Cutting Lender Subsidies

What's New

On September 7th, Congress passed the College Cost Reduction and Access Act, the most meaning higher education reform in 15 years. As part of that legislation, student lending companies will receive a reduced rate of return for offering federal student loans and a slightly reduced reinsurance rate from the federal government. As a result of the taxpayer savings, Congress was able to increase grant aid, and help borrowers pay off student debt in a more manageable way.

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 recent budget reveals 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.

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