TUNE IN: Taking Action on AI Today and in the Future

RSVP to join our online audience


Loan Bait and Switch

The Downsides of President Bush’s Plan to Expand Pell Grants

Campus Progress on why Bush's plan to expand Pell Grants would sound sweeter if he wasn't pairing it with budget cuts for student aid.

This article is reprinted from Campus Progress.org, the youth-oriented magazine of the Center for American Progress.

Earlier this month, the political equivalent of a solar eclipse took place. Senator Edward Kennedy (D-MA) and President George W. Bush put aside their partisan differences and almost agreed on something important: student financial aid. Kennedy called Bush’s 2008 budget for education a “welcome development”—the president advocates raising the maximum annual Pell Grant for low-income college students to $5,400 by 2012, while Kennedy’s proposes to do so by 2009. Washingtonians looked to the darkened sky in awe; maybe this is what bipartisanship looks like.

But, like any eclipse, a long look at the president’s 2008 budget turns a rare, beautiful event into a headache. The last time Kennedy and Bush bridged the partisan divide was when the president proposed the No Child Left Behind Act in 2001, promising to reform the education system. Their cross-party alliance collapsed when the administration refused to fully fund the law. And history seems to have repeated itself: In order to fund the Pell Grant program in 2008, the president wants to cut more than $1 billion from other student aid programs.

This time, Bush’s alliance with the Massachusetts senator came crashing down in less than two weeks. “We should reject his proposal to cut [student aid] programs, which low-income students depend on,” Kennedy said Tuesday.

One such program, the Supplemental Educational Opportunity Grants (SEOG), which provides more than $880 million in aid to low-income students nationwide, would disappear entirely under Bush’s budget. According to a recent study by the American Council on Education, this would mean that more than one million students who are currently receiving assistance from the SEOG program would receive less financial aid next year, in some cases losing more than $3,000.

“Every presidential budget, regardless of party, contains at least one bad idea,” said the council’s senior vice president Terry Hartle, in an interview with Inside Higher Education. “For 2008, it’s eliminating SEOG.”

The Bush administration is trying to spin this policy as an example of its newfound commitment to fiscal responsibility, arguing that the SEOG program is wasting taxpayer money by subsidizing students who attend expensive universities.

The president’s solution is to encourage these low-income students to attend cheaper community colleges instead of more prestigious—and more expensive—four-year universities. By eliminating the SEOG program, which targets its aid to students who want to attend these universities, Bush would relegate low-income students to community colleges in the name of thrift.

Cindy Brown, director of education policy at the Center for American Progress, predicted that Bush’s education plan will widen the already glaring inequalities in access to higher education. Under the Bush plan, Brown told Campus Progress, “fully prepared low-income high school students are channeled to lesser quality institutions, if they are able to pursue their educations at all.”

In addition to the SEOG program, the Leveraging Educational Assistance Partnership, which encourages states to provide need-based financial aid to college students, would be eliminated along with the Robert Byrd Honors Scholarship Program. The final result would be the replacement of a flexible student aid system with the one-size-fits-all Pell Grant program—what education lobbyists are calling a policy of “robbing Peter to pay Pell.”

Administration officials also admit that many students will lose all their federal aid if the new budget is passed. Since the Bush plan doesn’t significantly increase the number of people eligible for the Pell Grant program, some students will inevitably be left out when other aid programs are shut down. While the exact number is a subject of contention, there is a consensus that at least 110,000 students currently receiving federal aid would get nothing next year if Bush has his way.

Indeed, Bush’s plan simply shuffles current funding instead of increasing the overall education budget. “It is disingenuous at best to claim that federal support for low-income college students is being increased in any way through the Bush administration’s proposals,” Brown said. “This administration treats such aid as a zero-sum game.”

As if trying to disadvantage as many college students as possible, the president’s plan also undercuts students who receive loans from private lenders in its 2008 budget proposal. The federal government currently provides billions of dollars worth of subsidies to private lenders in exchange for a guarantee that college students can receive student loans. Democrats have long advocated that Washington should redirect this funding to the government-led Direct Loan program, and the House recently approved gradual cuts to private lender subsidies to accomplish this goal. The Bush administration’s plan moves substantially quicker, with cuts five times larger than the Democratic proposal, yet it does not provide any more funding for the Direct Loan program.

Many in the private lending industry see Bush’s plan as too drastic, arguing that deep cuts to private lender subsidies will force companies to leave the student loan market altogether. Charles Gabriel, an analyst for Prudential Equity Group, said Bush’s plan is tantamount to “throwing the student loan industry under the bus,”—and it’s only a matter of time before they get out of the street.

Bush’s budget may not even need congressional approval for it to critically damage the student loan industry—simply by proposing his budget for 2008, the president caused private lending companies to plummet in the stock market. The day the administration revealed its new education plan, the stock of student loan provider Sallie Mae saw its biggest one-day decline in more than 14 years. Student Loan Corporation and Nelnet experienced similar losses, straining their ability to provide attractive loans for the next school year.

Three years after his initial cooperation, Ted Kennedy parted ways with Bush over the No Child Left Behind Act when he realized that the president was not committed to fully funding the law and making it work. This time around, the cross-party alliance was shorter lived—Bush’s quest to save the taxpayer a few dollars doesn’t attempt hide the fact that it short-changes low-income students who want to attend prestigious universities or receive private student loans. You better put away that pinhole viewer away—the rays of bitter partisanship and radical conservatism will be hitting Washington for a long time to come.

The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here. American Progress would like to acknowledge the many generous supporters who make our work possible.