College & Workforce Readiness

Student Aid Emerges as Hot Political Topic

Obama offer of loan relief lands amid spending fight
By Alyson Klein — November 04, 2011 7 min read

Includes updates and/or revisions.

Federal financial aid for college students is emerging as a hot issue in Washington, as policymakers seek to balance the need to help students gain access to higher education during an economic downturn against the pressure to rein in spending and cut the deficit.

The Obama administration recently announced a series of changes to the federal student-lending efforts aimed at making it easier for borrowers to repay their loans—prompting an outcry from Republican lawmakers in Congress and from some GOP presidential candidates who are concerned that the proposal will encourage students to take on more debt than they can afford, ultimately increasing costs for taxpayers.

At the same time, lawmakers in the House and Senate have divergent visions for how to provide a firmer fiscal footing for a separate pillar of federal student aid: the financially strained Pell Grant program, which helps low-income students cover the cost of college.

Meanwhile, advocates worry about the implication for student-aid programs as the bipartisan panel of lawmakers known as the Joint Select Committee on Deficit Reduction, or supercommittee, works to craft long-term recommendations to help the nation alleviate its debt.

The federal government provides two main types of aid to help bridge access to postsecondary education: student loans and Pell Grants. Pell Grants do not have to be paid back, and are intended for low-income students. Student loans, on the other hand, require repayment. Federal student aid programs dispense more than $150 billion in financial assistance to more than 14 million post-secondary students. Their fate affects both students already in school and those considering a college education.

Debt Burden

A report released last week by the Project on Student Debt, an initiative of The Institute for College Access and Success, highlighted the scope of the student-loan burden. The nonprofit research and advocacy group, with offices in Washington and in Oakland, Calif., found that two-thirds of college seniors graduated with loans in 2010, and they carried an average of $25,250 in debt.

Under the Obama administration’s student-loan proposal, announced Oct. 26, low-income federal student loan borrowers would be able to take advantage of new caps on monthly payments intended to ensure that students can handle their loan payments for federally originated loans, while still being able to cover the cost of necessary expenses, such as food and housing.

Right now, college-loan borrowers deemed eligible for a program known as the Income Based Repayment program have their monthly payments capped at 15 percent of their discretionary income. That is slated to go down to 10 percent in 2014, but the administration is moving that lower rate to 2012.

Easing the Burden

President Barack Obama last month announced a series of changes to the federal student-loan program aimed at making it easier for college students to repay their debts. The changes include:

• Allowing low-income borrowers to cap their loan payments at 10 percent of their discretionary income, instead of at 15 percent. This is intended to make payments more manageable.

• Making it easier for students with both direct federal loans and subsidized federal loans to consolidate those loans.

• Providing students with clearer information about the costs of student loans upfront.

SOURCE: White House

And, under the administration’s plan, borrowers who make regular payments on their loans for 20 years would have the remainder of their balance forgiven. Previously, federal student loans would be forgiven if borrowers continued to pay on them for 25 years.

Fans of the proposal agree that it could make prospective students feel better about taking on college-loan debt, which cannot be discharged in bankruptcy.

“This assures borrowers that their federal student-loan payments will always be manageable,” said Pauline Abernathy, the vice-president for the Institute of College Access and Success.

Still, she cautioned that the Income Based Repayment program doesn’t apply to private student loans, only those offered by the federal government.

Rising Costs

But Lindsey Burke, a senior policy analyst at the Heritage Foundation, a conservative think tank in Washington, said the change pushed by the administration isn’t going to have any impact on the root problem: the sky-rocketing cost of college.

“When you increase federal subsidies, you get the universities off the hook for being remotely fiscally responsible,” Ms. Burke said. “They have zero incentive to cut costs.” If the federal government forgives student loan debt, it will pass those costs on to taxpayers, she said.

“When you propose student-loan forgiveness after any amount of time, you’re shifting the burden of paying for college to waitresses, construction workers, and other taxpayers” who haven’t had the advantage of pursuing higher education, she said.

The administration has two other proposals aimed at making life easier for student borrowers.

