Summary

Americans now hold a trillion dollars in student loan debt, in large part because tuition has soared and state policies have shifted more and more of that increasing burden off taxpayers and onto would-be students. The remarkable threshold of aggregate debt has focused attention on a variety of legislative battles over financial aid programs. The interest rate on federally subsidized Stafford Loans was set to double this summer, for instance, until a late June compromise. Congressional Republicans had said the only impasse was over how to pay for the lower rates going forward, but the budget House Republicans passed this spring would have allowed the rates to double while also imposing steep cuts to the Pell Grant program for low-income students. The contrast between progressive and conservative aims for financial aid spending was perhaps clearest in 2010, however, when Democrats ended billions in giveaways to the banks who had acted as middle men for federally guaranteed loans; Republicans decried that efficiency move as a government “takeover” of the student loan industry.

Rising Tuition, Shrinking Public Funds, And A Trillion Dollars In Student Debt

Total Student Loan Debt Outstanding Has Reached Approximately $1 Trillion. From Inside Higher Ed: “Total student debt will pass $1 trillion soon, or surpassed that mark months ago or just last week, depending on which analysis you choose. (The Federal Reserve in March said total outstanding student loan debt stood at $870 billion. The Consumer Financial Protection Bureau believes the debt surpassed $1 trillion several months ago. The Occupy movement picked April 25 to commemorate the $1 trillion mark with marches and protests.) Americans now owe more on student loans than they do on credit cards.” [Inside Higher Ed, 5/3/12]

States Cut Per-Student Funding More Than 25 Percent, Tuition Costs More Than Doubled At Public Universities Over Past Two Decades. From a report titled “The Great Cost Shift” by Demos: “While state spending on higher education increased by $10.5 billion in absolute terms from 1990 to 2010, in relative terms state funding of higher education declined. Real funding per public [full-time equivalent student] dropped by 26.1 percent from 1990-1991 to 2009-2010. As state support has declined, institutions have balanced the funding equation by charging students more. […] Between 1990-1991 and 2009-2010, published prices for tuition and fees at public four-year universities more than doubled, rising by 112.5 percent, after adjusting for inflation, while the real price of two-year colleges climbed by 71 percent.” [“The Great Cost Shift,” Demos.org, March 2012]

Despite Significantly Higher Costs And Risks, Private Student Loan Volume Nearly Tripled From 2003-2007. From the Project on Student Debt: “Private student loans are one of the riskiest ways to finance a college education. Like credit cards, they usually have variable interest rates that are higher for those who can least afford them – as high as 18% in 2008. But unlike credit card debt, these loans are nearly impossible to discharge in bankruptcy. And private student loan borrowers are not eligible for the important deferment, income-based repayment, or loan forgiveness options that come with federal student loans. […] The percentage of all undergraduates with private loans has risen dramatically, from 5% in 2003-04 to 14% in 2007-08, and the number of private loan borrowers increased from approximately 935,000 to 2,946,000. Private loan volume also grew substantially, from $6.5 billion in 2003-04 to $17.1 billion in 2007-08.” [ProjectOnStudentDebt.org, July 2011, emphasis added]

Unlike Consumer Debt, Student Loan Debt Cannot Be Discharged In Bankruptcy. From the Huffington Post: “Thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005, virtually no student loans can be discharged in bankruptcy. So in practical terms, if you have $200,000 in debt for credit cards, car payments, or mortgage payments from a private bank, they can all be wiped away in bankruptcy. However, student loans from the same private lender cannot. The argument is that you can take away someone’s car when they file bankruptcy, but you cannot take away their education.” [Huffington Post, 4/20/12]

As Higher Ed Costs Have Shifted From Public Funding To Private Debt, America Has Fallen Behind The World In College Attainment. From Demos: “The shift toward privatizing the costs of public higher education is one of the contributors to the Unites States falling behind other advanced nations in college attainment: The United States has the best educated older population in the world but among 25-34 year olds, we rank 10th.” [Demos.org, 4/25/12]

Subsidized Stafford Loans

Three-Quarters Of Subsidized Loan Borrowers Come From Families Making Less Than $60,000 Per Year. From Inside Higher Ed:

But some subsidized loans, on which the government pays the interest while students are enrolled in classes, go to the middle class: In 2008, the latest year for which data is available, one-quarter of all recipients came from families making more than $60,000 annually, and 12 percent came from families making more than $80,000. Many more middle-income students borrow unsubsidized loans, which already have a 6.8 percent interest rate.

