MPR ran a story on the potential cuts to the student loan programs in order to pay for massive tux cuts to the uber-rich:
Rep. Betty McCollum, D-Minn., a member of the House Education and Workforce Committee, said the measure amounts to a $14-billion cut in student financial aid.
...The maximum interest on student loans was set to drop next year from 8.25 to 6.8 percent. The new measure would maintain the higher rate. In addition, students would face additional fees every time they take out a new loan or consolidate past loans. In all, congressional critics and student groups say, a student with a four-year debt total of around $17,000 will have to pay as much as $5,800 more than they would under the previous loan provisions.
Enter John Kline, who disagrees with McCollum to the tune of $25 billion:
The outlook is not nearly so bleak, according to the bill's proponents. Rep. John Kline, also on the Education and Workforce Committee, said rather than the $14-billion in cuts claimed by Democrats, the bill actually boosts student aid by $11 billion.
Kline said it also reigns in what he called "out of control entitlements." Kline also noted the additional loan fees are paid by the lenders, not students. The revenue is redistributed as grants to the neediest students.
"The effort here is not to increase the financial burden on students," Kline said. "But to increase their access and make it more affordable for them to go to college to get a higher education. So I think the complaints from students and student groups are based on misinformation".
So, which is it? A $14 billion cut or an $11 billion increase? The $14 billion cut is the accurate based on nonpartisan accounting. Kline's claim is misleading, but has a tenuous factual basis.
Here's (PDF) how student loans work. The federal government subsidizes and guarantees student loans. This means more borrowers have access to loans and that borrowers pay less in interest. The federal government, through the direct loan program, also provides direct dollars to student borrowers. In the government's 2004 fiscal year (PDF), the FFEL and direct loan (DL) programs provided $52 billion in loans. 9.5 million students borrowed under the FFEL program, averaging $4,100 each. 3 million students borrowed under the DL program, averaging $4,300 each.
Under current law, the two programs would result in $360 billion in new loans from 2006-2010. This would only cost the treasury $37 billion in subsidized interest, payments to lenders, and reimbursements for student defaults.
The House bill (HR 609) would cut spending on student loans by $8.7 billion from 2006-2010 -- that's a 24% cut in funding. As McCollum notes, HR 609 cuts $14 billion from student loan programs through 2015. The cuts increase the amount borrowers would pay in interest and decrease the guaranty to private lenders in the case of a borrower default. The cut in interest subsidies would be $5 billion in 2006 alone, then about $1 billion annually over the next 10 years. Interest rates would increase from a fixed rate of 6.8% to a variable rate capped at 8.25% for new loans.
Students, then, would pay more to go to college. In some cases, a lot more. That's a cut.
But the bill also increases some spending by decreasing origination fees from 3% to 1% from 2007 to 2010. The bill also increases the amount students can borrow. For example, undergrads would be able to borrow about $1,000 per year more in subsidized loans. The increased loan limits will cost the federal government about $1.6 billion through 2010.
McCollum's claim comes directly from the CBO. Conversely, the CBO doesn't provid any direct support for Kline's claim that the bill "boosts student aid by $11 billion". HR 609 will allow most students to borrow more -- and require them to pay more for what they borrow. The CBO estimates this will cost the government $4.4 billion from 2007-2015. Because this spending merely subsidizes student loans, it's entirely possible that $4.4 billion in subsidies will permit students to borrow an additional $14 billion.
McCollum is talking about the actual cost of the student loan program as determined by the CBO. Kline appears to be talking about the maximum possible borrowing by students while conveniently ignoring the increased costs of the borrowing. Both statements have a factual basis, but Kline's argument that HR 609 is not a cut in student aid is misleading at best.