It wants to allow loan consolidation for students who have loans in both the direct loan program—in which students borrow from the U.S. Department of Education—and the now-defunct Federal Family Education Loan Program, which relied on subsidized lenders and was scrapped in March 2010. That would mean students would write only one check to cover their student loans each month.

Students also might be eligible for a lower interest rate, said Rich Williams, a higher education advocate for U.S. Public Interest Research Group, a consumer watchdog organization based in Washington.

“It’s such a nightmare for borrowers” to send “three or four checks to different lenders,” Mr. Williams said. “Being able to covert it all to one check to the U.S. Department of Education is a relief.”

The Education Department also is slated to partner with the newly formed Consumer Financial Protection Bureau to help provide students with more information about the cost of taking out student loans before they even enroll in postsecondary education. (“Students Alerted to Loan Debt,” Nov. 2, 2011.)

The administration sees changes to the student-lending program as a potential political boon, said Stephen Burd, the editor of Higher Ed Watch, a blog published by the New America Foundation, a nonpartisan Washington think tank.

“The Obama administration sees student aid as an opportunity to spell out the political differences between them and the Republicans in Congress,” Mr. Burd said.

Political Pushback

But Republican lawmakers have given the administration plenty of political pushback.

U.S. Rep. John Kline, R-Minn., the chairman of the House Education and the Workforce Committee, said on “Fox and Friends” last week that the proposal could actually result in students taking on more debt than they can afford.

“I just think this is a mistake,” Rep. Kline said. “It is very confusing. I’ve talked to a lot of people about what the president’s proposal is, and it’s very difficult to figure out. ... All of it, in fact, is going to encourage more borrowing, and I’m afraid it’s going to leave the taxpayers holding the bag.”

Some GOP presidential candidates have expressed similar sentiments.

U.S. Rep. Michele Bachmann, R-Minn., said in a recent debate sponsored by the College Board that the change will create “a moral hazard,” according to an Associated Press report.

“There is a morality in keeping our financial promises, and I don’t think we should push that off onto the taxpayer,” she said. “The individual needs to repay and be responsible for repaying their student loan debt.”

College access is likely to come up in debate over the fiscal 2012 spending bills. The House and Senate Appropriations Committees took very different approaches on financing Pell Grants.

Both panels held the maximum Pell Grant steady at $5,550. But the House committee would change eligibility requirements, including ending grants for students who attend college less than half-time, and cutting the maximum family income that would automatically qualify a student for a Pell Grant to $15,000 from $30,000.

The Senate committee would pay for the change by scrapping the six-month grace period that students have after graduation, before they begin to accrue interest on their student loans.

It’s clear that some sort of change is needed, because the Pell Grant program faces a $1.3 billion shortfall next year.

The program is “a victim of its own success” said Stephanie Giesecke, the director of budget and appropriations for the National Association of Independent Colleges and Universities, a higher education association in Washington. “It’s doing exactly what it’s designed to do.”

But Ms. Giesecke said that the House “went further than it needed to go” in making changes to ensure the program’s fiscal solvency.

Supercommittee Stress

College access advocates also are keeping a close eye on the supercommittee, which is tasked with cutting $1.5 billion out of the nation’s deficit over the next 10 years. The committee must make recommendations to Congress before Thanksgiving; lawmakers can either vote up or down. If the committee does not complete its task—or if Congress rejects its suggestions—deep cuts to domestic and military spending kick in for January 2013.

Advocates worry that the committee may seek to make changes to the eligibility requirements for Pell Grants, or make a change to the student-loan program that would mean students would begin being charged interest on their loans while they are still in school. Right now, interest on student loans doesn’t start accumulating until after the student graduates.

“These are two huge programs,” Ms. Giesecke said. “It’s not like we’re invisible.”

But she said that trimming college-aid programs could make low-income students uneasy about staying in, or going to, school.

“They’re very loan adverse,” she said.

Special coverage on the alignment between K-12 schools and postsecondary education is supported in part by a grant from the Lumina Foundation for Education, at www.luminafoundation.org.
A version of this article appeared in the November 09, 2011 edition of Education Week as Federal Aid for College Emerges as Hot Political Issue

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