Cutting Lender Subsidies

What's New

On February 26, 2009, President Obama released his 2010 budget proposal which could have profoundly positive effects on students and families seeking approaches to pay for college other than by taking on deep student debt. The proposal funds the Pell grant program permanently, making it increase consistently year in and year out so students and families can count on it. In addition, it makes the higher education tax credit permanent.

We’ll need your help to ensure that the higher education pieces of the budget make it through both chambers of Congress over the next several months. Because the educational investments are paid through by cutting excessive lender subsidies from within the loan programs, the banks will lobby heavily to stop this proposal from advancing.

Overview

Currently, the federal government operates two major programs to provide loans to help students pay for college: the private sector Federal Family Education Loan (FFEL) program and the government’s Direct Loan (DL) program.

President Bush’s last two budgets revealed that the bank (FFEL) program costs taxpayers billions of dollars more each year to run than does the DL program. From 1992 to 2004, the cumulative taxpayer subsidy costs were $39 billion for FFEL loans, and only $3 billion for Direct Loans. For a typical college student’s debt of $20,000, the federal government spends nearly $2,200 more in subsidy costs for a loan through the FFEL program. Building upon that evidence, President Obama this year proposed to eliminate the excessive subsidies to instead apply that money to financial aid.

CALPIRG research indicates that high debt limits career options for graduates. Student loan subsidies for private, for-profit lenders can take money away from taxpayers and from the students that would benefit from an increase in student aid.

Report

Cutting Interest Rates, Lowering Student Debt

Paying Back, Not Giving Back: Student Debt’s Negative Impact On Public Service Career Opportunities

Links

The State PIRGs Higher Education Project
University of California Student Association
California State Student Association
California Postsecondary Education Commission
California State Student Association

ISSUES