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At Higher Ed Watch, we have spent most of the day eagerly awaiting the release of legislation that the Democratic leadership of the House Committee on Education and Labor has written to overhaul the federal student loan programs. Based upon and we had read over the last 24 hours, we had very high hopes for the bill.

Unfortunately now that we have begun to read we have decidedly mixed feelings about it. We are very pleased that Rep. George Miller, the California Democrat in charge of the committee, has followed in proposing to end the Federal Family Education Loan (FFEL) Program and thereby eliminate unnecessary middlemen from the process of originating and guaranteeing federal student loans. Instead, as of July 1, 2001, all new federal loans would be made by the U.S. Department of Education through the Direct Loan Program.

We are also happy to see that a substantial share of the savings produced by shutting down FFELP would be used to significantly increase spending on Pell Grants and other

However, we are sorely disappointed to see that the committee has included a set-aside for nonprofit student loan agencies to service federal student loans that is nearly identical to that the (EFC), which represents these lenders, in recent weeks. The legislation would essentially give each and every one of EFC’s members a no-bid contract to service the loans of up to 100,000 student loan borrowers in their home states.

We are having a hard time finding a public policy justification for that provision, given that it doesn’t seem to provide any benefit to borrowers or taxpayers. We understand that there are political tradeoffs that have to be made to win support for the bill, as is the case with all legislation. However, is replete with these types of , which have only made the program administratively cumbersome, inefficient, and vulnerable to waste and abuse. [And as faithful readers of Higher Ed Watch know, these non-profit loan providers .]

Stay tuned tomorrow for more thoughts and questions as we work our way through the rest of