Thursday, March 12, 2009

Good News, Bad News: Proposed Changes to Student Loan System


1) Raise the maximum Pell Grant. Make it an entitlement (indexed to inflation +1%) for the first time. This is great news.
Problem #1: Tuition has been rising at inflation + 4 or 5%. Problem #2: Most students don't get the maximum Pell Grant. Pell Grant amounts are determined by the vagaries of the FAFSA form and the discretion of colleges.

2) Eliminate subsidies to lenders in favor of the Direct Loan program for Stafford loans. Cheaper for taxpayers. Problem: Private lenders, frozen out of the student program, will instead aggressively market private loans, which are more expensive for students.

3) Raise total subsidized loan amounts available by increasing the Perkins loan program. Problem: interest on Perkins loans is due while you are in school.

Overall problem: Raising federal tuition subsidies tends to lead to tuition increases. There are no countervailing measures to get colleges to examine costs.


Anonymous said...

I'm so proud... you finally admitted that creating insensitivity to price increases demand and therefore price. Which means it's stupid to spend tax payer dollars to subsidize higher education under the current system.

Granted... I disagree with you on what the current system should be, but it's the first time I've seen you provide a rational explanation about WHY higher education is relatively expensive.

Anonymous said...

There is no simple solution in an economy convoluted by our credit system.

Anonymous said...

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