NASFAA's New Chief Is No Aid Expert

Shortly after being named the new president of the National Association of Student Financial Aid Administrators, Philip Day said in an interview that he was not interested in becoming a student aid expert.

"One of the questions I got in my interview is, "how long do you think it will take you to get up to level of technical speed?'" Day told The Chronicle of Higher Education. "I said, 'I hope never.' Because I think that's not what this institution needs now. What they need is somebody who can advocate and focus on issues at the 10-to 15,000-foot level."

Judging from a more recent interview that Day gave Higher Education Washington Inc., a publication owned and run by a top student loan industry lobbyist, NASFAA's new chief seems to be succeeding. As we noted yesterday, the interview shows that Day is not only ill-informed, but also, in spite of last year's revelations in the student loan "pay for play" scandal, NASFAA has not changed its stripes. The views that Day expresses on federal student loans in general, and the Direct Student Loan Program in particular, are confused and misleading, and reflect a strong bias in favor of the Federal Family Education Loan (FFEL) program.

Some of Day's comments are just flat out wrong. For example, when asked about the likelihood of colleges switching to Direct Lending as a result of the credit crunch, Day claims that Education Secretary Margaret Spellings has said that "the most she can do is double the size of the Direct Loan Program." What Spellings has actually said is that is that the Department of Education can immediately double its capacity and increase beyond that limit in fairly short order if necessary.

On the same subject, Day suggests that colleges may run into difficulties switching from FFEL to Direct Lending because making the transition is "not set up to be easy." On the contrary, with the advent of the Common Origination and Disbursement system, any school that participates in the Pell Grant program will find it fairly easy to originate Direct Loans and draw down federal funds from the Department of Education. Now don't get us wrong, there are probably ways that the Department can speed up the process for certifying a school for Direct Lending. But in reality, the process is not overly burdensome.

Other comments by Day are downright bizarre, and show that he does have a lot to learn. We've included a couple that we found particularly disturbing below (in bold and italics) with our responses.

Questioning why policymakers would encourage colleges to enter direct lending, Day asks, "With all the problems this country has with the level of its debt, why would they want to transfer a level of liablity and debt off of the private sector's books onto the public sector's books, at a level of $50 to $60 billion a year, and then over the lifetime of those loans, it could reach $500 billion?"

Even if you don't want to accept the finding of the Bush Administration's Office of Management and Budget and the Congressional Budget Office that brand new Direct Loans issued to new borrowers are cheaper for taxpayers than FFEL loans issued to new borrowers, Day's answer demonstrates a stunning lack of understanding of how the government accounts for its loan programs. Under FFEL program, the "liability" of the federal government is virtually the same as it is in under the Direct Loan program. The government currently provides FFEL lenders with a 97 percent guarantee against default losses, just 3 percentage points below Direct Loans, which effectively have a 100 percent guarantee. Liability for defaulted loans rests with the taxpayer in both loan programs, not on "the private sector's books."

Day warns that colleges that enter Direct Lending are at risk of exposing themselves to much greater government oversight and intervention. "The other factor that people will you about as to why people have hesitancy about moving from FFEL to Direct is that they don't trust the federal government," he says. "He who controls the purse strings, controls the programs...particularly with the increased emphasis on accountability and control." He goes on to say that if there is a substantial increase in volume in Direct Lending, the likelihood of Congress extending the No Child Left Behind law to colleges would increase significantly.

Really? Schools aren't entering the Direct Loan program, because they're scared of the government? So why are they participating in the Pell Grant program, the Supplemental Educational Opportunity Grant program, or the FFEL program for that matter?

The government has no more control over a college that participates in the Direct Loan program as compared to FFEL program or any other federal financial aid program. Colleges may be unhappy by some of the restrictions that the government places on them writ large, but few and far between are willing to sacrifice eligibility to receive all federal student aid dollars.

What Mr. Day doesn't seem to understand is that FFEL program is just as much a government program as Direct Lending. If the government officials were truly intent on imposing "a post-secondary version of NCLB" -- which seems like a straw man argument -- it could do so regardless of the loan program in which colleges participate.

Day may not want to be an expert on all of the intricacies and details of student aid policy. But he should at least study up a little so that he has a better idea of what he's talking about. Until then, it appears that he will accept any line that the loan industry and other die-hard opponents of direct lending throw his way.

The nation's financial aid administrators -- all of them, not just those at FFEL schools -- and the higher education community deserve better.