Jan. 5, 2007

Democrats Plan Evolves (and Narrows)

Perhaps the realities of governing are setting in.

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On the campaign trail, and even in the first giddy days after they swept into power in November’s elections, Congressional Democrats discussed an expansive (and expensive) plan to make college more affordable for students. Among its elements: Slashing the interest rate on student loans in half, making permanent a tax deduction for college costs borne by middle income families, and providing significant increases in the Pell Grant (up to a maximum of $5,800 over several years). Taken together, those proposals were estimated, roughly, to cost anywhere from $50 billion to $100 billion, leading to serious questions about where they’d find the money to pay for it.

As the 110th Congress formally opened Thursday, with Democrats in control for the first time in 12 years, party leaders offered up a much narrower (and more realistic?) agenda for what they hope to do for students, at least in the short term. In a news release and a briefing with higher education lobbyists Thursday, aides to Rep. George Miller (D-Calif.), the new chairman of the House Education and the Workforce Committee, said that they planned to introduce a week from today legislation that would halve the interest rate paid by undergraduate borrowers with subsidized federal student loans — and would phase the cut in over five years.

The legislation, H.R. 5, on which party officials said the full House would vote on January 17, as one of its first legislative actions, would cut the rate on those loans from 6.8 percent to 3.4 percent in five steps: to 6.12 percent in 2007; 5.44 percent in 2008; 4.76 percent in 2009; 4.08 percent in 2010; and 3.4 percent in 2011.

“Once fully implemented, these cuts will save the typical borrower — with $13,800 in need-based loan debt — approximately $4,400 in interest costs over the life of his or her loan,” the Democrats’ news release said.

Congressional aides told college lobbyists in a telephone call Thursday that the proposed interest-rate cut would cost an estimated $6 billion over five years. That’s down significantly from the $18 billion to $30 billion that earlier iterations of the plan had been reported to cost, and some of that reduction has been achieved by phasing the cut in over five years (rather than making it immediately), limiting the reduction to subsidized Stafford loans (as opposed to Perkins and parental loans) and undergraduates, and by excluding consolidated loans.

But some college officials said they worried that the plan might end up helping even fewer students, once all the details of the proposal spill out. On Thursday, Democratic officials provided few specifics about the proposal, most notably providing no information about how they planned to pay for the cut. (Among the other changes that Democrats have promised in the 110th is to strictly enforce rules that require all legislation that costs money to include offsetting savings.) House aides said the decision about how to pay for the rate cut would be made by the party’s Congressional leaders.

The proposal excites advocates for students. In a report released today, the U.S. PIRG’s Higher Education Project trumpets the benefits for borrowers as a significant step toward attacking the problem of mounting student debt.
“Over the past decade we have asked America’s college students to shoulder a heavy burden of debt to pay for college,” said Luke Swarthout, U.S. PIRG’s higher education advocate. “Cutting interest rates on student loans will help millions of working and middle-class students and their families by saving them thousands of dollars in student loan payments.”

College lobbyists, too, said they were pleased, especially from a symbolic standpoint, that Democratic leaders were putting aid for students at or near the top of their to-do list in the new Congress (the interest-rate cut is one of a small number of key actions that the party has vowed to take in its first 100 hours of legislative activity, which is expected to stretch out for a couple weeks).

But several said that they were left uneasy by the dearth of details about the interest rate cut, and by how little Democratic aides had to say about the other college aid priorities, like raising the maximum Pell Grant, that candidates had so much to say about on the campaign trail. (Some also expressed disappointment that the Democrats’ first point of attack was on a loan proposal aimed very much at the middle class, rather than at the financially neediest students, and wondered whether funds will ultimately be there to do much for Pell and other need-based aid.)

Thursday’s news release from House Democrats sought to provide reassurance that the interest-rate cut, if narrower than originally promised, was just the beginning of their efforts to help students. The statement specifically mentioned “raising the maximum Pell Grant scholarship” as one such strategy, which college officials probably appreciated.

But it also reinforced the idea that despite the fond hopes of many in higher education, Democrats weren’t likely to leave colleges and universities off the hook on accountability issues. Among the other steps Miller and other Democrats will explore to make college more affordable for students, the the news release noted, were “working with colleges and other relevant stakeholders to devise strategies to address costs, and examining the cost effectiveness of the different student loan programs.”

The House is expected to vote today on legislation that would require much more public disclosure about earmarked projects (hundreds of millions of dollars of which flow to colleges) and which lawmakers have sponsored them.

— Doug Lederman

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Comments

Ms. Pelosi just doesn’t get it

One would think, with a multi-millionaire real estate developer husband, Ms. Pelosi would understand the difference between loan principal and loan interest. Even “USA Today” mentioned on their editorial page yesterday.

