financial incentives to colleges and college officials in the hope they would steer student borrowers their way.

Lenders , who had campaigned hard against the subsidy cuts, warned they would compromise the federal loan program, forcing some of them out of business, reducing competition and, inevitably, services to students.

Kevin Bruns, executive director of America’s Student Loan Providers, said the law “punishes the industry,” while Joe Belew, president of the Consumer Bankers Association, said it would “come to be viewed as irresponsible legislation that undermined rather than expanded college opportunity.”

Mr. Kennedy rejected the complaints, saying, “The reality is that our bill restores the balance to this grossly unfair student loan system by directing funds to the students, not to the banks.”

House Republicans, some of whom had received generous campaign contributions from lenders in the past, derided parts of the legislation as a form of socialism — particularly the forgiveness of loans for certain professions.

Representative John Boehner of Ohio, the Republican leader and former chairman of the education committee, predicted the subsidy cuts “will cripple the private sector loan program,” which he credited with bringing “lots of innovation” to students and parents.

Howard P. McKeon of California, the ranking Republican on the House education committee, said the law created new entitlement programs, like forgiveness of student loans, that would ultimately drive up taxes. “This legislation does nothing at all to reduce the cost of college,” he said.

But advocates for students said lenders had little credibility in the public mind.

“It’s an industry where we’ve seen exceptional and enormous profits at the expense of taxpayers,” said Luke Swarthout, a specialist in higher education at the U.S. Public Interest Research Group. “I don’t know how we can treat banks as credible arbiters of what appropriate subsidies should be.”

With the law, Congress is reducing federal subsidies to lenders by roughly $20 billion and gradually halving the interest rate on need-based student loans over the next four years. Some $11.4 billion of that money will go toward stepping up Pell grants.

For the first time, the government will now auction off the right to make federally-backed educational loans to parents in each state, instead of setting the rate from Washington. The two lowest bidders will win the right to make subsidized college loans to parents.

How They Voted

September 6, 2007
Student Loan Bill
By JONATHAN D. GLATER, NYTIMES

House and Senate negotiators agreed on legislation that would halve interest rates on need-based federal student loans over the next four years. Democrats described the legislation as costless to taxpayers, saying the rate cuts would be offset by a reduction of nearly $21 billion in subsidies paid by the government to lenders in the federal loan program. The bill would also raise the maximum Pell grant to needy students to $5,400 over the next five years from $4,050. Lawmakers could vote on the final version of the bill as early as today.

September 5, 2007
New Ties Found to Link Lenders and Colleges
By JONATHAN D. GLATER, NYTIMES

A Congressional report released yesterday found new evidence of questionable conduct, involving gifts and donations to build business, in the ties between colleges and student loan companies.

The report describes e-mail messages and other internal documents from lenders. In them, lenders discuss requests from college officials for donations to help pay for fund-raising golf matches, student activity fairs and intramural sports.

The documents also suggest that lenders viewed such gifts and payments as part of an effort for financial aid offices to steer students their way.

The report, released by Senator Edward M. Kennedy, the Massachusetts Democrat who is chairman of the education committee, was issued as lawmakers consider bills to reduce government subsidies to lenders in the federal student loan program.

According to the report, Citizens Bank received a request in 2004 from Sacred Heart University in Fairfield, Conn., for $2,500 to sponsor a dinner for at least the second time, according to a bank e-mail message.

“Sacred Heart is a $6 million dollar school, and this will allow us to maintain our preferred status as well as grow our volume,” the message said in referring to how much money Sacred Heart students borrowed.

Freed-Hardeman University in Henderson, Tenn., requested funds from SunTrust Bank to provide $5,000 to support its intramural sports program, according to a SunTrust e-mail message. Another Citizens Bank e-mail message describes a request by Marywood University in Scranton, Pa., to sponsor its 2004 student services fair.

Morehouse College in Atlanta requested $3,000 to sponsor tables at a fund-raiser, a Citizens Bank message said. And Baptist Bible College and Seminary in Clarks Summit, Pa., asked Citizens to donate to a golf-a-thon.

“I’m looking at this as an opportunity to do more business with this school,” a Citizens employee wrote, wanting to give $100.

“The findings of the report underscore the urgent need for reform of the student loan system,” Mr. Kennedy said in a statement. Legislation in Congress would ban gifts to colleges and employees in an effort to gain student loan volume.

The report is the latest result of government investigations into student lending. The report also finds cases in which lenders paid colleges based on loan volume and provided services — including staffing — to financial aid offices.

