Increasing Student Loan Subsidies

More from the RSC via email:

As part of their first 100 hours agenda, the Democrat leadership is expected to bring legislation to the House floor that would significantly alter current student loan policies. Specifically, Speaker Pelosi has stated that the bill would “slash the interest rates on subsidized student loans in half.”

Current Law
The federal government provides subsidized and subsidized loans to parents and students of higher education (both undergraduate and graduate) using two major programs: the Federal Family Education Loan and the William D. Ford Direct Loan program. In FY 2005, these two programs provided $56.2 billion in new loans. Various types of loans are offered through each program, and these federal loans have low-interest variable rates that are capped at a certain amount.

In those loans which are subsidized by the federal government, the government pays the interest while the student is enrolled as at least a part-time student. The government does not pay the interest on loans which are unsubsidized. Currently the interest charged on federal student loans varies among the different types of loans offered—ranging from 6.8% to 8.5%.

Democrat Proposal
In recent years Democrats have consistently complained of “skyrocketing college tuition.” As such, it appears that legislation brought before the House will provide a substantial decrease in the interest rate on federally subsidized student loans. Reports indicate that the bill would phase in a decrease the interest rate specifically on subsidized Stafford loans from a fixed rate of 6.8% to 3.4%, beginning on July 1, 2007.

Cost
Although press reports had speculated that the cost would range as high as $60 billion, sources indicate that the legislation is expected to cost roughly $5.9 billion over five years and be offset by reducing subsidies to student lenders (reducing reinsurance, increasing fees, etc.). This would allow the Majority to satisfy their new PAYGO rule— enacted last week in the House Rules package—so that they will not have to skirt the rules and waive the enforcing point of order. Some conservatives may be concerned that some of these offsets could be repealed in future years while the increased entitlement spending flowing from lower interest rates will continue. The passage of time often causes offsets to loose their luster (and be repealed) while the new spending increases demand for a government benefit and thus attracts more and more beneficiaries.

Conservative Response
While the cost of attending college has risen rapidly in the last decade, federal aid provided for postsecondary education has almost doubled in the same timeframe, reaching $94 billion in FY 2006. Despite the claim that Republicans conducted a “raid on student aid,” during their tenure the GOP expanded loan relief for high-demand teachers by more than 300%, and substantially increased federal loan limits. Some experts contend that the significant rise in federal aid has actually contributed to increased college tuition. As the federal and state governments absorb an increasingly large portion of college expenses, institutions of higher education can raise tuition at taxpayers’ expense without the student or their families being held accountable for the cost.

A recent Heritage Foundation report suggests that federal postsecondary aid is not only provided to low-income families, but also to middle-class families. The essay stated that, “An increasing share of federal grant and loan subsidies are being provided to students from non-economically disadvantaged families. The College Board recently reported that ‘changes in student aid policies have benefited those in the upper half of the income distribution more than those in the lower half.’ A recent Department of Education report found that 47 per¬cent of students from middle-income families accepted federal loans in 2000, compared to 31 percent in 1993.”

I find it interesting that Democrats want to regulate every industry to financial ruin BUT education... Instead, Democrats are going to continue to enable their union friends in acdemia to fleece America. No surprises here...