Students to Bear Big Burden Under the Final Budget Bill

Parents Forum
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<p><a href="http://www.nytimes.com/2005/12/22/politics/22student.html?pagewanted=print%5B/url%5D"&gt;http://www.nytimes.com/2005/12/22/politics/22student.html?pagewanted=print&lt;/a>
By ROBERT PEAR
and MICHAEL JANOFSKY</p>

<p>WASHINGTON, Dec. 21 - Nearly one-third of all the savings in the final budget bill comes from student aid, the Congressional Budget Office said Wednesday.</p>

<p>Under the bill, college students would pay higher interest rates on loans. Many banks will receive lower subsidies. And the Education Department will work with the Internal Revenue Service to ferret out students and parents who underreport incomes on financial aid applications. The budget bill is estimated to save $39.7 billion over the next five years. Student aid accounts for $12.7 billion of the savings, or 32 percent.</p>

<p>Not since 1997 has Congress made such an ambitious effort to slow the growth of benefit programs. The legislation includes these changes:</p>

<p>" College and university groups, as well as most Democrats, opposed the overall bill."....snip</p>

<p>"This is the biggest cut in the history of the federal student loan program," said David Ward, president of the American Council on Education"</p>

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<p>let's give tax cuts to the wealthiest americans while we make it more difficult for students and their parents to pay for college educations that are way too expensive. thank you bush and the republican congress and senate.</p>

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<p>I heard on NPR that the interest rate will be 6.8% but it will be a fixed rate. At the moment the rate is variable and interest rates are expected to rise as as high as 8% --so in the long run it might not be quite so bad.</p>

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<p>ursdad, ah thats $70 Billion in tax cuts aimed at the wealthy coming next year. At least thats the plan. And 6.8 % is still higher than my mortgage rate.</p>

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<p>There are also big cuts in Medicaid too. The onslaught of aid to the wealthy and cutbacks to the majority of Americans is truely sickening. The wealth gap is wider than at any time in our nation's history and the masses are largely unable to understand what is happening to them.</p>

<p>Then tack on the issues of "enemy combatants", state sponsored torture, paid for propaganda, Pentagon spying, illegal NSA wiretaps, sagging respect by once friendly allies. I do not recognize my America anymore.</p>

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<p>
[Quote]
Then tack on the issues of "enemy combatants", state sponsored torture, paid for propaganda, Pentagon spying, illegal NSA wiretaps, sagging respect by once friendly allies. I do not recognize my America anymore

[/Quote]
</p>

<p>Makes you nostalgic for the 70s, doesn't it?</p>

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<p>I rarely enter political discussions but I am pretty disgusted by this decision.</p>

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<p>I find cuts in education to be reprehensible, but things need to be put in the proper context. The budget for the Education Department only grew in the past 5 years (under Bush) after staying stagnant or regressing during the 8 years of Clinton. It would be a grave misconception to believe that the budgets were lowered by the current administration. </p>

<p>The government likes to take away what they give. One of my pet peeves is that scholarships became taxable in 1986, and that in close to twenty years, none ofthe Congresses has been able to correct what was an oversight. Proposed bills to address this issue have finally sprung up in 2003 and 2005, but will little success so far.</p>

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<p>Also, someone may want to look at Sallie Mae:</p>

<p>SALLIE GETS TOUGH
When Sallie Met Wall Street
The giant of the education lending business is a red-hot stock. But to drive growth, Sallie Mae is socking students with interest rates of up to 28%.
By Bethany McLean</p>

<p>The giant of the student loan industry is the Student Loan Marketing Association, better known by its friendly-sounding nickname, Sallie Mae. Many people think that Sallie Mae, like Fannie Mae and Freddie Mac, is sponsored by the U.S. government. And until recently it was. But at the end of 2004, Sallie became an independent, publicly traded company, completing a process begun in 1996. It is now radically different than it was even five years ago—an aggressive, highly profitable lender and a stock market superstar. Since 1995 its stock has returned over 1,900%, trouncing the S&P 500's 228% gain. Today Sallie's stock sells for 22 times earnings and almost ten times tangible book value, "an almost unheard-of valuation for a financial institution," as a Criterion Research report noted. </p>

<p>Sallie's dividend has risen at an average annual clip of 18% over the past ten years. And thanks to hefty helpings of stock options, Sallie's top executives have earned fortunes. From 1999 to 2004, just-retired CEO Al Lord —now the lead investor in a group trying to purchase the Washington Nationals —received total compensation of $225 million. New CEO Thomas "Tim" Fitzpatrick made $145 million over the same period. </p>

<p><a href="http://www.fortune.com/fortune/investing/articles/0,15114,1139657,00.html%5B/url%5D"&gt;http://www.fortune.com/fortune/investing/articles/0,15114,1139657,00.html&lt;/a&gt;&lt;/p>

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<p>Xiggi, thanks for raising my blood pressure.</p>

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<p>Sorry, Dstark. Time for me to don a Christmas hat and become more congenial.</p>

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<p>Xiggi Quote: "One of my pet peeves is that scholarships became taxable in 1986,."</p>

<p>My quote: One of my pet peeves is that my child didn't get any scholarships! :)</p>

<p>Personally, I'd be willing to pay the taxes.</p>

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<p>
[quote]
New CEO Thomas "Tim" Fitzpatrick made $145 million over the same period.

