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Washington Partner Perspectives For February 12, 2007

Today’s questions are answered by John Dean, a principal of the firm.

Dean served as an associate counsel to the Committee on Education and Labor in the 1980’s and has represented financial institutions and others involved in the Federal student aid programs since leaving Capitol Hill. Dean also serves as the chairman of Higher Education Washington, Inc. and is a practicing attorney.

President Bush’s FY08 budget, sent to Congress last week, included more than $15 billion in new budget cuts for student loans. How did Federal Family Education Loan program participants react?

Dean:

In a word, negatively.

The lenders and guarantors in the FFEL program were taken by surprise. They were under the impression that the Bush administration did not want to expand the Direct Loan program, which is something likely to happen if these proposals are enacted. The cuts would greatly undermine the ability of FFEL to compete with the Direct Loan program. Most likely the cuts would result in the elimination of lender-paid borrower benefits and new investments in technology and customer service.

I expect many lenders to review their participation in the program. They are asking, “Does the federal government really want us here?”

Why did Bush propose these cuts?

Dean:

You’d have to ask him. Secretary Spellings said the Department believes lender return is higher than necessary. That’s the official explanation. Our view is that the administration wanted to one-up the Democrats by proposing a larger maximum Pell grant than the $4310 recently proposed by House Democrats. Given that, the President is also promising to balance the budget by 2012, they apparently concluded that taking the money out of FFEL was the best way to pay for the Pell grant increase without increasing the deficit.

Will Congress enact these budget cuts?

Dean:

I believe some in Congress—including some Democrats who support the FFEL program—are realizing that the Bush proposals ironically complement a series of student loan proposals now pending before Congress intended to revive the largely moribund Direct Loan program. These include the Student Aid Reward Act, which uses estimated budget savings derived from substituting Direct Loans for FFEL loans to pay schools to quit the FFEL program, and legislation to cut the Direct Loan origination fees and otherwise promote that program while handicapping FFEL.

I think in the last analysis, there will be growing awareness that cutting the FFEL program hurts the program—and the students that depend on it.

Where are schools on the budget cuts?

Dean:

First, it should be noted that the schools are supportive of the increase in the maximum Pell grant that is proposed in the budget. They have been largely silent about using FFEL budget cuts to pay for it. The higher education community, however, has flatly rejected another Bush budget proposal—eliminating the Supplemental Educational Opportunity Act (SEOG) program, the Federal Perkins Loan program, and the Leveraging Educational Partnerships program.

Thus, I would say that the schools are skeptical about the budget even though they like the Pell grant proposal. Some of them see it as a “robbing Peter to pay Paul” budget, with the three student aid programs I just mentioned as the Peter.

Mr. Dean may be reached at jdean@wpllc.net or 202.289.3900.


Washington Partners, LLC is a full service government affairs and public relations consulting firm that has built a reputation for producing results. The partners - long-term insiders in education policy - came together in 2002 to form Washington Partners, LLC. The firm boasts a staff of strategic and innovative thinkers providing a wide array of services that are customized to meet clients' needs. By consistently exceeding client goals and expectations, the firm's client list continues to grow. The firm's website may be found at: www.wpllc.net.

"Partner Perspectives" is produced weekly by Higher Education Washington, Inc. and is available on both the Washington Partners, LLC website and under "Opinions and Interviews" in the HEWI Quad located at www.hewiquad.net. Opinions expressed in "Partner Perspectives" are those of the person interviewed and not those of Washington Partners, LLC, its clients, or of Higher Education Washington or the HEWI Quad.

"Partner Perspectives" may be reprinted upon request made to Higher Education Washington, Inc. or Washington Partners, LLC.