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The Politics of Pell Grants


My email alerts for federal student financial aid have been bouncing all over the place recently announcing either the worst catastrophe ever to befall student aid or the most promising future yet for Pell Grants.   The federal student loan program has become a hostage to — of all things — health care reform!  And Pell Grants will either get a big infusion or major cutback depending upon the outcome of the Congressional high stakes horse trading on health care and the role of banks in the student loan system.  (See a good summary of all of this in today’s

Do you have a scorecard?  You will need one to keep track of this…. Here are the players:

cong score 2

President Obama’s proposal for reform of the student loan system would end loan programs provided by private banks and make all federally guaranteed student loans go through the U.S. Department of Education (USDE).  This is called “direct lending.”  The idea is that direct lending will save the government billions of dollars,  since the banks will not be taking their fees out of the transactions.  Moreover, in the President’s plan, those billions of dollars saved can then go into improving Pell Grants.

The banks hate this idea.  Sallie Mae, the largest student lender, is leading the industry opposition to this proposal.

Secretary of Education Arne Duncan wrote an op-ed in the Washington Post explaining why direct lending is prefereable to the old system of banks (Sallie Mae, et al.) brokering the loans.

Senator Lamar Alexander, a former Secretary of Education, explains why Republicans think direct lending is a bad idea in a related article in the Washington Post.

All Republican Senators and some Democratic Senators oppose direct lending.  They want banks to continue to serve as loan originators.  The Democrats in opposition to direct lending are those from states where student lending is a big business, like Virginia where Sallie Mae is headquartered (both Senators Mark Warner and Jim Webb oppose direct lending) and Nebraska (Senator Ben Nelson) which is home to another bit lender, NelNet.

Because the student loan reform bill needs 60 Senate votes to pass, and because the opposition of at least six Democrats in the Senate makes this impossible, supporters of student loan reform have now proposed to add the student loan reform package to the health care reform package in a process known as “budget reconciliation.” EEEK!  Doesn’t this make things worse?

The brainiacs who plot legislative strategy for a living claim the answer is “NO” because “reconciliation” has different rules from regular legislation, which is the reason why they’ve already committed to doing health care reform through reconciliation.   Simply put, the reconciliation process only requires a simple majority of Senators to vote in favor — 51 votes — whereas regular legislation requires 60 votes; moreover, there is no filibuster allowed in the reconciliation process, filibusters being a big problem in the Senate (and you would be excused for thinking that filibusters went out with hoop skirts and buggy whips, but folks, this is the U.S. Senate we’re talking about here!)

Now, why mix student loan reform into the troubled stew of health care reform and mash it all into the reconciliation bill like some over-ripe mess of haggis?  Reconciliation can only be done once a year, so this is the only chance Congress has to win passage of two complicated and controversial pieces of reform legislation, both health care reform and student loan reform.

Will it work?  Here’s where the complexities become even more worrisome.  In addition to the intense bank lobbying against the student loan bill and the defection of some Democrats, the Congressional Budget Office is now saying that the actual amount of government savings through ending bank fees is much less than the $87 million the Obama administration first projected, and this change in the projected savings could undermine the proposed increases in Pell Grants — and, in fact, if some lawmakers get their way, the new CBO figures would lead to a reduction in Pell Grants, rather than increases.  This would have a hugely negative impact on millions of college students including many Trinity students who rely on Pell Grants.

Meanwhile, opponents of health care reform continue their intense lobbying to block the use of reconciliation to pass the health care reform proposal, and members of the House who are in favor of student loan reform are a bit more squeamish on the health care proposal; some have difficulty with the idea that they’d have to vote for both proposals in one package.   House Speaker Nancy Pelosi is confident that the House will pass this reconciliation bill, but Minority Leader John Boehner says she doesn’t have the votes.

So, who wins, who loses in this mess?

The game is not over, so we don’t have a final tally on the scorecard.  But here’s what I do know right now:  students and families — and, by the way, they are exactly the same human beings who are the consumers of health care — cannot continue to be pawns in political power games.   Health insurance companies should not be holding Pell Grant improvements hostage, nor should Sallie Mae’s opposition to direct lending be blocking much needed relief for families who cannot afford health insurance.   The introduction of so many competing interests into one massive Congressional process leaves even the political junkies among us breathless and wondering if our American political process is truly broken.

(Note to readers:  Trinity already does direct lending with USDE and our students have very few private bank loans. But Trinity students will still be severely affected by any negative change in Pell Grants since more than 60% of our students have Pell Grants worth nearly $4 million.)

See Role of the Parliamentarian

See Miller Harkin Act to Save Direct Lending

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3 Responses to The Politics of Pell Grants

  1. maxolip says:


    This is a really good read for me, Must admit that you are one of the best bloggers I ever saw.Thanks for posting this informative article.

  2. jake says:

    to be honest, i think obama and our goverment should do more than this

  3. I think President Obama’s proposal for reform of the student loan system is a positive move. For years, Private Banks and Sallie Mae have been taking advantage of many students who unfortunately have defaulted on their loans. The amount of interest private banking institutes charge defaulting students is terrible, let alone the charges and profits made from underprivileged students defaulting debts. Coupled the amount of money they will lose from the transactions, it does not surprise me that they are opposing this reform proposal.
    Obama is taking a sides with students, and it’s about time action was put forward to assist students in obtaining properly managed finance which works in the best interests of the students. Obviously, change brings with it many oppositions, especially from organizations that will lose profit to change. However, at the end of the day, it is a fact that the cost of education is rising year after year and if this change does not take place, fewer students will feel encouraged to enroll in degree programs due to the resulting debt that they will incur.
    The Pell grant has been the major driving force behind the education of many financially needy students, and if this proposal is implemented, it is going to provide even more opportunities for student to obtain the free money they deserve to educate themselves. In addition, if the government administer all the federal student loan programs, fewer students will default on repayments because I’m sure procedures will be put into place for students to properly manage their debts.

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Patricia A. McGuire, President, Trinity, 125 Michigan Ave. NE, Washington, DC 20017
Phone: 202.884.9050   Email: