NEWS SCOOP: College Aid Plan Details

article | September 05, 2007

With release of a more than $20 billion higher education budget reconciliation plan that slashes student loan provider subsidies over the next five years and includes a groundbreaking pilot auction program that uses market forces to set student loan subsidy rates, the U.S. Congress moved to dramatically increase student financial aid. This afternoon, a key House-Senate conference committee approved the plan, which includes a series of policy changes championed for more than two years by Higher Ed Watch.

If passed, the reconciliation bill will cut over $20 billion in student loan bank subsidies and direct nearly all of those funds to increased student financial aid, particularly Pell Grants. Over $11.4 billion will go to need based Pell Grants and more than $6 billion will finance cutting need-based student loan borrower interest rates in half -- phased down from 6.8% to 3.4% over the next four years.

Higher Ed Watch has obtained the Congressional Budget Office's analysis of the plan's costs and savings. It also serves as a handy summary of the plan's details.

The bill, which is expected to receive bipartisan support, will now go before both chambers of Congress, where if passed, it will be sent to President George W. Bush to be signed into law.

We at Higher Ed Watch are heartened. The bill represents a substantial reduction in taxpayer waste on student loan bank subsidies and provides a tremendous increase in student financial aid. Millions of students will get cheaper loans and bigger grants. But its incumbent upon the colleges to make sure that students are the ones who benefit. This is not the time for colleges to eat away at historic financial aid gains by inordinately increasing tuition or decreasing their own financial aid budgets.

We laid out the political roadmap for this deal more than six months ago. There have been three key moments along the way.

First, the President triangulated conservative Republicans when he made common cause with the Democratic majority and proposed his own lender subsidy reductions.

Second, extensive media coverage of student loan corruption made Congressional inaction publicly unacceptable.

Third and finally, Congressional Democrats pursued a budget reconciliation plan to increase student financial aid via bank subsidy cuts that are not dramatically larger than the Presidents plan.

The combination of the President's own proposal to cut lender subsidies, media attention to the student loan kickback scandal, and a filibuster-proof legislative vehicle make this bill nearly impossible to stop.

Most groundbreaking though is the conferees embrace of market mechanisms in setting student loan lender subsidy rates. Higher Ed Watch staff argued for the auction concept in a Washington Post op-ed and helped draft the House passed version of a student loan auction plan. The conferees agreed on the Senate's version. Regardless, the auction pilot represents a paradigmatic shift for Americas student loan programs. If this idea becomes law and is appropriately implemented, back room politics will no longer determine subsidy levels for loan providers. Market forces will set those rates, and taxpayers will reap the rewards.

Today is a big day for college access and college affordability.


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