why not abolish the department of education, reduce Federal taxes and let states assume the burden of higher education funding? For a state that chooses, they can provide free post-sec to 'needy' families while keeping in-state tuition reasonable for middle class families. if a state is not competitive in this arena they will lose students to neighboring states.

We were quoted in this recent blog post but Mr. Burd appears to have missed our point. Here's our quote: "Why not tell your readers that the "savings" under the administration's plan are primarily derived from charging borrowers more than necessary on their Direct Loans?... The administration's proposal taxes middle income students for the purported purpose of financing grants to low income students. It makes college less affordable to borrowers who could be charged less on Direct Loans if the estimates of the federal cost of funds assumed by the administration were correct."

Our point is that the assumed federal cost of funding and administration, as well as the assumed default losses on Direct Loans are but a fraction of the interest rates that are to be charged to borrowers under the Obama proposal. In the case of both unsubsidized Stafford Loans as well as PLUS loans, the government intends to charge borrowers more than twice the estimated cost of providing the loans. That is why we point out that the administration, assuming it believes its own budget estimates, could have reduced borrower interest rates but choose not to.

Regarding the already legislated reduction in the interest rates for subsidized Stafford borrowers we note that those are scheduled to return to 6.8 percent in 2012. Nowhere in the President's proposal is a call for making the 3.4 percent borrower interest rate scheduled to be in effect immediately prior to the expiration of the legislation that reduced borrower interest rates permanent.

Given there won't be a FFEL program around in 2012 if NAF has its way, how does it think a 3.4 percent interest rate reduction will be paid for under the pay-go rules?

There is no getting around the fact that the President's proposal is unfriendly to middle-income borrowers. There is also no getting around the fact that Mr. Burd is more interested in attacking those he views as the "bad guys" than he is in critically looking at the Obama proposal itself. That, in our humble view, is sad.

Is there anything Steve Burd won’t say or forget he or the NAF once said in their ideological war against the private sector?

His post today reminded me of one of the most crass displays of the class warfare card I’ve ever I’ve ever seen. In November 2006 Michael Dannenberg explained why Democrats in 2006 would cut interest rates [of 6.8 percent, by the way] on student loans before increasing Pell Grants:

“In 2007, we expect the new majority to move swiftly to enact its agenda. A centerpiece of that agenda
are three college access and affordability items:

1) Cut student loan interest rates in half;
2) Extend college tuition tax deductibility; and
3) Raise the maximum Pell Grant by $1,000.

"[The] most important reason Democrats will move to cut student loan interest rates quickly is because college loan debt is a quintessential middle class issue. The average Pell grant recipient comes from a family with a median family income of $15,400. Those families didn't decide this election. Middle class families did.

"In the coming days and weeks, Higher Ed Watch will offer specific recommendations for how to pay for the college affordability agenda and how to win middle class families."

OMG, "those families didn't decide this election."

And recommendations on "HOW TO WIN MIDDLE CLASS FAMILIES"!

Subsidized Stafford loan rates are scheduled to decline over time, but subsidized Stafford loans account for less than half of all student borrowing. Unsubsidized Stafford loans will continue to carry the 6.8 interest rate, and PLUS (including GradPLUS) loans will continue to carry a 7.9 percent rate. Those rates aren't scheduled to decrease, so your argument about rates declining could be described as less than half-true.

Coincidentally, New Zealand began issuing interest-free loans in 2006, so there is precedent for lower rates than what Congress has already enacted (to your point about what might be fair for borrowers). If the government decided to reduce interest rates on unsubsidized loans from 6.8 to 3.4 percent, a typical borrower could save as much as $4,100. That would be worth substantially more than a few hundred dollars in Pell, and probably a better use of funds since more students will have to borrow more to pay for college regardless of how much the government sets aside for Pell. The past 10 years are a fine example of that reality.

Just an observation of Relevant Critic's argument. I'm not sure that I follow. I think I understand what you are saying but it appears that the heart of your argument is that the "excess" - the 3.4 percent - be used as subsidies to private lenders. If the excess were eliminated for both FFEL and DL and the FFEL subsidies dissappeared, there would be no reason for FFEL lenders to continue to participate. How can you fault the proponents of DL for not going after lower interest rates when it appears that you are counting on the higher interest rates to fund the subsidies which keep FFEL lenders in business?

FULL DISCLOSURE: I am the financial aid director at a medium sized community college and we actively participate in BOTH FFEL and DL. I'm really ticked off that several of the major FFEL lenders (Citi, Wells Fargo) have wholesale stopped lending to community college students. They have officially indicated that they stopped for other reasons but, when every community college in the state has been dropped, the evidence suggests otherwise.

I would only be a proponent of continuing FFEL if FFEL lenders were forced to actually live up to thier rhetoric (competition is good) and lend to EVERY Title IV eligible institution. As it stands now, I am hopeful that FFEL is eliminated because FFEL lenders DON'T value competition and choice in community colleges - they actively discriminate against students who have made community college their first choice because they don't want to eventually enter the workforce with a crushing amount of debt.

Mr. Burd - have you investigated form of class warfare yet?

FFEL defenders, particularly the Industry, must get one thing straight about interest rates.

We are seeing out-of-whack borrower rates for the sole fact that the FFEL Industry torpedoed already enacted legislation that, today, would see student rates -- for ALL students, in both Subsidized and Unsubsidized -- around 3% or less. It is only because the industry once sabotaged the middle class that they can now claim to argue in their defense.

That was the bed *they* made and now we *all* must lie in it.

I've been doing some cursory research lately and it has struck me that perhaps the problem is that we are trying to subsidized every student's education at both private and public institutions, failing in both instances as a result. What if we did away with financial aid altogether and allowed every student who meets minimum academic standards to get a 4-year degree from a state institution FREE! Isn't that what tax payer dollards are supposed to be used for?

And please do not respond with the unfortunate name-calling and blame-storming to this question. I have no axe to grind other than ensuring access to higher education which we are obviously not doing a very good job of right now considering average debt levels. Thanks in advance for your responses and critiques.

Disappointing....so much for objectivity. Too bad the author is so obsessed with the student loan industry as opposed to writing on education policy issues. Didn’t the Rev Jessie Jackson call for 1% interest rates on student loans? So I guess he too was playing the class warfare card? The government shouldn’t be making money on backs of students. It ‘s my understanding that lenders earnings are limited on student loans so the government also makes money on FFELP. If the Government can access money at 1% or less that should be reflected in the student loan interest rates.
I am all for Pell being an entitlement program but it should not be a hidden tax on borrowers. This is just another middle income tax on the next generation……haven’t we already burdened them enough with all these bailouts and the skyrocketing national debt.