Politics & Policy

Courting the Middle Class

Lowering interest rates won't help send poor kids to college.

The House and Senate passed, and President Bush will soon sign, the College Cost Reduction and Access Act (CCRA). Congressman George Miller, who heads the House education committee, said this piece of legislation “will do more to help students and families in this country pay for college than any effort since the GI Bill.”

So is CCRA really that spectacular? It’s certainly drastic. It cuts roughly $20 billion from subsidies to private loan providers (a result of this spring’s student loan scandals) and reinvests that money into higher education aid. The providers are complaining, of course, that without government subsidies they will be forced to slash benefits they heretofore offered to students, and they note that the smaller lenders among them might be forced out of the marketplace altogether.

But the student loan marketplace isn’t really a marketplace; loan providers are clearly living large on the federal government’s largesse. It was revealed earlier this year that lenders were bribing college financial aid departments with money and pricey perks — it’s difficult to defend Congressional subsidizing of blatant corruption.

Their graft notwithstanding, loan providers will certainly feel the pain of a $20 billion subsidy cut. If lots of lenders do leave the field, which they may, future student borrowers will also feel the pain. Unfortunately, CCRA doesn’t justify those risks.

The bill’s biggest problem is that it doesn’t reinvest the $20 billion in the right ways. Its priorities are skewed. Instead of seeking to encourage more low-income and minority students into college — which should be its main goal, especially when, according Education Department data, only half of “college-qualified” students from low-income families attend a four-year institution — CCRA spends lots of dollars to woo middle-class voters and construct new government entitlements.

CCRA cuts the interest payments on subsidized loans, many of which go to solidly middle-class kids who attend pricey schools, from 6.8 percent today to 3.4 percent by 2011. Doing so will help pay the college tab for lots of middle-class students who don’t need federal assistance nearly as much as their low-income peers. Plus, it’s only an interest reduction appetizer: the rates will return to 6.8 percent in 2012 unless Congress intervenes. When they do intervene (of course they will), they’ll have to find another source of money to finance the cuts. 

Compare this with CCRA’s contribution to poor kids. It increases the maximum Pell Grant award — which goes to the poorest students — by a mere $1,090 over five years. (In 2012, the nation’s poorest students can expect a paltry $5,400 per annum.)

The Education Trust’s Vice President, Ross Wiener, recently told a congressional committee that “in 1975, the maximum Pell Grant covered approximately 84 percent of the cost of attending a public four-year college. Today, it covers only 36 percent….” So even if low-income kids do receive Pell Grants, there’s no guarantee they’ll receive enough money to matriculate at even a state university. Between now and 2010, the maximum Pell Grant award will rise by only $490. At both public and private universities, by contrast, tuition is rising, on average, at more than twice the rate of inflation.

The excessive interest cuts and stingy grant-award raises add up to, essentially, an expensive handout for the middle class. And it continues Congress’s trend in reforming higher education aid: more for middle-class voters, and not nearly enough for the poor students for whom federal aid was designed.

On top of all this, CCRA doesn’t put the screws on colleges to keep their tuition hikes in check, either. Economics 101 tells us that if colleges and universities can continue to count on the U.S. government to increase federal aid, tuition at those schools will also increase. That happens for several reasons, not least of which is that federal dollars will, in effect, subsidize tuition hikes, making them less costly to consumers than they actually would be. Middle-class students have more financial wiggle room — plus, they often receive generous merit-based aid packages from colleges desperate to attract talented youngsters. Poor kids lose out.

Not only does yesterday’s bill not carry in it anything resembling an adequate way to keep down college tuition, but it actually gives millions more dollars to schools. It allocates $510 million over the next two years to schools which serve minorities. One wonders why lawmakers wouldn’t just, say, give that money directly to low-income minority students.

Perhaps that’s too simple. CCRA would rather construct more federal programs and plunk more dollars into existing ones: TEACH grants that provide $4,000 per year to undergrads who commit to teaching a high-needs subject; $228 million to the Upward Bound program; $132 million to nonprofits to improve college access and retention.

Federal aid was designed to provide access to higher education for those college-qualified students who otherwise wouldn’t be able to afford it, not to lessen tuition payments for students who will attend college one way or the other. It’s not that the middle class isn’t burdened by rising tuition costs. But if the middle class is feeling the squeeze, imagine the treacherous mountains students from low-income families have to scale for a college degree.

CCRA should’ve been a bill designed to give more money directly to qualified, low-income college applicants — a bill that helped more poor families think of college as a possibility for their children. It should’ve actively pushed universities to hold down their tuitions. Congress missed an opportunity.

Probably the president thinks this is the best legislation he can get. Republican Senator Mike Enzi said, “It’s not a perfect bill,” but it is “a perfect compromise.” Another loss portrayed as a victory–another compromise that doesn’t mean much.

Liam Julian is associate writer and editor at the Thomas B. Fordham Foundation and a research fellow at Stanford University’s Hoover Institution.


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