[Inside Higher Ed, 5/3/12]

2007 Bill Halved The Interest Rate On Federally Subsidized Stafford Loans, But Included Expiration Date In July 2012. From the New York Times: “The low interest rate stemmed from the 2007 College Cost Reduction and Access Act, which reduced interest rates on subsidized Stafford loans over the following four academic years – from 6.8 percent to the current 3.4 percent – with the proviso that the rates would revert to 6.8 percent this July. Extending the low rate would be too costly, [Rep. John] Kline [R-MN] said. ‘We must now choose between allowing interest rates to rise or piling billions of dollars on the backs of taxpayers,’ he said. ‘I have serious concerns about any proposal that simply kicks the can down the road and creates more uncertainty in the long run – which is what put us in this situation in the first place.’ Mr. Kline, who earlier this year called the interest-rate hike a ‘ticking time bomb set by Democrats,’ said he was exploring other options in hopes of finding a solution that served borrowers and taxpayers equally well. When the 2007 law was passed, 77 Republicans – most of whom are still in Congress – voted for it. But in the current climate of fractious partisanship, new legislation introduced by Representative Joe Courtney to extend the lower rate has 127 co-sponsors, all of them Democrats.” [New York Times, 4/20/12]

• The Lower Rates On Stafford Loans Cost $6 Billion Per Year, According To CBO. From the New York Times: “The Congressional Budget Office has estimated that a one-year freeze on the interest rate for subsidized Stafford loans would cost $6 billion.” [New York Times, 4/20/12]

Increased Rates Would Affect Over 7 Million Students Expected To Take Out New Loans. From Inside Higher Ed: “On subsidized loans, students currently pay an interest rate of 3.4 percent, and the government picks up the tab for interest that accumulates while borrowers are enrolled in school — leading to smaller bills when borrowers enter repayment. Unsubsidized loans, which are available to students regardless of financial need, already have an interest rate of 6.8 percent, and the interest accumulates while borrowers are still attending college. If the rate doubles, it will affect only borrowers taking out new subsidized loans — about 7.4 million students, the administration estimated.” [Inside Higher Ed, 4/23/12]

Student Loan Program Changes In 2010 – Ending Bank Subsidies, Shoring Up Pell Grant Funding – Were Attacked By GOP And Industry Lobbyists

Student Loan Reform Bill Passed Alongside Health Care Reform Saved $68 Billion Over 11 Years By Cutting Middle Men Out Of Federal Student Loan Program. From the New York Times: “Mr. Obama traveled to a community college where the wife of his vice president teaches to draw attention to the student loan overhaul attached to the final piece of health care legislation that passed last week. In signing the bill, he put the final touches on his health care program but used the occasion to highlight the education provisions. […] The new law will eliminate fees paid to private banks to act as intermediaries in providing loans to college students and use much of the nearly $68 billion in savings over 11 years to expand Pell Grants and make it easier for students to repay outstanding loans after graduating. The law also invests $2 billion in community colleges over the next four years to provide education and career training programs to workers eligible for Trade Adjustment aid.” [New York Times, 3/30/10, emphasis added]

• “The Education Changes Essentially Cut Private Banks Out Of What Is Already An Entirely Federalized Program.” From the New York Times: “But the ‘government takeover’ argument may provide difficult to sustain. The health care bill is projected to direct more than 16 million new customers to private health insurance companies over the next 10 years. And the education changes essentially cut private banks out of what is already an entirely federalized program. The student loans are made using taxpayer money, with repayment almost entirely guaranteed by the federal government. The private banks get paid fees to originate the loans, and then sell them back to the government.” [New York Times, 3/30/10]
• Bill Also Increased Funding For Pell Grants. From the New York Times: “The law will increase Pell Grant grants along with inflation in the next few years, which should raise the maximum grant to $5,975 from $5,550 by 2017, according to the White House, and it will also provide 820,000 more grants by 2020. Including money from last year’s stimulus program and regular budget increases, the White House said Mr. Obama has now doubled spending on Pell Grants.” [New York Times, 3/30/10]

Sen. Lamar Alexander, Rep. John Boehner Blasted End Of Big Bank Subsidies For Serving As Middle Man On Federal Student Loans As Takeover Of Private Industry. From the New York Times: “Senator Lamar Alexander, Republican of Tennessee and a former education secretary, also spoke out angrily against the plan to end the subsidies to private banks. Tennessee, too, is home to some big players in the private student lending industry. In a statement Tuesday, he bemoaned the government getting more deeply into the loan business directly. ‘The Obama administration’s motto is turning out to be: ‘If we can find it in the Yellow Pages, the government ought to try to do it,’’ Mr. Alexander said. […] The House Republican leader, Representative John A. Boehner of Ohio, wasted no time in blasting both the health and education components of the reconciliation bill. ‘Today the president will sign not one, but two job-killing government takeovers that are already hurting our economy,’ Mr. Boehner said in a statement.” [New York Times, 3/30/10]

