Tag: student aid and fiscal responsibility act

The Other Federal Takeover

Right now the nation is fixated on the Supreme Court and health care, as well it should be. If the Court rules the wrong way and the individual mandate is upheld, seemingly the last limit to federal power—Washington can’t make you buy stuff—will be gone. So yes, please, let’s focus on ObamaCare.

When the arguments end and the health fight abates for a while, however, let’s pay some much needed attention to another federal takeover, one that is constantly being overshadowed by bigger things like wars, ObamaCare, and budget blowouts: looming federal domination of education.

There’s actually an immediate ObamaCare connection to education, though few will likely recall it. To make the CBO cost estimates come out right, Democrats attached the Student Aid and Fiscal Responsibility Act (SAFRA) to the already immense legislation. SAFRA eliminated guaranteed college loans—loans originated through private lenders but completely backed by taxpayer money—and made almost all lending direct from the Treasury. It wasn’t a sudden takeover as many Republicans framed it—the guaranteed program already represented massive federal control—but it did push the private sector even farther to the student-lending fringes.

Much more insidious is what Washington has been doing in K-12 schooling.

The real sea change was No Child Left Behind, when the Feds went from primarily doling out money, to dictating that every state have standards and tests in math, reading, and science, and schools and districts make yearly “proficiency” progress. It was a huge ramping-up of already unconstitutional federal involvement.

At least NCLB, though, was enacted through the proper legislative process: Congress debated the law, voted on it, and the president signed it. These days, that’s just too much of a bother.

The Obama administration started unilaterally making education policy with the “Race to the Top,” a contest in which states competed for $4 billion in “stimulus” money. Among the administration-specified things states essentially had to adopt to win? National curriculum standards, better known as the “Common Core,” which we are told repeatedly are voluntary for states to adopt.

But wait. Didn’t I used to write that Race to the Top was $4.35 billion? What happened to the other $350 million?

It wasn’t part of the purse states competed for. Instead, the administration is using it to pay for the development of national (read: “federal”) tests to go with the Common Core.

In case all that weren’t enough, the Obama Administration has decided it’s tired of waiting for Congress to rework NCLB and is issuing waivers to states that promise to implement administration-approved reforms. Included in those is adopting “college- and career-ready” standards, a euphemism for the Common Core. In other words, the federal government is on the precipice of dictating the basic curriculum for every public school in America, and doing so without even the semblance of following the constitutional, legislative process. It’s not just a federal takeover, but an executive branch takeover.

Why hasn’t this gotten the sort of attention that’s been showered on health care?

Unfortunately, a large part of the problem is that people are simply accustomed to a government education monopoly. Historically such a monopoly hasn’t been the norm, but in our lifetimes it has, and government schooling advocates would have us believe that it is the cornerstone of our society. Not so with health care: lots of people want others to pay for their care, but the default has never been government assigning you a doctor and hospital based exclusively on your home address.

The other part of the problem is people simply don’t know about the federal edu-coup. This is especially the case with national standards, which advocates have purposely soft pedaled to avoid the fate of open and honest—but disastrous—federal standards efforts in the 1990s. And when the topic has come up in public discussion, classic propaganda techniques have been employed: repeat enough that the effort is completely “state-led and voluntary,” and people will believe you.

Thankfully, it’s not too late to reverse this. There’s no historic Supreme Court showdown on the horizon, but some states have started to resist federal control, and groups like the Pioneer Institute and Pacific Research Institute have undertaken concerted efforts to expose the Common Core. The biggest problem is that the public is largely oblivious to what’s going on. Which is why, after the ObamaCare Supreme Court arguments are over, we need to turn our attention to the other, almost complete, federal takeover: education.

Little Student Loan Relief, and Never for Taxpayers

Today’s big news is that the Obama administration – thanks to those crisis-ignorin’ creeps in Congress – is going off on its own to reduce purportedly devastating student loan burdens. Well, that’s the message. The reality is that the proposals just tinker around the edges, meaning debtors are getting little relief while the notion that it’s okay to stick taxpayers with other people’s obligations is advanced.

