Cutting Lender Subsidies

What's New

On April 30, Congress passed President Barack Obama's historic 2010 budget which includes several measures aimed at helping students and families pay for college.

The proposal funds the Pell grant program permanently, making it increase consistently year in and year out so students and families can count on it.

In addition, it makes the higher education tax credit permanent.

But because the educational investments are paid through by cutting excessive lender subsidies from within the loan programs, the banks will lobby heavily to stop this proposal from advancing.

This summer Congress will be considering the higher education pieces of the budget.

We’ll need your help to ensure that the Senate votes to cut lender subsidies and to increase aid for college students.

Overview

Currently, the federal government operates two major programs to provide loans to help students pay for college: the private sector Federal Family Education Loan (FFEL) program and the government’s Direct Loan (DL) program.

Former President George W. Bush’s last two budgets revealed that the bank (FFEL) program costs taxpayers billions of dollars more each year to run than does the DL program.

From 1992 to 2004, the cumulative taxpayer subsidy costs were $39 billion for FFEL loans, and only $3 billion for Direct Loans. For a typical college student’s debt of $20,000, the federal government spends nearly $2,200 more in subsidy costs for a loan through the FFEL program.

Building upon that evidence, President Obama this year proposed to eliminate the excessive subsidies to instead apply that money to financial aid.

U.S. PIRG Higher Education Field Coordinator Tessa Atkinson-Adams (R), a recent University of California-Santa Barbara graduate, with Anna Griswold, Director of Financial Aid at Penn State (L), at a hearing of the House Education and Labor Committee on May 21, 2009, where members considered proposals that would dramatically increase financial aid.

ISSUES

Cutting Lender Subsidies

What's New

Overview

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