Affordability

By Ben Miller, Stephen Burd, and Sara Mead

A decade after its last reauthorization and five years since an updated version was due, a new version of the Higher Education Act is finally ready for Congressional passage. With both chambers set to vote on the bill this week, Higher Ed Watch will take a closer look at various parts of the legislation over the next two days. Today, we praise lawmakers for doing the following:

• Putting Teeth Into Loan Auctions

Last year, Congress created a groundbreaking pilot auction program that uses market forces to set student loan subsidy rates for lenders making federal PLUS loans to parents and graduate students. With about a year left to enact the pilot project, lawmakers have added penalties for lenders who win an auction and then back out. The bill allows the Education Secretary to punish lenders that violate the terms of the auction agreement by one of the following methods: fining the lender for any additional costs needed to find and subsidize a replacement PLUS loan lender; banning the offending lender from future auctions; or, kicking them out of the Federal Family Education Loan (FFEL) program entirely. We particularly like the fact that the Secretary can retrieve the fine by reducing subsidies paid to the lenders on other FFEL loans or having another federal agency garnish other subsidies the lender might receive. While we have some complaints about the language (it doesn't, for example, address the PLUS loan auction bidding cap, which needs to be more flexible to encourage robust bidding in a range of financial market conditions), overall, we believe that this provision is an important step forward in getting this pilot program off the ground.

By Art Hauptman

There is widespread agreement among financial aid analysts and practitioners that our country's student aid system is not working as effectively as it could be. Many believe that the solution to this problem is to have the federal government substantially increase the amount of money it spends on the existing student aid programs.

I disagree. The federal government currently spends roughly $40 billion for grants, college work study, loan subsidies, and tax breaks for college -- more than enough to achieve the programs' goals if they were operating effectively and efficiently. As I argued last week, the current structure of student financial support in this country needs to be changed in fundamental ways.

By Art Hauptman

Current arrangements for providing financial support to college students and their families in this country are not meeting many of the objectives for which they were intended. The Spellings Commission summed it up well in its final report: "The entire financial aid system - including federal, state, institutional, and private programs - is confusing, complex, inefficient, duplicative, and frequently does not direct aid to students who truly need it." As a result, the Commission and a number of other groups with wide ranging political agendas have recommended that "the entire student financial system be restructured". But what would that entail?

Since first established in the 1960s, the federal student aid programs of grants, loans, and work-study - in concert with state, institutional, and private efforts - have provided access to a postsecondary education for millions of Americans who otherwise might not have had enough funds to attend. More recently, federal tax offsets against current tuition expenses and tax-preferred incentives for college savings serve as an important source of financial relief for hard-pressed taxpayers from a range of incomes who worry that they will be unable to pay the constantly mounting bill for tuition and other expenses.

Myth: An individual mandate would force families to forgo other necessities in order to buy health insurance.

Fact: All existing mandate-centered reform plans include subsidies for low-income people to ensure affordability, and insurance reforms to make health insurance markets work for all Americans.

Over the last several months, the student loan industry and its allies on Capitol Hill have led a campaign to persuade the news media and policymakers that Congress went too far last year when it cut taxpayer subsidies to lenders that participate in the Federal Family Education Loan (FFEL) program. The lenders and their friends argue that the subsidy cuts and tightening credit markets now are leaving students in jeopardy of losing access to federally guaranteed student loans. Don't believe it.

Yesterday, a key Congressional education committee took a groundbreaking albeit modest step on a top flight concern of parents and students - ever escalating college tuition.

For years, the federal government's main role in higher education finance has been to…

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Responding to our coverage of last week's higher education reconciliation bill, Cato's Neal McCluskey asks, "How can you love an auction because it supposedly uses market forces, while simultaneously supporting the gargantuan market distortion that is the overall federal student aid system?"

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The U.S. News & World Report's annual ranking of colleges and universities, "America's Best Colleges 2008," was published last week with typical fanfare. High school students and their parents likely flipped immediately to the "top schools" ranking, where they found-gasp!-that Princeton University earned the top spot…

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The New York Times has Higher Ed Watch reconsidering our thinking on why college tuition is going up. Our hypothesis had been that skyrocketing tuition is driven by the combination of: (1) declining state support for higher education, and (2) an "arms race"…

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Over the next couple of weeks, Higher Ed Watch will offer Congressional Democrats, Republicans, and the Bush Administration political and detailed policy advice on how to increase college affordability. We begin with a political lay of the land, because it's where policy begins and ends.

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.