Submitted by Relevant Critic (not verified) on June 18, 2009 - 8:53am.
New America Foundation opposes lower borrower interest rates because doing so would undermine the "once-in-a-lifetime" opportunity to use highly questionable budget "savings" to create a Pell entitlement that will cost taxpayers $293 billion over the next ten years?
Let's first ask if this new entitlement will actually be paid for. Unfortunately, the answer is no, even if you blindly accept the CBO budget estimates as accurate. CBO says that eliminating FFEL as proposed by the administration "saves" only $87 billion over ten years, but the cost of the new Pell entitlement is $293 billion, of which only $195 billion is reflected in current discretionary budget baselines--they are $11 billion short. The new CBO estimates may be found at: http://www.cbo.gov/ftpdocs/102xx/doc10296/06-16-AnalPresBudget_forWeb.pd....
In contrast to the CBO estimates is what is likely to emerge as the economic reality--the "savings" will be much, much less than estimated because Treasury borrowing costs are likely to be much higher than estimated by CBO. If this happens--and hard evidence of the inaccuracy of CBO budget estimates is already surfacing in the form of its recent "re-estimate" of the Obama proposal that resulted in a decrease of $7 billion in the estimated savings as compared with an estimated made earlier this year--something of a minor fiscal disaster will occur.
What is that disaster? The savings won't occur but the spending commitment involved with the creation of a new entitlement will. The national debt will increase, not only by the amount of new Direct Loans made and carried on Treasury's books, but also in the form of the entitlement spending on Pell Grants.
Should this scenario occur, what will Congress do? It is likely that they will revisit both the Pell and Direct Loan programs and attempt to reduce their cost. This could be done in Pell by capping or even reducing the maximum Grant, reconverting the program to discretionary spending, redefining student eligibility, redefining school eligibility or even asking schools to pay for part of the Pell Grants made to their students. Translation, Pell Grant policy made on a foundation of budget shenanigans will not provide "predictability" or "stability."
Now lets turn to whether or not the administration's plan will make college more affordable. Again, the answer appears to be no, in this case because the administration has opted to throw money at the problem of college costs rather than to address the problem with a more comprehensive plan.
The only hint of an effort to address college costs is the administration's Perkins Loan proposal. Frankly, the "carrot" intended in the administration's Perkins proposal is highly unlikely to get a school to restrain its tuition and fee increases at a time when more grants to students are being made. In fact, the curious decision to propose indexing the maximum Pell to rise faster than inflation is a signal to schools that the administration believes it is impossible for schools to limit cost increases to inflation.
Under the administration's plan, college costs will continue to outpace family incomes, creating a situation where more and more students are more and more dependent on federal student aid. Is this good higher education policy? How long can this be sustained?
NAF fails its mission by cheerleading for the administration and through naked attempts to discredit anyone who disagrees with the administration's proposal. If making college more affordable is the goal--and it should be--NAF is not contributing to that by blog entries like this one.
Isn't College Affordability the Goal?
New America Foundation opposes lower borrower interest rates because doing so would undermine the "once-in-a-lifetime" opportunity to use highly questionable budget "savings" to create a Pell entitlement that will cost taxpayers $293 billion over the next ten years?
Let's first ask if this new entitlement will actually be paid for. Unfortunately, the answer is no, even if you blindly accept the CBO budget estimates as accurate. CBO says that eliminating FFEL as proposed by the administration "saves" only $87 billion over ten years, but the cost of the new Pell entitlement is $293 billion, of which only $195 billion is reflected in current discretionary budget baselines--they are $11 billion short. The new CBO estimates may be found at: http://www.cbo.gov/ftpdocs/102xx/doc10296/06-16-AnalPresBudget_forWeb.pd....
In contrast to the CBO estimates is what is likely to emerge as the economic reality--the "savings" will be much, much less than estimated because Treasury borrowing costs are likely to be much higher than estimated by CBO. If this happens--and hard evidence of the inaccuracy of CBO budget estimates is already surfacing in the form of its recent "re-estimate" of the Obama proposal that resulted in a decrease of $7 billion in the estimated savings as compared with an estimated made earlier this year--something of a minor fiscal disaster will occur.
What is that disaster? The savings won't occur but the spending commitment involved with the creation of a new entitlement will. The national debt will increase, not only by the amount of new Direct Loans made and carried on Treasury's books, but also in the form of the entitlement spending on Pell Grants.
Should this scenario occur, what will Congress do? It is likely that they will revisit both the Pell and Direct Loan programs and attempt to reduce their cost. This could be done in Pell by capping or even reducing the maximum Grant, reconverting the program to discretionary spending, redefining student eligibility, redefining school eligibility or even asking schools to pay for part of the Pell Grants made to their students. Translation, Pell Grant policy made on a foundation of budget shenanigans will not provide "predictability" or "stability."
Now lets turn to whether or not the administration's plan will make college more affordable. Again, the answer appears to be no, in this case because the administration has opted to throw money at the problem of college costs rather than to address the problem with a more comprehensive plan.
The only hint of an effort to address college costs is the administration's Perkins Loan proposal. Frankly, the "carrot" intended in the administration's Perkins proposal is highly unlikely to get a school to restrain its tuition and fee increases at a time when more grants to students are being made. In fact, the curious decision to propose indexing the maximum Pell to rise faster than inflation is a signal to schools that the administration believes it is impossible for schools to limit cost increases to inflation.
Under the administration's plan, college costs will continue to outpace family incomes, creating a situation where more and more students are more and more dependent on federal student aid. Is this good higher education policy? How long can this be sustained?
NAF fails its mission by cheerleading for the administration and through naked attempts to discredit anyone who disagrees with the administration's proposal. If making college more affordable is the goal--and it should be--NAF is not contributing to that by blog entries like this one.