Democratic House Passes College Cost Reduction Act

[thomez]

Originally Posted by SpicyMcVoodoo

And why should the student loan industry's profitability come before the nation's access to education?

Lowering the interest rates that you pay after you stop attending school has what to do with access to education?

[thomez]

It is also worth noting that as the maximum amounts allowed to borrow are increasing rapidly, the cost of college is keeping the pace. I wouldn't call it unlikely that they are correlated.

[Scrum]

Originally Posted by Publius

if a company's primary business is the originating of student loans, and suddenly they are handcuffed by government regulation to a point that they can no longer make a profit, how are they not experience a loss? How are they not experiencing net expense?

If the government were just reducing interest rates on government-created loans it would be one thing, but forcing down rates on private loan companies is unacceptable.

If it weren't profitable, they would get out of the business.

There is still a huge amount of money to be made in student loans.

[thomez]

from the Heritage Institute, not my favorite in the least, but a few good points made

Halving the interest rates on student loans is estimated to cost $18 billion over five years. Representative Pelosi's pledge to re-implement pay-as-you-go budgeting rules (PAYGO) means that taxpayers will expect the cost of the rate change to be offset elsewhere in the budget so as to not increase the budget deficit.


Six Problems with Halving Student Loan Interest Rates

1. Federal spending on student financial aid is already skyrocketing. The myth of education budget cuts is perhaps the most persistent budget myth today. Since 2001, federal education spending has grown a staggering 167 percent from $35 billion to $95 billion. Most of this new spending goes to financial aid for college students, which has skyrocketed 400 percent, from $9.6 billion $48.0 billion (plus $10 billion per year in related tax breaks).[2] A temporary surge in student loan consolidations is responsible for a large part of this new spending. However, student aid spending is expected to level off at nearly $25 billion—nearly triple the 2001 spending level. The education budget's growth rate since 2001 is not only the fastest in the federal budget, but is also nearly unprecedented for any Cabinet department in American history.

In line with spending, the total amount available for grants and loans has more than doubled since 2001, from $66 billion to $136 billion—or, excluding consolidation loans, from $52 billion to $78 billion. During this period, the number of students receiving aid increased from 7.6 million to 10.1 million, and the number of annual loans and grants provided to those students leaped from 15.4 million to 24.7 million.[3]

2. Students already have many options for federal grants and low-interest loans. Today's college students are offered more grants and loans with lower interest rates than in the past. True, the maximum Pell Grant of $4,050 is just $300 over the 2001 cap. However, the 2005 Deficit Reduction Act created SMART Grants of up to $4,000 annually for students majoring in math, science, engineering, or a foreign language critical to U.S. security. This effectively doubles the Pell Grant for many students.[4]

Today's students can also borrow more. The Deficit Reduction Act increased subsidized student loan borrowing caps for freshmen and sophomores from $2,625 and $3,500, respectively, to $3,500 and $4,500. Graduate student loan limits were increased from $10,000 to $12,000 annually.[5]

Further, student loan interest rates, the target of the House Democrats' 100-hour agenda, are low by historical standards. This school year, as required by 2002 legislation, the variable interest rate was replaced with a fixed 6.8 percent rate. While this is above last year's 5.3 percent rate under the variable rate formula, such low student loan rates were a temporary anomaly due to the economy's low interest rates. In fact, were the variable rate formula still in effect, student loan interest rates would have jumped to 7.14 percent this year. By locking in the 6.8 percent rate, lawmakers actually lowered student interest rates. Furthermore, this 6.8 percent rate is lower than the student loan interest rate was in all but six of the past 42 years.[6]

Altogether, today's students are eligible for as much as $8,050 in grants and increasing levels of student loans. Most loans accrue no interest until graduation and even then are locked in at a low interest rate. Students can even deduct student loan interest costs on their tax returns.

3. Student aid subsidies are already set to increase much further. A large portion of the recent surge in student aid comes from the 2.2 million college graduates annually consolidating their existing student loans—up from 676,000 in 2001. Consolidation loans allow students who borrowed at variable interest rates as low as 3.5 percent to lock in those low rates permanently by converting to long-term fixed loans. This could become enormously expensive for the federal government. Washington promises a certain rate of return to banks that make guaranteed student loans, and if market interest rates rise up above these very low fixed rates, the federal government pays banks the difference to protect their profits. Kevin Hassett of the American Enterprise Institute has calculated that if interest rates spike, the cost to taxpayers could be tens of billions of dollars.[7] Furthermore, locking in current and future students at reduced 3.4 percent interest rates could add another generation of expensive consolidation loan candidates. Addressing these costs, which could potentially rival those of the savings and loan scandals, should be a top education policy priority.

