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Getting smart about student aid


Republicans don’t like handouts. They prefer individual responsibility. Conservatives believe in an America where men and women get ahead through hard work and perseverance. So what if college grads earn 80 percent more than those with only a high school diploma? That’s their just reward. America is the land of opportunity. Those who fail to reap its bounty have no one to blame but themselves. They should quit whining and get back to work.

Lately, all this compassion has been getting harder to stomach. Over the next decade, financial barriers will keep an estimated 4 million qualified high school grads from receiving four-year college degrees and will stop 2 million of them from attending college altogether. These numbers may be even higher if already exorbitant tuition fees continue to climb.

So it was cause for conservative celebration last week, when Congressional Republicans green-lighted a set of new guidelines over at the Department of Education that will reduce Pell Grants for an estimated 1.2 million college students and cut 90,000 out of the program altogether. Every year the government disburses 4.5 million Pell Grants through the $12.4 billion program—grants that, unlike loans, don’t need to be repaid. The grants are administered according to a formula that takes into account variables meant to determine a student’s family’s discretionary income. Under the new guidelines families appear to have less tax burden, and therefore “more” income. This new formula will prove extra painful for the many students who receive financial aid packages from their state or university that are based on the federal aid model. Thanks to a nasty “ripple effect,” the changes over at the Department of Education will shrink the size of these grants as well.

Altogether, the new formula will save $300 million next year, enough to hurt thousands of struggling students but hardly a major step toward closing the growing deficit. Forget about Pell Grants—if Republican lawmakers want to save taxpayers some real money on student financial assistance, they should take a look at the pork that passes for our federal student loan program.

Under the current system student loans are administered through two very distinct mechanisms, the Federal Family Education Loan (FFEL) Program and the Direct Loan program. From the perspective of students there isn’t any difference between the two—the programs lend out money at identical interest rates and under identical terms—but the American taxpayers who fund these operations might want to take a closer look.

The Direct Loan program is a good model of government efficiency: The feds raise capital at low interest rates, lend it directly to college students, and pick up the interest for their trouble. This offsets the cost of contracting out the collection duties to private companies.

If the Direct Loan program is an example of affirmative government at its best, the FFEL is an altogether different beast. Under FFEL the federal government subsidizes banks and other private companies to serve as intermediary actors, ensuring that they receive a baseline interest rate return and covering all default risks. Companies that get in on this sweet deal make out like bandits. Sallie Mae, the biggest player in this racket, is the second most profitable company in the Fortune 500, earning a pretty 36.9 percent return on revenues.

Thanks to the intransigence of Congressional Republicans, colleges get to opt in to the loan program of their choice. More often than not they choose FFEL, often under pressure from state agencies that collect a small percentage off the loans too.

So what does all this add up to for taxpayers? A report released earlier this year by the Center for American Progress estimates that cutting FFEL and administering all loans directly will save taxpayers a whopping $4.5 billion every year. That’s more than enough to cover the $300 million Republicans are so eager to cut from next year’s Pell Grants. And while they’re at it, Congress should use that windfall to raise the maximum Pell Grant up from the measly $4050 where it’s stagnated now for years. After adjusting for inflation, that’s $500 less than the maximum Pell Grant in 1975.

Republicans need to learn a little responsibility— they should stop giving free handouts to corporate freeloaders and start expanding student aid programs to help more hard-working Americans get ahead.

Sasha Post ’05 is a social studies concentrator in Adams House. His column appears on alternate Wednesdays.

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