House Committee on Education and Labor
U.S. House of Representatives

Republicans
Rep. Howard P. “Buck” McKeon
Ranking Member

Fiscally responsible reforms for students, workers and retirees.

Photos

Fact Sheet

FOR IMMEDIATE RELEASE
September 6, 2007

Conference Agreement on H.R. 2669: Democrats Choose Big Government Entitlements Over Pell Grants for Low-Income Students

On September 5, 2007, negotiators from the House and Senate convened the first and only meeting of the conference committee on H.R. 2669, the College Cost Reduction Act.  That bill, purported by Democrats to be a “student aid” bill, proposes billions in new entitlement spending while rejecting key Republican proposals to make college more affordable.  The Democrat conference report: 

Abuses Reconciliation Process and Achieves Minimal Deficit Reduction – The conference agreement only produces $750 million for deficit reduction, even though the bill cuts $22.3 billion from the student loan program.  Last year, President Bush signed into law a Republican reconciliation measure that achieved a full $12 billion in deficit reduction while increasing benefits for students. 

Paralyzes the FFEL Program – The conference agreement would cut $22.3 billion from the Federal Family Education Loan (FFEL) program.  The Administration, which characterized its own cuts as “aggressive” in its FY 2008 budget, only proposed $15.7 billion worth of cuts according to CBO.  

Shortchanges Pell Grants – The conference agreement spends only about half of the savings on increases to the Pell Grant program ($11.4 billion).  It also fails to provide Pell Grants for students attending college on a year-round basis, creating a particular hardship for nontraditional students.  This, despite the fact that such a proposal was included in the House-passed bill with Republican support. 

Creates New Entitlement Programs – The conference agreement spends an additional $1.17 billion on new entitlement programs, primarily directed at institutions.

        Upward Bound     $207 million
        College Access     $132 million
        Teach Act             $325 million
        MSIs                     $510 million

Does Nothing for College Affordability – The conference agreement does not contain any language to address the issue of rising college costs.  Instead of holding colleges and universities accountable for how they spend taxpayer dollars, the agreement does the exact opposite and throws additional federal funds at institutions while denying new information to consumers.  

Implements Complicated Auction Proposal – The conference agreement requires the Department of Education to conduct 50 separate auctions – one in every state (the language is silent about whether the territories can participate) – to determine which lenders parents would be permitted to borrow from in the PLUS loan program.  Two lenders would win in each state, with parents denied the choice of any other provider.  This is not a market mechanism as the only item up for bid is the amount of lender subsidy.

Funds Graduates, Not Students – The conference agreement spends $7.1 billion on college graduates by temporarily phasing down interest rates from 6.8% to 3.4% and creating new complex loan repayment schemes that relieve borrowers of their obligation to repay.  When the interest rate reaches 3.4% - half the current rate, as touted by Democrats – a college freshman will only save approximately $6.42 a month on their loan.  In just 4 years, if Democrats want to extend this costly benefit, it will put taxpayers on the hook for an additional $20 - $30 BILLION. 

Creates Budget Gimmicks – The conference agreement provides false promises to borrowers, institutions, and taxpayers.  The interest rate cut is only in place for four years before the rate jumps back up to its current level.  This is because the cost to make the cut permanent would skyrocket over the next 10 years.  In fact, it could cost taxpayers an additional $20 - $30 billion to maintain the interest rate cut.  In addition, there are 4 new mandatory programs that are slated to end after 5 years.  However, as everyone in Washington knows, once created, mandatory programs never die. 

Creates New Categories of MSIs – The conference agreement creates two new categories of Minority-Serving Institutions that will surely lead to new discretionary spending programs when the Higher Education Act is reauthorized.  The new categories are for Predominately Black Institutions and Asian American and Native American Pacific Islander-Serving Institutions.  

Unequal and Unnecessary Repayment Programs – The Democrat agreement creates a complex new program to forgive the loans of borrowers working for 10 years in the government, other public sector fields or at a nonprofit organization.  In order to receive this benefit, the borrower must be in the Direct Loan program.  The benefit is not available to similarly situated borrowers in the FFEL program.  This new program also deliberately excludes teachers at private schools, while including other educators. 

Complicates Special Allowance Payments – The conference agreement contains a differential between non-profit lenders and for-profit lenders on special allowance that will further complicate an already complicated system.  Instead, subsidies should be based on what is necessary to ensure loans are available to eligible students, not the nature of the financial institution holding the loan.

Unworkable Effective Dates – The conference agreement imposes an impossible timeline for program participants to implement complex changes that impact student financial assistance.  It assumes that technological and service changes would take effect beginning October 1, 2007, mere weeks from the time the agreement was reached.