That is: it isn’t just the interest, it is the principal COST of higher ed that is financially ruining Generation ‘Net. As noted in USAT, the 40% increase in costs over the last five years. Like drunken sailors, without the laughter.

Providing taxpayer-subsidized loans to marginal students to take remedial classes only financially weakens them and their families. It is like giving vodka to an alcoholic.

If college executive management cannot control costs — the public will find someone who can. It is up to them, it is their jobs to lose.

B.D., at 7:30 am EST on January 5, 2007

THE RIGHT PRIORITIES?

Although the full details of this proposal are not yet known, one has to wonder about the priorities here. Wouldn’t a proposal that better targeted these new subsidies on borrowers that face challenging repayment obligations make more sense? Pelosi’s proposal would give the largest new subsidies to borrowers who are the most educationally-privileged, who likely attended higher cost schools, went graduate or professional school after college, and most likely have a high-paying job.

John, at 9:05 am EST on January 5, 2007

The Hidden Costs

“Taken together, those proposals were estimated, roughly, to cost anywhere from $50 billion to $100 billion, leading to serious questions about where they’d find the money to pay for it.”

Skyrocketing tuition and fees aren’t the only reasons for the climbing student loan debt.

There are, in addition, the hidden costs of escalating credential inflation to students and society that must be considered as well. Credential inflation results in students staying in school longer, as they seek advanced degrees and the competitive edge they are thought to confer. But longer years spent pursuing higher-status credentials also entail higher out-of-pocket expenses, necessitating more student loans, which, of course, would wipeout any of benefits of the proposed loan subsidies.

There are other hidden costs, as mentioned by Chicago mayor, Richard Daly: students graduate more deeply in debt, and cannot afford to start their families, resulting in lower birth-rates.

What is intended to help struggling students may, as more students enter college, end up hurting them. Policy makers would do well to heed the warning of sociologist Randall Collins: “Such results occur whether government budget-makers are aware of what they are doing or not. In that sense, we may have entered a period in which we can’t politically afford to stop the processes that feed credential inflation. The issue boils down to whether we want to manage credential inflation, manipulating policy to smooth out peaks and valleys, or let it take its own bumpy course.”

Glen McGhee, Dir., at Florida Higher Education Accountability Project, at 10:10 am EST on January 5, 2007

Do want more whine with your increased subsidies?

Geez people, get a grip. It is not the feds’ responsibility to make college more affordable...it is the colleges themselves. Direct your efforts at true accountability for outcomes and cost controls.

TM, at 10:20 am EST on January 5, 2007

Whine is what college lobbyists do best

1) this part of the plan addresses student debt, which is a serious post college problem. This plan will help those who enterted with the least resouces and is blind to how much income folks have after school. That is a problem with the loan program overall, but there is no doubt that this proposal will help well deserving people a) enter college with some increased confidence that they will be able to manage the debt on the back end, and b) make a real difference in the lives of young workers trying to start their life post college. 3.4% is a good and fair rate to charge someone for borrowing money. It could even be lower just like it was under national defense loans, but th emore we ask people to borrow, the lower the rate has to go to be affordable.

2) There are other parts of the Democratic plan that are not in the first 100 hours. Increasing Pell Grants, a set of tax deals for middle income families. You get to argue and whine about those later. Have patience or at least ration the whining and save yourselves.

3) Yes, colleges need to reduce costs, and states need to provide more support. Let’s have that discussion during reauthorization but let’s not get in the way of helping students who have already graduated.

4) The college groups had nothing to do with Democrats focusing on college affordability as a priority issue (it is a dangerous issue for them in that frame because it will come back to college cost). So, they were not involved with any discussions of the agenda going in, and have not done anything to promote this issue agenda or the the folks who are now its champions.

College lobbyists and the immense world of policy experts play best in the weeds of higher education policy and pork spending. They are not big picture folks, use little of the political capital they could have, and are too fragmented and whiney to be a part of this discussion in a meaningful way.

Island Room, at 1:51 pm EST on January 5, 2007

Where’s the Access?

I think the comments above are exactly on target. It may also be true that it’s not the Federal government’s responsibility to control college costs, but the Federal government has made a long-standing commitment to helping low-income students pay for college. College costs definitely need to be addressed, and it’s going to take some strong-willed state legislators and governors to tackle that challenge head on; the Federal government lacks any really effective levers.

All that aside, what good is it going to do to reduce interest rates on student loans? A cheaper interest rate on a loan is not going to make college easier to afford for anyone, particularly low-income families who are less inclined to borrow in the first place. The research shows that grant aid is significantly more likely to improve enrollment among low-income students, whereas student borrowing has only a marginal effect, if any. If the taxpayer is going to foot this bill, why shouldn’t we ask Congress to spend our money on something that will actually make a difference, like increasing the maximum Pell grant? $50 billion is a lot to spend on a policy that will not improve access for millions of low and middle income families.

