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Can House Republicans Come to Terms with Direct Lending?

Published:  January 20, 2011

Last fall, the U.S. Department of Education accomplished a tremendous feat. Despite dire warnings from the student loan industry and its allies on Capitol Hill about the risks of moving thousands of colleges out of the Federal Family Education Loan (FFEL) program and into direct lending, the Education Department pulled off the transition with barely a hitch.

The Department’s impressive performance has received widespread praise -- even from some unlikely sources. Financial aid administrators who were outspoken in their opposition to President Obama’s plan to eliminate the FFEL program now admit that the transition went more smoothly than they ever expected. “So far, so good,” long-time FFEL supporter Joseph Russo of the University of Notre Dame told Inside Higher Ed in late October. And even some industry lobbyists who were on the frontline in the battle over student loan reform have tipped their hat to the Department, however grudgingly. “They’ve done a good job,” John Dean, counsel to the Consumer Bankers Association, was quoted as saying in the same article. “"I'm not aware of a single student whose educational plan was disrupted because of the transition.... [Department officials] should be proud of what they did."

But don’t expect the new leaders of the House Committee on Education and the Workforce to hold hearings heralding the Education Department’s success any time soon. Judging from recent comments that the new chairwoman of the panel’s higher education subcommittee made during an interview with The Chronicle of Higher Education earlier this month, they have not put last year’s battle behind them and may be spoiling for a fight.

Asked by the Chronicle about the student loan reform legislation, Rep. Virginia Foxx, the North Carolina Republican, said “that the bill ‘eliminated choice, competition, and innovations from student lending,’ and promised hearings aimed at making ‘improvements to a very flawed law,’” the newspaper reported. She did not, however, say what kind of changes she had in mind.

Ten days after the Chronicle article was published, the folks at Inside Higher Ed published their own interview with Foxx in which she appeared to back away from her earlier comments. Asked whether House Republicans aimed to repeal the student loan reform bill and restore the FFEL program, she said:

“There will be many opportunities in the coming months to look closely at the federal student loan programs. I expect to hold hearings to gain additional insight on how student loan programs are performing and if recent changes are proving to be effective or ineffective.  At this point, I don’t know that a repeal would be a top priority.”

Was this a true about-face? Or had Foxx simply become more politically savvy and tempered her tone?

Or perhaps her party’s leaders, who came to power on the promise of restoring fiscal discipline in Washington, took her aside and told her the truth: No matter how much Congressional Republicans may want it; there's no turning back the clock. The FFEL program is not coming back.

At a time when House Republican leaders are scrambling to live up to their promise to slash $100 billion in non-defense discretionary spending from the federal budget, it is absolutely inconceivable that they would think for even a minute about restoring tens of billions of dollars in subsidies to banks and lenders to perform a job that the government is already doing well -- delivering federal loans to all students who seek them without delay or disruptions. We can't imagine any policy justification they could offer for promoting such wastefulness.

Still, it is clear that the education committee’s leaders (and many House Republicans in general) are not ready to turn the page. That means that here will probably be some pretty contentious hearings ahead. While it’s appropriate for the committee to hold the Education Department’s feet to the fire to ensure that the Direct Loan program runs as effectively and efficiently as possible, we expect that there will be a lot of political grandstanding as well.

Because the last thing that House Republican leaders will ever want to admit is that they’ve been wrong all these years in their rigid ideological stance against direct lending. After all, as the Education Department demonstrated so ably this fall, sometimes the government does do things right.

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