Officials at several colleges in the report emphasized that financial aid offices did not typically raise money and that any sponsorships did not lead to preferential treatment of lenders.

“The Office of Student Financial Assistance is not involved in soliciting donations on behalf of the University,” Funda Alp, director of communications at Sacred Heart, wrote in an e-mail message responding to questions. “In fact, the office is not necessarily aware of donations to the university by lenders and would not consider such donations to be inducements.”

Ken Knelly, executive director of communications at Baptist Bible College and Seminary, said financial aid officials were barred from soliciting money for events under policies adopted this year. Mr. Knelly said the person who might have requested the golf-a-thon support was no longer at the college.

Jud Davis, director of marketing and university relations at Freed-Hardeman, said the development office handled fund-raising, separate from financial aid. The request for intramural sponsorship was from the financial aid office, he said, because a lender had supported it in the past.

Mr. Davis confirmed that the institution had requested that lenders sponsor certain programs and events, but added that many other companies were solicited, too.

When asked about the report, Hugh Suhr, a spokesman for SunTrust, wrote in an e-mail message, “We have been cooperating fully throughout this process and we are committed to help make the student lending process as transparent and fair as possible.”

A statement by Citizens Bank said it had discontinued the practice criticized in the report and adopted a new code of conduct.

At J. P. Morgan Chase, which the report said had given away T-shirts and lanyards to colleges, a spokesman said the bank no longer gave such gifts.

“We have discontinued all tchotchkes to universities when we signed on to New York’s code of conduct,” a spokesman for the bank, Tom Kelly, said.

Many colleges have signed the code of conduct developed this year by the New York attorney general, Andrew M. Cuomo, on ties between lenders and colleges.

The New Jersey attorney general, Anne Milgram, distributed a code of conduct yesterday that her office developed. Ms. Milgram is asking state colleges and universities to adopt the code voluntarily.

House OKs bill that cuts student loan interest rates
USAToday.com, Updated 1/17/2007 10:06 PM ET

WASHINGTON (AP) — The Democratic-controlled House voted overwhelmingly to cut interest rates on need-based student loans Wednesday, steadily whittling its list of early legislative priorities.
The legislation, passed 356-71, would slice rates on the subsidized loans from 6.8% to 3.4% in stages over five years at a cost to taxpayers of $6 billion. About 5.5 million students receive the loans each year.

The Bush administration opposes the bill, and Senate Democrats plan to bring up a more comprehensive bill that could complicate its prospects.

Though clearly popular, the legislation sparked a debate over where to set the nation's education priorities — helping college graduates pay off their debts or expanding federal grants for low-income students.

Democrats conceded that Congress needs to do more to make college more affordable. But they said reducing student loan rates was a significant step toward tuition relief.

"Many young people find themselves where I was when I was at age 18, wondering what they will do with their lives," said Rep. Linda Sanchez, D-Calif., a daughter of immigrants who is still paying off her student loans. "To those students, especially those whose parents didn't go to college, the prospect of student loan debt is frightening."

The House bill aims to reduce the $6 billion cost by reducing the government's guaranteed return to lenders that make student loans, trimming the amount the government pays for defaulted loans and requiring banks to pay more in fees. Lending institutions opposed the bill.

"A strategy of raiding a financial aid program to fund modest proposals is inadequate to the challenge," said Kevin Bruns, executive director of the America's Student Loan Providers, which represents leading lenders.

Though the legislation matched the Democrats' pledge to pass a student loan measure in the first 100 hours of the new Congress, it fell short of their broader goal of lowering interest rates for parents who take out college loans for their children. During the 2006 congressional campaigns, Democrats also said they wanted to increase the maximum Pell grant award from $4,050 to $5,100. Pell grants go only to the neediest students and do not have to be paid back.

"We want to increase the Pell grant," said Rep. George Miller, D-Calif., chairman of the Education and Labor Committee. "We hope to be able to enlarge the tax deductions for parents paying for tuition and the cost of college beyond that."

Republicans argued that Democrats had chosen a politically expedient way to make good on a campaign promise instead of finding ways to increase federal college grants to help the poor meet rising college tuition.

"It is a whoop-de-do bill," said Rep. Rob Bishop, R-Utah. "But, to be honest, what it does for my kids in college is nothing. What it does for the friends of my kids in college is nothing. What it does for the students I taught in high school and are still in college is basically nothing when it could have done so much more." Still, 124 Republicans voted for the bill.

New Standards for Universities and Lenders' Marketing Practices Are Proposed To Stop Student Loan Scandal

Danny Schechter on the Student Loan Scandal

Compare Your Aid Awards

Student Loans 101