Making Students Pay

Thursday, November 3, 2005

IT'S COMPLICATED, byzantine and -- let's face it -- not the world's most fascinating subject. Even so, it's hard to understand why the federal student loan program attracts so little outside scrutiny. The Senate is likely to vote today on a budget reconciliation measure in which the largest source of "savings" by far comes from the student loan program. The authors of that measure, which the House will tackle next week, say that money comes from cuts in subsidies to lenders. Read the fine print, though, and it seems that, in fact, the "savings" come from increased revenue. And that revenue comes from students, who will be paying higher interest rates to generate it.

That, at least, is the conclusion of a report published this week by the New America Foundation. The report is by Michael Dannenberg, a former Senate staffer who has helped write student loan laws in the past. It notes that under the new rules, students and parents, instead of paying slightly less than the market rate, with the difference made up by the government, will be paying slightly more, with the extra going to the government. (Although lender fees have also gone up, there is no guarantee that those won't be passed along to students as well.) Some of that "saved" money will apply to the budget deficit, and some will go to pay for more tuition grants to the very poorest students. But in either case, the end result is that Congress, rather than cutting the program, as the measures' advocates imply, is actually expanding it.

Even odder, Congress has still made no attempt to cut the cost of student loans in one obvious way that would not harm students. The Congressional Budget Office, the Office of Management and Budget and now the Government Accountability Office, in a newly released report, have all concluded that subsidized, guaranteed student loans, made through lenders, are costing taxpayers significantly more than would direct loans, which cut out the lenders. Should anyone on the Hill care to point it out, there is an obvious source of genuine savings in the student loan program: Offer students small incentives to choose direct over subsidized loans. But are there fiscal conservatives, in either party, who are willing to risk the wrath of lenders and say so?


© 2005 The Washington Post Company