July 11, 2007

Bush Threatens Veto of Student Aid Bill

As the House of Representatives prepares to vote as soon as today on budget legislation that would take $19 billion from student loan providers and use most of it to increase the maximum Pell Grant and cut the interest rate on some loans in half, President Bush has threatened to veto the measure.

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A “Statement of Administration Policy” released by the White House late Tuesday said that if the legislation (H.R. 2669) was presented to the president “in its current form, his senior advisors would recommend that he veto the bill because it fails to target aid to the neediest students currently in college and creates new mandatory federal programs and policies that are poorly designed and would have significant long-term costs to the taxpayer.”

The White House statement cited several objections to the legislation, which the House Education and Labor Committee approved last month on a largely (but not entirely) party-line vote. Although the measure would cut into lender profits a little more deeply than President Bush himself proposed doing in his budget for the 2008 fiscal year, drawing criticism from some Republicans, the White House did not indicate any concerns about those cuts. Its statement instead objected to the fact that the legislation would:

• Put too much of the savings into cutting the interest rate in half over five years on some federally subsidized loans, rather than on need-based aid for students, as a parallel bill in the Senate (and the Bush budget) would. “This costly proposal only benefits students once they leave school, when they can already take advantage of flexible repayment options available under current law and reduce the effective interest rate they pay through the existing tax deduction for student loan interest,” the White House said.
• Create “a host of expensive new federal programs rather than ... restrain federal entitlement spending.” Among others, the bill would create a new grant program for students who are planning to be teachers, and a new program for institutions that serve large numbers of Hispanic, American Indian and other minority students.
• Set up a structure for auctioning off the rights to provide federal student loans that would “involve enormous implementation issues that threaten to disrupt services and loan availability to students.”
• “[A]ttempt to establish tuition price controls.” “While college affordability is a worthy goal, pricing of services like higher education is complicated, and government attempts to compare and ‘index’ prices can have unintended consequences. The administration does support efforts to improve transparency in this area and looks forward to working with Congress to help families make informed, data-driven decisions.”

Rep. George Miller (D-Calif.), who heads the House Education and Labor Committee and is chief sponsor of the bill, said in response to the veto threat: “It’s unfortunate that the President would let a veto stand between millions of students and the college financial aid they so urgently need. Several years ago, the President promised to increase student aid, and then he broke that promise over and over again. This year, Democrats made a commitment to helping students and families pay for college, and we are delivering on that commitment.”

The veto threat came as Miller and other Democratic leaders in the House released a new version of the bill, called a “manager’s amendment,” that would make mostly small changes to the legislation that the Education and Labor Committee passed last month.

Perhaps most significantly, the new version of the legislation would — while sustaining about $3 billion in cuts to subsidies for student loan guarantee agencies — change the federal payments to guarantors in ways that reward them more for preventing students from defaulting on loans and reduces the funds they receive when borrowers end up in default. The changes are likely both to satisfy critics who have complained that the current reward structure gives the agencies the wrong incentives and to minimize the guarantors’ opposition to the legislation.

Brett Lief, president of the National Council of Higher Education Loan Programs, which represents guarantee agencies, said his group was still disturbed by the level of proposed cuts to the guaranteed loan program, but favored key aspects of it, too.

The new version of the House bill also slightly moderates provisions that would crack down on colleges that increase their prices significantly. Rather than require colleges that increase their net price too much to put in place “cost containment strategies,” the legislation would now require institutions to report the “voluntary actions” they are taking to reduce their net tuition. That change is unlikely to win over private college officials who have complained about the cost containment provisions, but some college officials Tuesday described it as a step in the right direction.

— Doug Lederman

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