House races loom large in student-loan debate

Rep. John Boehner (R-Ohio), chairman of the House Education Committee, has flipped his position on key provisions in the Higher Education Act, critics say, to help House Republicans skirt a potentially damaging debate in the 2006 campaign. At issue is a class of controversial student loans that, Democrats say, amount to a corporate subsidy. A growing chorus of Republicans as well says the loans should be ended.

Rep. John Boehner (R-Ohio), chairman of the House Education Committee, has flipped his position on key provisions in the Higher Education Act, critics say, to help House Republicans skirt a potentially damaging debate in the 2006 campaign.

At issue is a class of controversial student loans that, Democrats say, amount to a corporate subsidy. A growing chorus of Republicans as well says the loans should be ended.

The loans are guaranteed by the federal government to bring lenders, including for-profit firms such as Sallie Mae and a slew of nonprofit groups, a 9.5 percent return on their investment.

The federal government sought, in 1993, to put an end to the 9.5 percent loans. But lenders found three loopholes to get around the ban. Two of those loopholes have been closed temporarily. The third, known as “recycling,” has yet to be addressed.

While Democrats have long decried the practice of recycling — which entails taking repayments from earlier student loans and using that money to issue new loans — Republicans have been more reticent to intervene.

Supporters of recycling say that it enables lenders to help more students go to college for less money. Opponents say it simply permits those lenders to circumvent the 1993 law.

As recently as late last month, Boehner opposed efforts to eliminate the recycling loophole. In a June 24 vote on an amendment introduced by Rep. Christopher Van Hollen (D-Md.) that would have put an end to recycling, Boehner joined 174 Republicans to oppose it.

But in the weeks after the Van Hollen measure passed, 224-178, Boehner appears to have changed his mind. On Friday, the chairman announced that he supports incorporating a provision eliminating the 9.5 percent provision for recycled loans in the Higher Education Act.

“We haven’t seen the language yet,” a House Democratic aide said, “but they’ve verbally said that they’re going to stop recycling, so we expect them to do that.”

Jim Stipcich, the chairman of the Education Finance Council, a lobbying shop for nonprofit providers of student loans, voiced frustration with Boehner.

“All I can say is I’m very surprised that the chairman has taken this position and frankly very disappointed,” Stipcich said in a telephone interview.

Democrats noted that 42 Republicans crossed the aisle to support the Van Hollen measure, including several in potentially competitive races such as Reps. Christopher Shays, Rob Simmons and Nancy Johnson, all from Connecticut, Rick Renzi of Arizona and Geoff Davis of Kentucky. These Democrats were quick to call recycling “bad politics.” A representative from the student-loan industry said Boehner, considered a potential Speaker, wants the student-loan issue off the table in the upcoming campaign cycle.

Boehner’s chief of staff, Dave Schnittger, dismissed suggestions that his boss had switched positions, saying the chairman was simply fulfilling an earlier promise. A GOP spokesman for the House Education Committee added that the chairman had opposed the Van Hollen measure simply because it was an amendment to the labor and health and human services appropriations bill. The spokesman added that the proper place for addressing recycled loans was the Higher Education Act.

The spokesman also pointed out that President Bush first called on Congress to address the 9.5 percent loans in his 2005 budget request, issued in early 2004. The president, like Boehner, issued a statement Friday calling for an end to the 9.5 percent guarantee for recycled loans. Democrats counter that the only reason the president and congressional leaders are addressing recycled loans is years of pressure from the opposition.

Shortly after the White House made its announcement about recycled loans Friday, Sen. Edward Kennedy (D-Mass.), a longtime foe of the 9.5 percent provision, issued a statement calling on Republicans to “drop their efforts to protect this unjustifiable loophole. … College aid is for students, not banks.”

Republicans say that a convergence of factors has led to the growing interest in addressing the 9.5-percent loans and recycling.

“The minimum rate of return was put into place in the ’80s, when the interest rate was much, much higher,” the House GOP spokesman said. “In ’93, [the Congress] essentially closed it down. But the idea was that outstanding bonds would still continue to receive these subsidies. Recently, lenders have found ways to increase their volume of loans that qualify for the special higher allowance. The volume has really spiked in the last couple of years. The administration’s attention, our attention, was due to the fact that practices were actually increasing.”

Stipcich also distinguished between nonprofit lenders, such as those his group represents, and for-profit groups such as Sallie Mae. Nonprofit groups have made the most extensive use of recycled loans; one Democratic aide estimated that as much as 40 percent of the money now covered by the 9.5 percent provision comes from recycled loans.