[/quote]
Let's not begrudge Tim Fitz receiving a decent wage, what with the rising cost of college tuition these days.</p>

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<p>xiggi:</p>

<p>I'm surprised that you didn't catch the usual NYT sleight-of-hand. The article headline states unequivocally, that Students will bear the brunt of the cuts, but the only support given for that assertion in the article is a quote from a Calif. Congressman. Notably, Higher Ed officials concur that most of the student 'savings' will come from banks who are collecting rapacious fees on the dole. Thus, this bill, which has been floating around Congress for more than a year, is an attempt to scale back SallieMae's obscene profits.</p>

<p>From Higher Ed news:</p>

<p>"What college lobbyists object to most strenuously in the budget reconciliation bill is the fact that it would derive nearly a third of its savings from the student loan programs. Most of that would come from returning to the government money that now goes to lenders when students and families pay a higher interest rate than the one lenders are guaranteed to receive."</p>

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<p>well I can't say I am pleased- but Im not surprised

[quote]
EW YORK (CNNMoney.com) - Congress cut funding for federal student-loan program on Wednesday, raising the cost of attending college for many future students, according to a published report.</p>

<p>The Senate passed a deficit-reduction package that calls for $12.7 billion to be cut from federal student-loan programs over five years, the Wall Street Journal reported Thursday.</p>

<p>It is the largest single cut the federal government has made to student aid programs and is expected to increase the debt burden of students and their families as many borrowers of student loans will face higher interest payments, the newspaper said.</p>

<p>According to the Journal, Congress raised interest rates on Stafford loans to a fixed 6.8 percent. Right now, rates on Stafford loans, which are variable and reset each year, are as low as 4.7 percent, the paper said. Stafford loans are popular among students because they don't have to demonstrate need to qualify for one.</p>

<p>The new legislation also raises interest rates on Parent Loans for Undergraduate Students to a fixed 8.5 percent from a variable rate currently set at 6.1 percent, the Journal said. Also known as PLUS loans, these loans are granted to parents rather than students.</p>

<p>The move to fixed rates will cost students and their families thousands of dollars over the life of the loan, the report said, citing estimates from Mark Kantrowitz, a financial aid expert.

[/quote]
</p>

<p>Did you know that parent tuition used to be taken into account for EFC?
I knew that student tuition was taken into account when parents EFC was being considered, but when I was attending school at the same time as D, my student status was not being considered for her EFC.
However a friend who attended university in the late 80s said that both her and her daughters student status was taken into account for their EFC.</p>

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<p>How much is actual $$$ funding changing year to year? Is this a real cut or just a cut in the projected growth from say 7% to 3%. There are "cuts" and there are CUTS. Many state U's had real CUTS in the last few years and have survived pretty well.</p>

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<p>The importance of the cuts are that they must be matched against a measure of college inflation, i.e. how much a student will have to borrow in order to attend at all.</p>

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<p>ek:</p>

<p>parental tuition was removed from the fafsa formula with the Congressional changes (in 1998), if I remember correctly.</p>

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<p>Any economist of education will tell you that programs such as student loan subsidies transfer money from the working poor (whose kids hardly go to college at all) to the moderately well off (whose kids will go to college whether or not the program exists). If a college education really does have value for enhancing one's future career, there will be still be privately funded loans available--as indeed there are.</p>

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<p>This constitutes an interesting read:</p>

<p><a href="http://www.dlc.org/documents/studentloans_0914.pdf%5B/url%5D"&gt;http://www.dlc.org/documents/studentloans_0914.pdf&lt;/a&gt;&lt;/p>

<p>The General Accounting Office (GAO), the Congressional Budget Office (CBO), and the Office of Management and Budget (OMB) have all found that switching completely to direct lending would save billions of dollars a year. Following their lead, President George W. Bush's latest budget tells Congress that the guaranteed student loan program is structurally flawed, with "unnecessary subsidies" and "inefficiencies." The president's budget concludes: "Significantly lower Direct Loan subsidy rates call into question the cost effectiveness of the [guaranteed student loan] program structure, including the appropriate level of lender subsidies." </p>

<p>As analysts from across the political spectrum have pointed out, the money that would be saved by reforming the student loan program could be used to help more students. During the past few years, the money wasted on guaranteed loans would have been enough to fully fund the No Child Left Behind Act, or give every low-income college student an extra $4,000 in grant aid. In fact, each day, more than $15 million is wasted that could help a deserving student pay for college. </p>

<p>Congress should take action now, before more money is wasted. Lawmakers should insist that the student loan industry offer up a system that is as cost-effective as direct lending. If the industry cannot deliver, Congress should completely replace the guarantee system with direct lending and capture those savings for the benefit of American families who are struggling to afford higher education. </p>

<p>The author, Robert Shireman, is senior fellow at the Aspen Institute and director of the Institute for College Access and Success, sponsor of Student Loan Watch. He previously served as an education advisor at the White House National Economic Council during the Clinton Administration.</p>