House Republicans Still Confused About Student Loans

The House of Representatives is expected to approve a bill today that would eliminate the Federal Family Education Loan (FFEL) program, expand the Direct Loan program, and put the resulting savings into student grant aid. But before a final vote is taken, the loan industry's champions in the House will make one last ditch effort to gut the student loan reform bill. They are offering an alternative proposal that would keep the FFEL program running on arbitrary subsidies easily manipulated by the student loan industry, and ironically, expand the role of the federal government in the FFEL program.

Reps. John Kline, the top Republican on the House Education and Labor Committee, and Brett Guthrie (R-KY) plan to offer a substitute amendment to the bill that would keep the FFEL program operating just as it is today, but extend to 2014 the Ensuring Continued Access to Student Loans Act (ECASLA) programs that Congress approved in 2008 to keep student loan providers afloat during the credit crunch. In the meantime, the amendment would create a commission, with heavy representation from the loan industry, to design and recommend to Congress a new "private sector model for [government-backed] student lending."

The ECASLA programs -- which include put options, asset-backed commercial paper conduits, and government loans to lenders, all with their own set of arbitrary fees and interest rates -- represent a massive new undertaking by the federal government to help private lenders make FFEL loans. This new undertaking is in addition to the regular federal subsidies and guarantees granted to FFEL lenders that have proved inefficient and wasteful.

The irony, of course, is that Rep. Kline claims to be against 100 percent direct lending because he sees it as a government takeover of... well... a government program. Yet, he favors extending a massive new role for the federal government in the government program that is FFEL. But wait, there's still more irony. Rep. Kline proudly states that, according to budget estimates, ECASLA "is earning money for the federal Treasury."

But the estimate to which he refers was not done according to the Congressional Budget Office's "market risk" analysis that Kline himself says "shows tens of billions of dollars in hidden costs" in a move to 100 percent direct lending. Why doesn't Kline have the same cost estimate standards for his loan proposals? Higher Ed Watch bets it's because the reported ECASLA savings arise predominantly when FFEL loans convert to direct loans as they are sold to the federal government, and a "market risk" analysis would find the same hidden costs "lurking" in his own proposal.

It's another confusing day indeed for House Republicans and FFEL program supporters.