4. Tuition costs rise with financial aid. Students and parents are well aware that tuition is soaring. The average college tuition, adjusted for inflation, has leaped 86 percent for public colleges and 52 percent for private colleges since the 1991–92 school year.[8] However, endless student aid increases may not only fail to deal with rising tuition; evidence suggests they actually contribute to tuition increases. Richard Vedder, among other economists, has shown that college tuition increases follow student aid increases.[9] Colleges, like businesses, charge as much as their customers are able to pay. So when student aid increases, colleges raise tuition accordingly to capture the additional aid. This suggests that increases in federal student aid effectively subsidize colleges, not students.

Unfortunately, students, taxpayers, and policymakers are often unable to determine the real reason for increasing tuitions. "Institutions of higher education, even to most people in the academy, are financially opaque," according to the National Commission on the Cost of Higher Education. "Academic institutions have made little effort, either on campus or off, to make themselves more transparent, to explain their finances."[10]

5. Lower interest rates will not increase access to college. The House Democrats propose to cut student loan interest rates as a means of "making college more accessible." This does not make sense. College accessibility depends on whether current and prospective students can fund their tuition and other expenses, not the interest rate at which they will repay the loans after leaving college. Telling students who currently cannot afford college that they will receive lower post-graduation student loan interest rates is putting the cart before the horse.

It is true that society has an interest in making sure qualifying prospective students can access sufficient student aid to enroll in college. This is accomplished by ensuring that borrowing caps are in line with the amount necessary to afford tuition, room, and board. The 2005 Deficit Reduction Act already addressed this issue by raising the borrowing caps by about 30 percent. Such policies help students afford college without shifting large costs to taxpayers (as with grants) or merely subsidizing college graduates (as with reducing interest rates). However, Congress should take care to ensure that these policies do not continue to induce tuition increases.

6. Most college graduates can afford to repay their student loans. The effect of reducing student loan interest rates will be to subsidize college graduates while leaving current college students no closer to affording their tuition. Today, college graduates enter the workforce with an average student loan debt of $17,500. This is not a crisis worthy of federal handouts. That debt level, consolidated into a 30-year loan at a 6.8 percent interest rate, represents a monthly payment of only $114, $12 of which is recouped through the student loan interest tax deduction.[11] Halving the interest rate would shave just $36 off the monthly payment but also reduce the tax deduction to $5 per month. A college degree raises an individual's lifetime earnings by over $1 million, on average, and so $114 per month is clearly an affordable payment on a very profitable educational investment. Furthermore, it is unclear why Congress would burden the population as a whole (76 percent of whom do not have college degrees[12]) with the costs of subsidizing the minority of adults who have college degrees and so can expect higher lifetime earnings.

[WickedLou9]

Originally Posted by Publius

Why should the food service industry's profitability come before the nation's access to food products?

Why should the hotel or housing industry's profitability come before the nation's access to housing?

You can put in any industry and ask that question. The answer? Because if it didn't, in the long run our nation would almost certainly be worse off if there was no possibility of profit in the various industries.

That's a slippery slope argument. The difference is that allowing more people access to higher education means a more productive workforce and ultimately a better economy. It's an investment. The government subsidizes the loan at cost to the taxpayer, the loan company doesn't lose any money, and the country is ultimately better off. The other industrys you mentioned do not share this characteristic of having an expectancy of paying future dividends.

[thomez]

Originally Posted by WickedLou9

That's a slippery slope argument. The difference is that allowing more people access to higher education means a more productive workforce and ultimately a better economy. It's an investment. The government subsidizes the loan at cost to the taxpayer, the loan company doesn't lose any money, and the country is ultimately better off. The other industrys you mentioned do not share this characteristic of having an expectancy of paying future dividends.

Lowering the Interest Rates Paid After Graduation has NOTHING to do with increasing access to higher education!!!!!11

[Publius]

Originally Posted by WickedLou9

That's a slippery slope argument. The difference is that allowing more people access to higher education means a more productive workforce and ultimately a better economy. It's an investment. The government subsidizes the loan at cost to the taxpayer, the loan company doesn't lose any money, and the country is ultimately better off. The other industrys you mentioned do not share this characteristic of having an expectancy of paying future dividends.

It isn't a slippery slope argument, I'm not saying "if you reduce the profitability of the loan industry, you'll eventually want to reduce the profitability of all industries!" ... I'm saying the argument could be made about any industry.

And I disagree. Without adequate food and housing people aren't going to be bothered with a higher education. The hierarchy of needs kicks in: it's hard to concentrate on Aristotle and studying for your BioChem exam when your stomach is growling and the rain is soaking you to the bone.

So by that logic, "investing" in subsidized food and housing is even more important than doing so in education. If you don't, you're much less likely to reap any future benefits from educating these people because they'll be too busy just trying to get food and housing!

