The Real Cost of New Federal Student Loan Legislation
By higheredwatch Posted in Congress — Comments (0) / Email this page » / Leave a comment »
The massive college aid bill that Congress passed earlier this month is headed to the President for signature. As the newest member of the Higher Ed Watch team and a budget hawk, I thought I would point out some of the loose ends that are going to have to be tied up in the near future if the bill is to live up to its dual promise of increasing student financial aid without imposing any new costs on taxpayers.
The first promise: The bill increases student financial aid by more than $20 billion. Indeed it does. Consider the two largest new sources of aid, more Pell Grant money and lower interest rates on some student loans. The bill provides $11.4 billion over five years to support bigger Pell Grants for needy students, and, at a cost of $6.1 billion over the next five years, it gradually lowers for undergraduates the interest rate paid on subsidized Stafford student loans taken out in the coming years from the current fixed 6.8 percent level to 3.4 percent.
The second promise: Increases in student aid will be provided "at no new cost to taxpayers." This is also true. The bill reduces taxpayers subsidies provided to lenders and guarantee agencies making federal student loans and redirects those funds to pay for more student aid. The cuts - $22 billion over the next five years - are more than enough to cover the full cost of the increased student aid, so the bill doesn’t cost taxpayers any new money on a net basis.
Thus, it appears that the bill makes good on its promises. But there are some details in the new college aid bill that could, depending on how Washington addresses them later, make Congress a promise breaker.
It turns out that the new bill's shift of taxpayer money from lender subsidies to increased student financial aid isn't enough to cover the full cost of all of the benefits that Congressional leaders originally wanted to provide, particularly with respect to the planned student loan interest rate cut and Pell Grant boost. Early on, the bill's drafters realized they had two choices: either cut lender subsidies even further to cover the promised levels of student aid or somehow make the cost of the student benefits fit within the money available. They chose the later option, because they were concerned that cutting lenders subsidies further would either make federal student loans unprofitable for private lenders or engender too much political pushback.
To read more, please visit our site, HigherEdWatch.org