Scott, at 1:55 pm EST on January 5, 2007

Student loan interest cuts

Dear Congresswoman Pelosi —

Cutting interest rates for undergraduats alone will not at all help those of us who went to undergraduate AND graduate school by working multiple jobs and taking out student loans — both for ourselves AND our children. We are now paying not 6.8% in interest but 9% because we “consolidated” back in the ’90s. At last count, I will be almost 100 before MY loans are paid off and the repayment schedule is close to 1/4th of my total income, most of which now goes to paying interest on it, not principle. Where is the interest relief for people like me?

JVK

John Knapp, Deeply-in-debt, at 1:55 pm EST on January 5, 2007

Who Should Pay

TM raises a good point regarding whose responsibility it is to pay for higher education. Unfortunately the answer depends almost entirely on the financial circumstances of the family to which the student belongs. Those from wealthy families can and should pay the costs themselves, but often the wealth has purchased educational advantage in college preparation and costs for these students are subsidized unnecessarily through scholarships offered by many organizations including colleges. Those from poor families can qualify for federal, state, and institutional grants based on financial need, but often this is not enough to cover all costs so the student must work and take out loans. The argument to shift scholarship dollars away from wealthy students and toward needy students is compelling. And many colleges have done just this and also have increased their grant dollars for the neediest students so they do not have to borrow or work excessive hours.

Finally, to suggest that colleges are responsible for the high costs of higher education is disingenuous. This is akin to blaming the pharmacist for the high cost of prescription drugs. Colleges must compensate faculty at a level that is market competitive. Benefit programs must similarly stand against what others offer. Technology must be robust enough to prepare students for their career. And research institutions bear additional costs for facilities and staff that are cheap in comparison to the increased educational offerings and expansion knowledge they provide.

Richard Shipman, at 1:55 pm EST on January 5, 2007

Take Responsibility

I truly feel sorry for people that have strapped themselves with debt. Unfortunatley for you it sounds as though you spent a great deal of money pursuing something that didn’t have the return you’d hoped. However, these were the decisions YOU made and I feel that you must accept the responsibility for your actions and not feel slighted because someone else isn’t bailing you out. You are likely already much better off that billions of people on this planet, accept the decisions you have made and the results you have received and move forward.

David Hewett, at 2:55 pm EST on January 5, 2007

Ever read Vedder (Ohio U.)?

” .. to suggest that colleges are responsible for the high costs of higher education is disingenuous ..”

Per Vedder —

http://collegeaffordability.blogspot.com/

that statement is disingenuous. First, easy lending via government props up marginal colleges and marginal students. Without that easy money, both would be gone in a New York minute.

Second, per W.L. Churchill and the Duke “Gang of 88,” tenure is abused for self-interest and self-gain, not direct student benefit. Third — absent government subsidies to taxpayer-owned colleges — why are costs at private colleges less than taxpayer-owned ones? Ever heard of deadweight loss?

It would be easy to go on. And if government-owned colleges think they are so great and wonderful — let them go private and do even better. Otherwise — the public has items for your “to-do” list.

But it is Friday. Later.

L.H.H., at 6:20 pm EST on January 5, 2007

Private colleges cheaper than public? Give me a break — somebody is living in lala land.

And, I will add that faculty salaries are NOT driving the cost of education. At our public, land-grant university the total amount spent on faculty salaries is essentially identical to what it was five years ago. Modest salary increases for faculty with rank (i.e. those with tenure or on tenure track) have been entirely offset by cuts in the number of faculty, who are now teaching more classes with larger sections.

AG, at 8:25 am EST on January 6, 2007

More college cuts, not more fed money

College cost-cutting could start with closing down useless, unproductive, irrelevant (to the proper mission of higher ed) and politically suspect departments, e.g., education, journalism (consult Kierkegaard or Karl Kraus here), social (warfare) welfare, most sosh and sike, “ethnic” and “gender” (actually a grammatical term) “studies", remedial or “basic” (or “bonehead") ed, communications, intercollegiate sports (at best irrelevant to higher ed and at worst a campus criminal underworld), fizz-ed (an obvious oxymoron) and its ancillary sports, “recreation” and “leisure” departments. These modest cost-cutting measures could be followed by ambitious reductions in the number of the swarms of college administrators and of their bureaucratic staff appendages.

Jacques Albert, at 1:50 pm EST on January 6, 2007

Does not make any sense financially

” .. faculty salaries are NOT driving the cost of education .. Modest salary increases for faculty ..”

1 + 1 still equals 2, it is rumored. Y’know — paygo? And when a long-timer leave, at least three replacements can be brought aboard.

If things are so terrible — leave. Go. Quit. Get out. Vamoose. Take a hike. No one is asking anyone to sacrifice themselves for higher education.

After a few days, no one will notice that you have gone. Goodbye, and good luck.

H.J., at 3:40 pm EST on January 7, 2007

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