[Publius]

and as thomez is saying: the interest rate you pay on a student loan after graduation changing has absolutely zero impact on access to higher education, so that's a fallacious argument. You would have a point if it was changing the number of loans given.

Oh wait, it probably will. Reducing the interest rate in loans makes private loan companies less profitable. Since they are less profitable, many will stop providing student loans or become more and more picky about who they will give them to. As more and more Americans head for college, the number of student loans offered will be getting smaller and smaller.

Thus by forcing down the interest rate, you're actually decreasing access to higher education because students will be less able to get loans due to the reduction in loans given out (in an effort to only provide loans to students they deem as "low risk" so that they can retain some modicum of profit potential).

[WickedLou9]

Originally Posted by thomez

Lowering the Interest Rates Paid After Graduation has NOTHING to do with increasing access to higher education!!!!!11

I'm not sure if I totally buy that, but the reduction of loan rates is only one aspect of the plan.

College Cost Reduction Act of 2007 - Amends the Higher Education Act of 1965 (HEA) to alter the Pell Grant program by: (1) increasing the maximum Pell grant; (2) removing the tuition sensitivity provision reducing the Pell Grant available to students attending low cost schools; (3) allowing year-round Pell grants; (4) increasing students' Pell grant eligibility by increasing their income protection allowance; (5) altering the formula for determining whether a student qualifies for a simplified means test and zero-expected family contributions; and (6) excluding certain income and assets from student need determinations.
Alters HEA student loan programs by: (1) cutting the interest rate charged undergraduate student borrowers under the Federal Family Education Loan (FFEL) and Direct Loan (DL) programs; (2) increasing limits on federally-insured loans; (3) reducing special allowance payments to lenders; (4) eliminating exceptional performer status for lenders; (5) reducing the lender insurance percentage; (6) reducing the percentage of defaulted loan collections a guaranty agency may retain; (7) changing the formula for determining the account maintenance fees paid to guaranty agencies; (8) increasing the loan fee charged certain lenders; and (9) requiring lenders and guaranty agencies to provide institutions of higher education (IHEs) and third-party servicers with student loan information to prevent loan defaults.
Provides student loan forgiveness to borrowers who serve in areas of national need as early childhood educators, nurses, foreign language specialists, librarians, certain highly qualified teachers, child welfare workers, speech language pathologists, National Service participants, and public sector employees.
Forgives the balance due on DLs by borrowers who have been public sector employees for 10 years and made 120 income contingent payments on such loans.
Makes FFEL and DL repayments by student borrowers income contingent. Allows such borrowers to have their loans forgiven after 20 years of payments. Redefines economic hardship to include borrowers whose earnings do not exceed 150% of the poverty line. Eliminates deferral limits on FFELs, DLs, and Perkins loans. Includes such deferrals in maximum payment periods.
Withholds specified HEA funding from states that reduce their current higher education funding.
Requires that the College Opportunity On-Line (COOL) website be redesigned to include additional college affordability information, including a school's placement on affordability alert status due to its costs increasing at twice the consumer price index over a specified period of time.
Provides IHEs with additional funding to raise Pell grant amounts by specified percentages if they keep, or guarantee to keep, their tuition increases at no more than the increase in the Higher Education Price Index (HEPI).
Provides cooperative education grants to IHEs that keep tuition increases at or below increases in the HEPI, to increase the availability and quality of programs offering students alternating or parallel periods of academic study and related employment.
Establishes a TEACH Grant program providing tuition assistance to undergraduate and graduate students who commit to teaching a high-need subject in a high-need school for four years.
Awards competitive grants to minority serving IHEs to establish centers of excellence that improve the preparation and support of highly-qualified teachers.
Establishes a College Access Challenge Grant program providing matching grants to philanthropic organizations for financial aid, mentoring, and outreach services to increase the number of needy students from underserved populations who enter and complete college.

[thomez]

Originally Posted by Publius

and as thomez is saying: the interest rate you pay on a student loan after graduation changing has absolutely zero impact on access to higher education, so that's a fallacious argument. You would have a point if it was changing the number of loans given.

Oh wait, it probably will. Reducing the interest rate in loans makes private loan companies less profitable. Since they are less profitable, many will stop providing student loans or become more and more picky about who they will give them to. As more and more Americans head for college, the number of student loans offered will be getting smaller and smaller.

Thus by forcing down the interest rate, you're actually decreasing access to higher education because students will be less able to get loans due to the reduction in loans given out (in an effort to only provide loans to students they deem as "low risk" so that they can retain some modicum of profit potential).

nah they're going to keep handing them out because they are subsidized.. if they don't make money on the loan, our wonderful federal government covers the cost plus includes a profit margin for them...