What would the administration’s proposals do? There are several little wrinkles, but basically this: New, income-based repayment rules will be hurried a bit so that borrowers’ payments are capped at 10 percent of discretionary income (likely meaning income above 150 percent of the poverty line) rather than 15 percent, and remaining debt would be forgiven after 20 years rather than 25. In addition, borrowers with loans from both the now-defunct guaranteed loan program – loans through banks that are almost completely backed with federal money – and loans that come directly from Uncle Sam can consolidate those loans and get an interest rate reduction. In point of fact they could do the same thing before, only the administration is offering a .25 point interest reduction in addition to the .25 points that were previously offered.

Here, though, is the really miraculous part: According to the U.S. Department of Education, “these changes carry no additional cost to taxpayers.” Don’t ask how that can be – they don’t say – just rest assured!

For what it’s worth, these changes probably won’t cost taxpayers a whole lot, at least in Washington spending terms. Many borrowers don’t have both guaranteed and direct loans, and a normal federal loan has a ten-year term, meaning most borrowers probably aren’t still paying back twenty years down the line. Finally, while college prices are without question out of control, the average debt for a student graduating with any debt is still only around $27,000. That’s a heck of a lot closer to a car loan than a mortgage.

That said, the idea that any of this won’t cost taxpayers is bunk. They ultimately back all federal student loans, so unless Washington intends to send in the 82nd Airborne to force lenders with remaining guaranteed loans to write them off – which maybe I shouldn’t put past the feds – lenders will get paid. And any direct loans that get less money returned are immediate taxpayer losses. And yes, direct loans probably do make money for the federal government, but those receipts were pledged to Obamacare and deficit reduction when the Student Aid and Fiscal Responsibility Act was rolled into the health care bill to make the CBO numbers come out right. Change the revenue, and it means you’ve saddled taxpayers  with more health care costs, or less supposed deficit reduction, than had been promised with Obamacare. And don’t even get me started on how any reduction or forgiveness of debt encourages students to borrow more and pay even higher tuition prices.

In light of all this, it looks like everyone is being sold a bill of goods by the administration: borrowers won’t get much relief, and taxpayers will indeed get saddled with additional costs.

SAFRA-ficed?

Here’s a quick, preliminary reaction to the higher-education portion of the mammoth health-care reconciliation bill. I could find I’m wrong about some stuff as I delve more deeply into the bill’s language, but it appears that much of the out-of-control spending that would have occurred under the odious Student Aid and Fiscal Responsibility Act has been axed under reconciliation. SAFRA, it appears, has been sacrificed, though to bring to life an even more destructive demon.

Unfortunately, some of SAFRA survived. While a great deal of the spending has been stripped out, reconciliation would still tighten the federal government’s already iron grip on college financing. It would also plow billions more into Pell grants despite decades of evidnece that schools just eat such increases by raising prices. And don’t be fooled by the deceptive accounting in which administrative costs for guaranteed lending are counted as mandatory, but for direct lending as discretionary. When one fully accounts for the costs of going to all direct lending the estimated savings drop from $19.4 billion to $14.4 billion between 2010 and 2019, a sizable chunk of change for a nation so in debt it needs to save every penny it can.

If There’s Money, We Want It! (Whatever “It” Is.)

There seems to be a real trend in Washington to declare support for a bill now, but actually have the bill exist later. It’s been most obvious in the health care marathon, where often purely notional pieces of legislation have been boisterously celebrated or bemoaned for months. It’s also the case with the Student Aid and Fiscal Responsibility Act, which may or may not be tacked on to health-care reconcilation because supporters don’t, you know, want to actually debate the thing. Currently, there is no Senate version of SAFRA, and it’s unclear what changes would need to be made to the House version to make it reconcilable.

So why are so many people willing to take big chances on legislation that only exists in the fertile minds of congresspeople? As this Inside Higher Ed article on community colleges illustrates, it’s often because they want taxpayer money – $12 billion is the community colleges’ hoped for windfall – no matter what:

Sensing the urgency of the moment on Capitol Hill, many community college advocates believe that budget reconciliation is the most likely route for passage of the AGI this year. They argue that time is of the essence for those community college trustees and presidents visiting town for the summit to lobby their representatives and senators without focusing on quibbles over the bill.

