Health Care Reform Complicates Student Loan Legislation

Legislation to implement President Obama's proposals to expand the Pell Grant and Perkins Loan programs, and require all colleges to convert to direct lending next summer, has been caught up in the debate over health care reform. If Congress sticks with a July 1, 2010, implementation deadline--and there is every reason to believe they will for most of the proposed changes--the time frame for institutions and the Department of Education to prepare for the transition will be very short. Understanding why these seemingly unrelated issues are entwined with one another sheds light on the intersection of policy, politics, the legislative process, and elected officials in Congress.

President Obama first proposed that the Pell Grant program be converted into an entitlement, meaning that the level of the grants, and the annual federal funds needed to award them, would be written into the law and no longer determined through the annual appropriations process. The costs of this dramatic change would have been paid for by requiring all institutions to convert to the Federal Direct Loan program. However, as estimates of the fiscal impact of this proposal emerged, it became clear that this would be almost impossible to achieve, as the costs of making the Pell Grant an entitlement far exceeded the savings from mandating direct lending.

As a result, the formal proposal that was submitted to Congress as part of the budget called for increasing Pell Grant spending by $40 billion, and modifying and expanding access to the Perkins Loan program. The administration also proposed to create a state-based "Access and Completion Fund" designed to fund programs at the state level that would increase student access, persistence, and completion. Finally, the proposal also included key elements of the President's initiative to support community colleges.

As Congress reviewed the Obama administration's budget, and developed the legislative framework that would guide consideration of its various elements, a decision was made to reserve expedited legislative procedures, known as 'budget reconciliation,' for just two bills: the student aid package and health care reform legislation. The budget reconciliation procedure would, among other things, limit Senate debate on the measures to 20 hours, and prohibits any senator from filibustering the legislation, meaning the legislation would require only 51 rather than 60 votes to pass.

Once this budget framework was agreed to by the House and Senate, the relevant committees began to work on various legislative initiatives called for in the administration's proposals. In the House, the Education and Labor Committee developed, and later passed, legislation that was generally consistent with the administration's higher education proposals. At the same time, numerous House committees with jurisdiction over the various programs that were being debated as part of health care reform developed their legislation, later to be combined by House Democratic leaders into a single bill and narrowly approved by the full House of Representatives.

Following these actions over the summer and fall, the focus turned to the Senate. However, a little-known ruling by the Senate Parliamentarian, who is charged with interpreting Senate rules and procedures, has forced Senate leaders to delay action on the student loan bill. Since the budget reconciliation process so significantly restricts the jealously guarded right of debate in the Senate, intricate rules for this type of legislation have been written, and interpreted by the Parliamentarian to limit its use to one revenue bill and one spending bill for each budget cycle.

While they reserved the right to use this legislative process for health care reform, Senate Democratic leaders hope they do not actually need to use it. The strong desire to consider health care reform under regular Senate rules is largely due to two forces. First, senators of both parties are always reluctant to consider a massive piece of legislation under such restrictive time constraints. Twenty hours of debate, or about one week of time on the Senate floor, is almost universally seen as woefully inadequate for comprehensive and controversial legislation such as health care reform. Second, the budget rules strictly limit the policy changes that go into budget reconciliation bills to those that have a direct and measurable impact on federal spending. Many important provisions of both the House and Senate health care bills fail this test and would have to be dropped from the initiative.

Since health care reform includes both changes to the tax laws, and changes to entitlement spending, Senate Democrats would need to use both legislative vehicles allowed under the Senate Parliamentarian's interpretation of this budget procedure. Democratic leaders in the Senate are also mindful that, because of opposition from the lending community over mandating direct lending, they are unlikely to be able to pass the student loan bill without this expedited process. However, if the Senate passes the student loan legislation as a budget reconciliation bill before it completes action on health care, it will use up one of its two budget vehicles for the year, thereby preventing Senate Democrats from moving the health care reform bill under this expedited process. As a result, until Senate leaders are certain that they will not need to use the budget process to move health care reform legislation, student loan legislation will remain on hold.