Supporters of the Federal Family Education Loan program are maneuvering to save it as Congress moves forward with budget resolutions that would set spending goals based on President Obama's proposed fiscal 2010 budget, which calls for FFEL's elimination.
On Tuesday, a bipartisan group of 18 state treasurers wrote to Obama arguing that since the program's inception in 1965 it has "helped millions of students attend college" and "is a good example of how the federal government can work with states, nonprofit organizations, and the private sector to extend the reach of higher education."
Obama has said that subsidies in the FFEL program needlessly cost taxpayers billions of dollars and that the program has subjected students to uncertainty because of the tumult in the financial markets.
But the Treasurers argue that doing away with the FFEL program now in favor of originating all federally guaranteed student loans through the Education Department "would imperil the success of the government's efforts" at boosting access to higher education. It would, they said, limit student lending choices and lead to the unemployment of "proven, knowledgeable administrators at the state and local levels at a time when states struggle to maintain employment in all sectors."
Further, it would be difficult for an enhanced direct lending program to quickly "match the quality customer service provided by hundreds of local lenders and state agencies," said the treasurers' letter, which was signed by Jerry Burnett of Arkansas and Tim Cahill of Massachusetts, among others.
"This shows the strong support that the state agency and nonprofit lenders have at the state and local level," said Peter Warren, president of the Education Finance Council, which represents state-level nonprofit lenders that sell municipal debt backed by their student loans.
Meanwhile, the Senate is expected to vote today or tomorrow on a FFEL-related amendment introduced by Sen. Lamar Alexander, R-Tenn., and cosponsored by at least eight other Republican senators that would essentially prohibit lawmakers from zeroing out the program as part of the budget process.
Specifically, the amendment would require that lawmakers maintain "a competitive student loan program that provides students and institutions of higher education with a comprehensive choice of loan products and services."
Alexander's amendment comes as the Senate is preparing to vote on its fiscal 2010 budget resolution. FFEL supporters are hailing the Senate bill because, unlike its counterpart in the House, it does not include so-called reconciliation instructions that would require the education committees in Congress to undertake deficit cutting measures that could lead to the elimination of FFEL.
If the Senate approves the amendment, it may influence the final congressional budget resolution, which is expected to be approved after April 20 when Congress returns from its recess. Even if the final budget resolution adopts the House reconciliation instructions, passage of the Alexander amendment may make it politically more difficult for lawmakers to kill FFEL, supporters of the program said.
The budget resolutions in both houses of Congress include technical language to establish "deficit-neutral reserve funds" to boost access and affordability to higher education. Savings from cuts to any programs, including the elimination of FFEL, could flow to those funds.
But under the language of the Alexander amendment, "policymakers would be limited in their use of the reserve fund to program modifications that included continuations of a private sector loan program in competition with the direct loans," said John Dean, special counsel for the Consumer Bankers Association. Last week, the CBA sent lawmakers a petition asking them to reject calls for the elimination of FFEL. As of yesterday, it had over 5,100 signatures.
Though it was not clear if Alexander has the support of any Senate Democrats, at least five have written to Obama, administration officials, or other senators in the past few weeks expressing support for the FFEL program.
In a March 18 letter to the two ranking members on the Senate Budget Committee, Arkansas Sen. Blanche Lincoln said that while she agrees with the Obama administration that careful review of the financial aid system is warranted, the proposal to totally eliminate FFEL program "causes great concern for my state," where 98% of all federal student loans are FFEL loans. "Arkansas schools believe [FFEL] will best serve the needs of our students," she added.
"On behalf of Arkansas students, parents, schools, and the student loan community, I respectfully ask that you not include any provision in your Fiscal Year 2010 Budget Resolution that assumes or attempts to effectuate the elimination of the guaranteed student loan program," she told the lawmakers.
In a March 12 letter to Obama, Nebraska Sen. Ben Nelson warned that eliminating FFEL "would be a serious mistake, one which would be atypical of your commitment to bridging difference between policymakers."
Meanwhile, Alaska Sen. Mark Begich wrote Friday to Peter Orszag, director of the Office of Management and Budget, arguing that if FFEL is eliminated, Alaska student loan officials predict students there would pay 3% higher loan rates and that loan volume may drop by 50%.
"At a time when millions of young Americans are struggling to pay for advanced education to improve their lifetime opportunities, eliminating this vital source of financial assistance is misguided," he wrote.