“I know there’s a lot of discussion for many of you [about] what’s in the program,” said Jee Hang Lee, ACCT director of public policy. “‘What’s in the final program for SAFRA? What’s in the final program for AGI? What is it going to look like?’ What we’ve heard is that, for the most part, the House and Senate staffs and the White House have something in place. I don’t know what it looks like. I don’t know many people who do know what it looks like. But they have a broad agreement on the structure of these programs, so that’s nice to know that they have because that means it’ll likely get funded.”

Still, he advised visiting trustees and presidents to be direct in their support for the bill and wait until later to work out potential kinks in its specific provisions.

“My point is that you just need to press hard to get this money and get it passed, and we can work out some of the details, I guess, later, I guess through the negotiated rule-making period,” Lee said.

Hmm. And I guess money grabs like these explain a good bit of why the national debt is now approaching $12.6 trillion.

Sneaky SAFRA

Great column on the Student Aid and Fiscal Responsibility Act by Tim Carney in today’s Washington Examiner. He hits the major points — SAFRA hardly threatens a sudden federal takeover of student lending, but also promises anything but “fiscal reponsibility” — while adding a critical warning: the whole stinkin’ bill could be tacked onto health care reconciliation.

Wow! As if the health care bill isn’t abominable enough on its own…

NYT Nonsense on SAFRA

With the Student Aid and Fiscal Responsibility Act (SAFRA) likely to be voted on by the full House or Representatives today, the media is finally giving some space to debate over the bill. Unfortunately, the New York Times only pays attention to the parts it likes, writing in an editorial today that:

The private lenders and those who do their bidding in Congress have recently taken issue with a Congressional Budget Office analysis that showed that the bill would save about $87 billion over the next 10 years.

They argue, absurdly, for example, that the savings would be smaller if the system were analyzed under accounting rules other than the ones that the federal government is required to use. The aim is to mislead taxpayers and members of Congress into believing that the C.B.O. estimate is dishonest.

Um, excuse me New York Times, but the CBO has never said the bill – not just going from subsidized to direct lending, but the whole bill – would save $87 billion over ten years. Moreover, it has been a series of analyses from the CBO – albeit driven by requests from members of Congress – that have continually increased the cost estimates for SAFRA. (I have linked to all the CBO analyses here.) CBO’s very first estimate of the bill’s likely net cost put it at around $6 billion over ten years, and it only went up from there after incorporating such things as lending risk and potentially higher Pell grant costs.

Of course, the Times isn’t alone in its refusal to talk honestly about SAFRA. Despite all of the CBO estimates, yesterday U.S. Secretary of Education Arne Duncan said SAFRA would give college students and numerous other interests the world without costing taxpayers a dime.  “We’re not asking the taxpayers for one single dollar,” he said. And SAFRA’s sponsor, Rep. George Miller (D-CA), has been touting his bill as a revolutionary money saver since day one.

The truth on this thing is out there, but it’s definitely not in the New York Times.

Lots of Higher Ed Stuff

Probably because it’s back-to-school time, there are lots of interesting higher education related items worth checking out today. Here are a few:

  1. I have a new op-ed on the Student Aid and Fiscal Responsbility Act, the bill that we’re told will save taxpayer money but will almost certainly cost us tens of billions. Meanwhile, the Associated Press published a big article on “spin” about the legislation that ignores supporters’ extremely dubious assertions about SAFRA’s true costs – the AP repeats the supposed savings line without question – but instead focuses on whether Pell Grant increases will be as large as some people hope .
  2. Over at the Pope Center for Higher Education Policy, they’re running a three-part series that’s really a lengthy email exchange among numerous experts, including myself, on controlling college costs. The central question is whether more government “transparency” requirements hold the key to containing skyrocketing college prices, or whether what we really need is to cut third-party payments. I think I’ve made it clear where I stand, but if you’re not sure (or even for some reason want other opinions) definitely take in the Pope series. Also, mark your calendars for a debate we’ll be having on this subject right here at Cato on October 6!
  3. William McGurn has an excellent commentary in the Wall Street Journal explaining that – shocker! – you can make a very good living without getting a college degree.
  4. I haven’t read it yet but have seen a summary, and if the summary is accurate a new paper from the National Bureau of Economic Research shows that colleges and universities contribute no more to their local economies than “other forms of economic activity.” This puts another serious hole in the highly suspect argument that more public money for higher education is good because enriching colleges is better for everyone.

And that’s the ivy-ensconsed news for today!