Easy Money: How Congress Could Increase Federal Student Aid Funding at No Additional Cost to Taxpayers
5/5/2005
Executive Summary
Over the last three decades,
higher education has become an even greater necessity for all Americans. Our
citizens know that the key to economic success for them and their children is
to invest in education.
Since the Higher Education Act was passed in 1965, the nation has made enormous
strides toward realizing the dream of equal access to a college degree. However,
we still fall short of ensuring that every qualified high school student has
the opportunity to pursue postsecondary education, regardless of income.
Over the last three years, higher education costs have increased, largely as
a result of state budget cuts. Over the same period, funding for critical federal
student aid programs has been level-funded, decreased, or proposed for elimination
entirely.
Congress recently passed a budget for Fiscal Year 2006 that includes significant
cuts to critical student aid programs, including $7 billion to federal student
loan programs. These cuts threaten to put affordable higher education even further
out of reach for millions of students.
Congress has the opportunity this year, however, to increase student aid funding
by billions of dollars at no additional cost to taxpayers. Bipartisan legislation
is pending in Congress that would increase federal student aid for those colleges
and universities that utilize the more economically efficient of the two federal
student loan programs. The Student Aid Reward (STAR) Act, introduced in March
2005, would increase student aid funding by redirecting the subsidies currently
going to student loan companies to needy students.
Currently, two federal student loan programs provide essentially the same loans
and interest rates to students, but one costs taxpayers and the federal government
several billion dollars more annually than the other. According to President
Bush's 2006 education budget, student loans made through the more expensive
program cost the federal government nearly $11 more for every $100 loaned to
students than the same loans made directly by the federal government. By encouraging
more schools to participate in the more efficient program, Congress has the
opportunity to increase student aid funding by billions of dollars, without
any additional cost to taxpayers, students, or their families.
Key findings:
- The Student Aid Reward Act could generate $4.4 billion in new federal money
next year, based on the savings of all colleges and universities switching into
the more cost effective Direct Loan program.
- At least $3 billion of this money could be used to increase federal student
aid funding at all colleges and universities across the country. This student
aid increase would be available at no additional cost to taxpayers.
- This $3 billion increase would be enough to give each Pell Grant recipient
almost $600 more in additional grant aid a year, which is six times the proposed
increase in the Pell Grant maximum for next year in the FY06 federal budget.
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