The debate among federal lawmakers over how students should pay for college—and how much the government is obligated to help them—boiled over last week. And some observers expect the intensity of the dispute to continue as tuition costs rise across the country and Congress inches toward next year’s sweeping review of postsecondary financial aid.
In a wave of public statements, including a press conference with students and teachers on May 2, Democrats attacked a proposal from White House budget negotiators to force students to consolidate college loans under a federally subsidized variable-interest rate, rather than a fixed rate. That suggestion, which the Bush administration appears to have backed away from, would have cost students thousands of dollars, higher education advocates argued.
But it might have saved the government up to $1.3 billion, according to some estimates—enough to cover a shortfall in the fiscal 2002 budget for the Pell Grant program, which helps low-income students pay for college. Some Republicans and student-loan lenders argue the current loan-consolidation structure favors wealthier borrowers rather than needy students entering college.
Just weeks earlier, the Bush administration and Congress sparred over Pell Grants, with federal lawmakers pushing to increase the per-student level of awards. The White House, in turn, said Congress was to blame for not adequately funding the program, and should first find money to make up the shortfall in this year’s program.
Squeeze on Families
Those controversies have emerged as studies suggest that higher education is becoming increasingly less affordable for low- and middle-income students.
A review released May 2 by the nonpartisan National Center for Public Policy and Higher Education, found that from 1980 to 2000, the percentage of family income taken up by college tuition rose for families from all financial backgrounds except those in the top 20 percent of income levels. Tuition at four-year public colleges and universities rose faster than family income in 41 states, according to the study, “A National Status Report on the Affordability of American Higher Education,” produced by the San Jose, Calif. research center.
A separate report put out by congressional Democrats last week argued that as many as 110,000 students planning to attend college next fall might not be able to afford it. Those estimates “reaffirm what the Democrats affirm—that this administration is leaving children and college students behind, and we will not tolerate that,” said Sen. Edward M. Kennedy, D- Mass.
Such aid programs are expected to face an overhaul when Congress begins the process of reauthorizing the Higher Education Act, a process scheduled for 2003.
“We’re getting kind of a sneak preview of what will go on during reauthorization,” said Brian K. Fitzgerald, staff director of the Advisory Committee on Student Financial Assistance, a Washington-based independent research organization that counsels federal officials on loan programs. “There will be a lot of concern about the amount that low-income students are forced to borrow.”
The administration’s proposal to eliminate fixed-rate loan consolidation drew criticism from some in higher education. A student with $17,000 in debt, for example, stands to save at least $2,800 by consolidating using current fixed-interest rates, said Ellynne M. Bannon, a higher education advocate for state Public Interest Research Groups, a consumer-advocacy organization in Washington.
The interest rate for federally guaranteed loans is expected to fall as low as 4 percent this year, offering students a prime opportunity for savings under a fixed system, she said. Under variable rates, many students would be forced to pay more on their loans during times when interest rates peak, paying less when rates dip.
While private lending companies might benefit, “This proposal would hit low-income students very hard,” Ms. Bannon said.
But one of those lenders, Sallie Mae, supports the proposal, said Kathleen M. deLaski, a company spokeswoman. The Virginia-based company owns and manages student loans, many federally guaranteed, for 5 million borrowers.
The current loan system is too heavily weighted toward subsidizing students already in the workforce, she said, rather than those first entering college.