[thomez]

the only thing in that huge list of things the bill does that is worthwhile for reducing the cost of education is increasing Pell grant amounts, etc.

The rest is putting more handcuffs on lenders, likely decreasing their role and increasing the direct loans from the treasury

[WickedLou9]

Originally Posted by Publius

It isn't a slippery slope argument, I'm not saying "if you reduce the profitability of the loan industry, you'll eventually want to reduce the profitability of all industries!" ... I'm saying the argument could be made about any industry.

And I disagree. Without adequate food and housing people aren't going to be bothered with a higher education. The hierarchy of needs kicks in: it's hard to concentrate on Aristotle and studying for your BioChem exam when your stomach is growling and the rain is soaking you to the bone.

So by that logic, "investing" in subsidized food and housing is even more important than doing so in education. If you don't, you're much less likely to reap any future benefits from educating these people because they'll be too busy just trying to get food and housing!

The argument could be made, but it would be a logically flawed arguement as it IS a slippery slope fallacy. You are really reaching with the food analogy. It doesn't even begin to relate to the problem with education. There is no shortage of food in this country, and there are already numerous private and government programs in place to address people who can't afford food, IE food stamps, welfare, soup kitchens, haven from hunger, etc. There is no interest rate to adjust in this area, I don't see the connection.
The government already has progrograms for affordable houseing, There are government sponsored loans for people that need help buying thier first home. These are successful programs.

FYI, there is no data that supports Maslow's need heirarchy. It's a simple diagram that people like to use because it's easy, but it doesn't hold any water. There are no studies that support it.

[WickedLou9]

Originally Posted by thomez

the only thing in that huge list of things the bill does that is worthwhile for reducing the cost of education is increasing Pell grant amounts, etc.

The rest is putting more handcuffs on lenders, likely decreasing their role and increasing the direct loans from the treasury

I don't have a problem with it even if the government is the sole provider of the loans. I say that because on average, the students that go to college that otherwise would not have will earn more money and end up paying more in taxes. They will also increase the GDP of the country, making the economy stronger overall. It's a worthwhile expense.

[Publius]

Originally Posted by WickedLou9

I don't have a problem with it even if the government is the sole provider of the loans. I say that because on average, the students that go to college that otherwise would not have will earn more money and end up paying more in taxes. They will also increase the GDP of the country, making the economy stronger overall. It's a worthwhile expense.

I guess it is just a fundamental difference between our beliefs, because when I look at someone getting an education I don't see it as, "oh good, since they'll be slaves to the government wage garnishing in the future at a higher level than they otherwise would, it's okay to spend my tax dollars on them now."

I just don't think the government should spend my money because they KNOW that they'll be able to tax the recipient of my money to death for the rest of their life, thus in the end it is a net gain (for the government, not me. I don't see an increased flow of money because a guy in New Hampshire graduated from college and got to pay a lower interest on his loans). I'd rather the government reduce taxes, reduce spending, and reduce legislation that handcuffs private providers.

After all, those private providers still give students the opportunity to go to college and become more productive members of society, it isn't as if there is this huge void in education loans that the government is stepping in to fill. The government is pushing around the private loan companies through legislation, trying to marginalize and control them rather than letting them operate in a perfectly acceptable fashion.

[thomez]

It is an unnecessary expense because those that go to college can afford to pay their student loans, and it has nothing to do with increasing access to college. In fact, giving out more money and grants seems to help speed the process of college tuition increases, hurting those they aim to help. Great, my interest rate will be lower when I get done, but I'm going to have to borrow another 6 grand! because of rapid tuition increases that correlate with increases in grants and loan caps.

[WickedLou9]

Originally Posted by Publius

I guess it is just a fundamental difference between our beliefs, because when I look at someone getting an education I don't see it as, "oh good, since they'll be slaves to the government wage garnishing in the future at a higher level than they otherwise would, it's okay to spend my tax dollars on them now."

I just don't think the government should spend my money because they KNOW that they'll be able to tax the recipient of my money to death for the rest of their life, thus in the end it is a net gain (for the government, not me. I don't see an increased flow of money because a guy in New Hampshire graduated from college and got to pay a lower interest on his loans). I'd rather the government reduce taxes, reduce spending, and reduce legislation that handcuffs private providers.

After all, those private providers still give students the opportunity to go to college and become more productive members of society, it isn't as if there is this huge void in education loans that the government is stepping in to fill. The government is pushing around the private loan companies through legislation, trying to marginalize and control them rather than letting them operate in a perfectly acceptable fashion.

But you do benefit. Don't you benefit when the economy is good, the markets are up, etc?

[Publius]

Originally Posted by WickedLou9

But you do benefit. Don't you benefit when the economy is good, the markets are up, etc?

And I would get that benefit ju