Student Loan Industry Lobbied Heavily Against The Changes And Sought To Portray Plan As “Government Takeover.” From the New York Times: “Sallie Mae, a publicly traded company that is the nation’s biggest student lender with $22 billion in loans originated last year, led the field in spending $3.48 million in federal lobbying in 2009, an increase from $3.2 million in 2008, and other lenders spent millions of dollars more, according to an analysis prepared for The New York Times by the Center for Responsive Politics. Political action committees for the lenders and company employees made $2.1 million in political contributions last year, with the money split evenly among Democrat and Republican candidates, the data showed. Sallie Mae’s PAC alone made $194,000 in donations. […] The student loan industry, which would be forced out of the loan origination business if the proposal became law, is seeking to cast the administration’s plan as an ill-conceived government takeover that could put thousands of people out of work at private lending centers around the country at a time when unemployment is hovering around 10 percent.” [New York Times, 2/4/10, emphasis added]

Conservative Attempts To Slash Pell Grants And Double Rates On Subsidized Loans

Pell Grant Program Provides College Funding To Students From Low-Income Families. From the Department of Education: “The Federal Pell Grant Program provides need-based grants to low-income undergraduate and certain postbaccalaureate students to promote access to postsecondary education. Students may use their grants at any one of approximately 5,400 participating postsecondary institutions. Grant amounts are dependent on: the student’s expected family contribution (EFC) (see below); the cost of attendance (as determined by the institution); the student’s enrollment status (full-time or part-time); and whether the student attends for a full academic year or less.” [Ed.gov, accessed 5/8/12]

Spring 2011: House GOP Passes H.R. 1, Budget Proposal That Would Have Cut Pell Grants By $5.7 Billion In 2011, And More In Following Years. From the Center on Budget and Policy Priorities: “H.R. 1 reduces 2011 funding for Pell Grants by $5.7 billion and the maximum award amount for a student by $845 below what the current continuing resolution provides.  As described in the section on the effect of the cuts proposed in H.R. 1, this would reduce the average annual award for more than 9 million Pell Grant recipients by $785 in school year 2011-2012. But, according to the Congressional Budget Office (CBO), the proposed Pell Grant cut in H.R. 1 will have an additional large and growing effect on the program in fiscal year 2014 and later years. […] Thus, in 2014 the total maximum award for a Pell Grant recipient would be $1,705 (or 30 percent) below the $5,730 maximum award projected under the policy of the current continuing resolution (the combination of $4,860 for the discretionary award and $870 for the mandatory award) and $1,525 below today’s maximum Pell Grant award of $5,550.  The cut below the currently projected maximum award would grow to $2,090 (or 34 percent) in 2017.” [CBPP.org, 3/1/11]

• Spending Cut Compromise Preserved Maximum Pell Grant Levels, Eliminated Provision Allowing Second Pell Grant For Summer Classes. From Inside Higher Ed: “In the final compromise, the maximum Pell Grant amount stayed at $5,550, a priority for President Obama, and deep cuts to health and energy research were largely averted. […] As a shutdown loomed and the fight over the 2011 budget continued, keeping the maximum Pell Grant at $5,550 was a top priority for higher education lobbyists. The loss of the ‘second Pell,’ which allowed students to pay for summer classes, came to be seen as a sacrifice necessary to pay for the vast grant program, and even Obama proposed ending the summer grant in his 2012 budget. Pell Grants for summer study have been available only since the 2009-10 academic year, and little information is available so far on their effectiveness. Among administrators, they were viewed as an add-on, rather than a necessity.” [Inside Higher Ed, 4/13/11]

Fall 2011: House GOP Proposed Sweeping Changes To Pell Grant Eligibility, Amounting To $2.3 Billion Cut To Program. From Inside Higher Ed: “House Republicans released a proposed budget for the 2012 fiscal year on Thursday that would preserve the maximum Pell Grant at $5,550 but change the program’s eligibility criteria, make deep cuts to colleges that serve minorities, and block enforcement of some of the Education Department’s controversial program integrity rules. […] The cuts are less deep than House Republicans proposed in February, but the recommended changes to Pell Grants surprised many of the program’s supporters, who believed that the deal on raising the federal debt limit had sheltered the grants for the upcoming fiscal year. Among the biggest impacts the budget plan would have on the Pell Grant program: Students who attend college less than half-time would no longer be able to receive the grants. The grants could be used for only 12 semesters, not 18. Students who are eligible for less than 10 percent of the maximum grant would receive nothing. The bill would also change income protection allowances and lower the income level that results in an expected family contribution of zero. Over all, the changes would cut $2.3 billion from the Pell Grant program in 2012.” [Inside Higher Ed, 9/30/11]

Spring 2012: House GOP Budget Would Permanently Freeze Pell Grant Maximum Amount And Dramatically Shift Eligibility, Effectively Cutting The Program. From the Center on Budget and Policy Priorities: “The Ryan budget would both cut Pell benefits and eligibility and freeze the maximum grant at $5,550 per student per year, apparently on a permanent basis.  Together, these changes would reduce the program’s funding needs by roughly $50 billion over ten years, by making fewer lower-income students eligible for the grants and reducing the size of the grants for students who still can receive them.” [CBPP.org, 4/26/12]

• House GOP Budget Would Triple The Funding Shortfall In Pell Program. From the Center on Budget and Policy Priorities:

Even though its costs are expected to remain flat over the next decade, the Pell Grant program, which helps students from low-income families pay for college, faces an $8 billion funding gap in fiscal year 2014 and a $58 billion shortfall through 2022 because the way Congress has funded it in recent years has made its cost appear artificially low.

