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Washington Partner Perspectives For January 22, 2007

Today’s questions are answered by John Dean, a principal at the firm. Mr. Dean also serves as Chairman of Higher Education Washington, Inc.

The House passed H.R. 5, the College Student Relief Act by 356 to 71. The bill now goes to the Senate. How will the Senate address the bill?
Dean: Senate HELP Committee Chairman Kennedy has answered this question for us. On January 17th, Kennedy indicated he was re-introducing the Student Debt Relief Act and is planning to move the legislation in February. We view the January 25 HELP Committee hearing as the first step of this process. The Kennedy bill includes not only the interest rate cut passed by the House, but also legislation to cap borrower monthly payments at 15 percent of a borrower’s discretionary income and, of course, the Student Aid Reward Act, which Kennedy claims will generate $13 billion in additional need based student aid.

Will the Senate pass the Kennedy bill if it proves to be as he has described on his Web site?
Dean: A broader Kennedy student loan reform bill, which may also include additional provisions intended to regulate how FFEL loan providers market their loans, will face a far more difficult legislative environment than H.R. 5 did in the House. First, while the Bush administration has not yet spoken up about the Kennedy bill, because it hasn’t been introduced yet, we think they will. They have expressed skepticism about the Student Aid Reward Act, for example, and are likely to question a “solution” to the college cost issue that doesn’t include anything addressing rising college costs. We think that while Kennedy may be able to get his bill reported from the Senate HELP Committee, we currently question whether it could pass the Senate as written. We think some Democratic Senators in states that either rely primarily on the FFEL program or who have large employment bases of FFEL loan providers will not support a bill that attempts to severely curtail the FFEL program.

How does the higher education community look at the prospect of another large student loan bill?
Dean: Kennedy’s Student Debt Relief Act calls for a $5100 maximum Pell Grant. Its not clear how Kennedy would pay for that increase, which could cost $3 billion per year, but if the provision is in the bill, I expect higher education to be quite enthusiastic. They do not appear to be engaged on the student loan issues, but the Pell Grant increase is another matter.

So, if Kennedy focuses on student loans, what happens to the rest of the reauthorization of the Higher Education Act?
Dean: Frankly, that’s unclear. Former Chairman Enzi and Senator Kennedy cooperated last Congress on S. 1614, the fully bi-partisan bill to reauthorize the Higher Education Act. We had expected the two senators to work together again this year, but don’t know how Senator Enzi (R-WY) will react if Kennedy attempts to include a number of provisions in the bill that Enzi opposes.