Many people were surprised to learn last week that a reform of the federal student loan system would be included in the budget reconciliation bill—a fast-track procedure that is not subject to the filibuster—along with health insurance reform. After all, what do scalpels and deductibles have to do with textbooks and Pell grants?
These two important reforms may seem like strange bedfellows, but it should come as no surprise that they have been included in the same bill. Health insurance reform and education reform were singled out as possible candidates for reconciliation when both chambers of Congress passed the budget for 2010 last April. Now that the Senate is filibustering any idea more controversial than the appreciation of apple pie, the reconciliation process, which has been used by both parties for everything from welfare reform to COBRA, is the only viable option to get both vital reforms passed.
And vital these measures are, especially for young people. According to the Young Invincibles campaign, six 25- to 34-year-olds died each day in 2000 because they did not receive adequate health care due to a lack of insurance. The reconciliation bill may not be perfect, but it would help more than 10 million uninsured members of the Millennial Generation afford health care coverage. And it would ensure that half a million low- and middle-income students do not lose their Pell grants, and that the other roughly 7.5 million students that receive the grant do not see cuts of up to 60 percent.
This is the consequence, according to the administration, of not fixing the funding shortfall in the Pell grant program, which was caused by a recession-fueled explosion in college enrollments and higher financial need. The education package in the reconciliation bill, which was already passed by the House as the Student Aid and Fiscal Responsibility Act, would move college financial aid offices from the Federal Family Education Loan program, which utilizes private banks as heavily subsidized middlemen for federal student loans, to the direct loan program—a more efficient system where the education department bypasses the middlemen and lends directly to students. This would create $67 billion in savings that would be used to save and expand the Pell grant program, as well as provide investments in education and deficit reduction.
Congress, of course, has other options to save the Pell grant program, but these aren’t pretty, and they would not have much time to get it done. They could make deep cuts to other government programs, but it would be difficult to come up with the billions of dollars needed without either running into political roadblocks or disrupting other important federal programs. Congress could also use deficit spending to make up the shortfall, but this would be irresponsible since there is already an option on the table—cutting subsidies to student loan companies—that achieves savings by making government more efficient.
Despite the consequences, the student loan and the health insurance industries have spent millions trying to stop this reform. Some student loan companies have been promoting an alternative proposal. They (sometimes) argue that they are not against reforming the student loan system, saying that they want Congress to consider a compromise that would allow them to collect fees for the rather pointless exercise of providing federal loans to students and immediately selling the loans to the Education Department. Two Congressional Budget Office estimates have shown that this “compromise” would redirect billions of dollars from programs to benefit students into the pockets of lenders. And higher education experts have pointed out that it would retain many of the Federal Family Education Loan program’s current problems while providing no benefits to students.
Their plan makes even less sense now that there is less money to go around. The CBO estimated last July that student loan reform would save $87 billion through the switch to direct lending. Since then, many schools have already switched to the direct loan program because of instability in the lending industry and expectations that SAFRA would pass. This migration away from the heavily subsidized FFEL program is already saving taxpayers money, but unfortunately it means that the savings directly attributable to SAFRA have dropped from $87 billion to $67 billion according to the most recent CBO score. This means that many important policies that were found in previous versions of SAFRA—such as the American Graduation Initiative—have fallen victim to a “success penalty.”
If we wait even longer to pass SAFRA, then the savings available for the Pell grant and other education programs will—on paper—decline even further. Instead of helping students go to college, the savings may end up as earmarks to the national jelly bean museum or a festival commemorating the inventor of mothballs.
Student loan reform and health insurance reform may seem like an odd couple, but Americans—especially young Americans—stand to lose too much by further delay.
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