The President’s budget and the House-passed budget from Budget Committee Chairman Paul Ryan provide radically different approaches to the shortfall.  The President’s budget does not cut Pell benefits or eligibility, covers Pell funding needs for fiscal year 2014, and modestly reduces the shortfall for the next decade (to $51 billion); the Ryan budget almost triples the size of the shortfall (see Figure 1) even as it significantly cuts Pell benefits and eligibility.

[CBPP.org, 4/26/12]

House GOP Budget Included Doubled Rates On Stafford Loans, $170 Billion In Cuts To Pell Grants, End To Subsidized Interest While Students Still In School. From the Huffington Post: “More than 1 million students would lose Pell grants entirely over the next 10 years under Rep. Paul Ryan’s budget, according to an analysis that the national reform organization Education Trust provided to The Huffington Post. […] The plan proposed by Ryan (R-Wis.), who chairs the House Budget Committee, would chop away at Pell grant eligibility, thereby reducing total Pell grants by about $170 billion over the next decade; allow the interest rate for federally subsidized Stafford loans to double; end student loan interest subsidies for those still in school; and make Pell spending discretionary — instead of mandatory — allowing further cuts down the line. Pell grants, the largest source of federal financial aid, currently help more than 9 million students to afford college. Following last year’s budget standoffs, next year’s maximum Pell grant of $5,645 will cover just one-third of the average cost of college — the smallest share ever.” [Huffington Post, 3/27/12]

Reuters: 30 House Republicans Came Out Against Extension After Club For Growth Announced Opposition To All Federally-Subsidized Student Loans. From Reuters: “Not all members of Boehner’s party agree that the rate should be renewed. Thirty Republicans broke ranks and voted against the House bill last month after the Club for Growth, an influential conservative advocacy group, came out against it. ‘The government should not be in the business of subsidizing student loans,’ the organization said.” [Reuters, 5/7/12]

GOP Wanted To Cut Health Care Reform To Offset Costs Of Extending Lower Stafford Loan Rates. From Reuters: “Senate Republicans on Tuesday are expected to block a proposal by President Barack Obama’s Democrats to cover the cost by plugging what they call a tax loophole for the rich. Senate Democrats are expected to reject a bill passed two weeks ago by the Republican-led House of Representatives to fund it by taking money away from Obama’s healthcare overhaul.” [Reuters, 5/7/12]

Senate Republicans Filibustered Democratic Bill To Pay For Extension By Closing Tax Loophole. From the New York Times: “Senate Republicans on Tuesday blocked consideration of a Democratic bill to prevent the doubling of some student loan interest rates, leaving the legislation in limbo less than two months before rates on subsidized federal loans are set to shoot upward. Along party lines, the Senate voted 52 to 45, failing to clear the 60-vote hurdle needed to beat back a filibuster and begin debating the measure. Senator Olympia J. Snowe, the retiring moderate Republican from Maine, voted present. Republicans said they wanted to extend Democratic legislation passed in 2007 that temporarily reduced interest rates for the low- or middle-income undergraduates who receive subsidized Stafford loans to 3.4 percent from 6.8 percent. But they oppose the Senate Democrats’ proposal to pay for a one-year extension by changing tax law that currently allows some wealthy taxpayers to avoid paying Social Security and Medicare taxes by classifying their pay as dividends, not cash income.” [New York Times, 5/8/12]

Congress Eventually Passed One-Year Extension Of Lower Stafford Rates As Part Of Transportation And Flood Insurance Bill. From the New York Times: “Congress gave final approval on Friday to legislation that combines a two-year transportation measure with bills to extend subsidized student loans and revamp federal flood insurance, wrapping up a bruising session with measures that will be popular on the campaign trail. The final $127 billion package angered fiscal conservatives and liberal environmentalists alike, but leaders in both parties — along with many rank-and-file lawmakers — wanted to put the issues behind them. Exhausted members of both parties pointed to the legislation as a tonic for the ailing job market, as well as proof that an unpopular Congress could get something done. The House passed it by 373 to 52, the Senate by 74 to 19. All the no votes were by Republicans.” [New York Times, 6/29/12]