Pelosi's Tuition Pledge Could Hurt More Than Help

Cybercast News Service ^ | 01/04/07 | Nathan Burchfiel

[Froufrou]

Incoming Speaker of the House Nancy Pelosi (D-Calif.) has promised to make it easier for low- and moderate-income students to afford college tuition, but some political experts predict the cost of such promises could hurt the Democratic agenda and the very students the party says it wants to help.

The Democratic plan for college tuition, formulated by California Rep. George Miller, would lower interest rates on federally subsidized college loans to 3.4 percent from 6.8 percent.

Lois Rice, a scholar at the liberal Brookings Institution, said in a discussion Wednesday the proposal "is clearly designed to try to ease the burden of paying for college, and that's laudable, but there could be some very severe and probably unintended consequences."

Rice, a former vice president of the College Board -- a non-profit organization that administers college admissions tests and helps students to find financial aid -- said the change would cut the monthly payments on $20,000 debt by more than half, and could save a student more than $4,000 over the life of the loan.

But, Rice said, "lowering the interest rate for students could in many ways encourage greater borrowing." With a lower interest rate, borrowers might be more likely to feel empowered to borrow more money from private lenders, she said, putting them into deeper debt.

Rice questioned whether "simply lowering the interest rates have any positive effect on the behavior of students."

In addition to the potential consequences for borrowers, Rice said lowering the interest rates for federally subsidized student loans would be costly for taxpayers.

"Lowering the costs under the current law to students increases the costs ... that the federal government must pay to the lenders under these programs," Rice said, estimating the cost to be "$5 to $9 billion over five years."

Richard Vetter, president of the conservative Center for College Affordability and Productivity, believes federal financial aid itself is partly to blame for what he called the "student debt crisis."

In a recent speech at the conservative Heritage Foundation, Vetter said "soaring financial aid, in part federally financed, has contributed somewhat to the escalation in college tuition costs."

"I have a skeptical view of Democratic proposals to go on a spending spree for student financial aid," Vetter said. "There is little or no evidence that this will do much of anything to improve college graduation rates and will simply perpetuate a complex system that exists on dubious intellectual foundations."

While some worry about the unintended effects of increased financial aid, it may be an area where the Democrats and President Bush find some common ground.

In its report released in September, the Commission on the Future of Higher Education found that "too many students are either discouraged from attending college by rising costs, or take on worrisome debt burdens in order to do so."

Bush's Education Secretary Margaret Spellings announced after the report's release that she hoped to "work with Congress to provide new funds for need-based aid through the federal financial aid system."

Thomas Mann, a Brookings Institution senior fellow who moderated Wednesday's discussion, questioned how much Pelosi's 100-hour plan would help Democrats in the long run.

Mann said the seven points of the plan, which include lowering health care costs, raising the minimum wage and implementing recommendations of the 9/11 Commission, have been "carefully crafted to reflect strongly held Democratic values and positions" and enjoy "virtually consensual support within the Democratic Party."

But, Mann said, they are also "the least important items" on the overall agenda for the legislative session. He said Pelosi has "not put at the top of that list many of the substantive items," specifically the war in Iraq, that helped Democrats win control of Congress in the November elections.

Mann said rather than rush through less important matters, Democrats should make sure to work with Republicans to ensure more cooperation on hot-button issues like Iraq and immigration.

[Tanniker Smith]

When mortgage rates are low, home prices rise.
Now apply that to college tuition.
More money will be borrowed and they'll be in deeper debt. And if they can borrow more money, institutions will make it so that they have to.

TS

[Brilliant]

Well there is a lot of truth to that, but it can't happen if we're talking about a competitive industry because what you're describing is a form of inefficiency, and competition has a way of driving inefficient producers out of business. Certainly, an argument can be made that public colleges are not part of a competitive industry, since they are regulated and subsidized by government.

But there are plenty of private colleges, and they typically charge a lot more than the public ones.

[ClearCase_guy]

I'm not sure how much colleges really compete with each other on cost. I'm sure there's some of that, but less than in most other industries. In fact, the Wall St Journal had an article last year that showed that (rich) parents often send their children to the most expensive school they could -- and that as a result, if Princeton were to raise it's tuition, Harvard would respond by raising it's tuititon (because Harvard didn't want to be seen as the cheap alternative).

Government funding is crucial to education (they way it's currently handled). The federal subsidies have an enormous affect on pricing, and all the resulting price pressure is upward.

[waverna]

Right, by artificially increasing demand with all the available money, prices will increase

[Brilliant]

One way to reduce the cost to the taxpayer and the cost of education, without reducing the quality would be to introduce a merit component even to need based assistance. Tell the kid who wants to study medieval history that he doesn't merit as much assistance as the kid who wants to be an engineer, and the kid who got C's in high school that he doesn't merit as much assistance as the kid who got A's.

[ClearCase_guy]

I agree with that.

By the way, my BA degree is in Medieval History, and my masters is in Information Systems -- I'm an engineer now. So your example made me smile.

[jamesestrada]

The rise in tuition is exactly what she is trying to accomplish. Colleges have hit the wall in the prices they can charge and so the only way to keep people that are making depressed wages (depressed by the influx of an estimated 30 million illegal aliens)going to college with increasing tuition is to lower the price of the tuition to them.

There are alternatives, dirty little secrets nobody wants you to know about. I could not afford to stop working to go to a traditional 4 year institution. I went to three years of community college and then did a year at Charter Oak State College in Connecticut (which will grant a 4 year degree with only one year work from a more expensive 4 year college). This lowered my college bill from $17,000 for each of the last two years ($34,000 total) to about $2,000 at a community college for year three plus about $12,000 at Charter Oak (for a total bill of $14,000 not $34,000). I did it all online so I could work the entire time which allowed me to pay cash for all of my college, save the last class where a small economic disaster forced me to take out a student loan.

The problem I see is this: there are too many people that want a Ivy league name on their diploma and are willing to pay any amount to get it. This is because they realize that a degree like that will open doors, but the problem is it won't keep an incompetent in a safe chair earning a large income.A college degree will open your first door, it will not keep you there or promote you if you are not able to do the job.

[HitmanLV]

Lois Rice, a scholar at the liberal Brookings Institution, said in a discussion Wednesday the proposal "is clearly designed to try to ease the burden of paying for college, and that's laudable, but there could be some very severe and probably unintended consequences."

Anybody paying attention expects this from most Democrat ambitions!

[Sybeck1]

All college would have to drop ACT/SAT requirements and increase remedial classes big time.

[ClaireSolt]

That way we pay twice.

[Recon Dad]

I think the only way to prove what I am saying would be to stop the flow of money and see if things got competitive. Other then doing the above we are going to see the largest jump in tuitions ever in the next few years.

[Froufrou]

You got my vote! Here's the thing: privilege is being viewed as evil and something to be replaced by 'the rights of the people.'

Houses and cars are not rights. Shelter and buses are.

They won't stop until no one can see the difference.

[therut]

Why not just let students borrow the money at the going rate and pay it back like money anyone else borrows. What is wrong with that? If someone wants to go to college they will have no problem going. They can work and live at home and not have to borrow any money. That is what my niece does. Why go in debt. Oh I know. You and the young men and women want the children to have a carefree good ole time at it. Well that is one of the problems with making college cheap or free. Everyone may go but a college degree will end up meaning about what a HS diploma does and the young people will learn nothing as they are there to have a good time FREE. Silly me. I thought I and others went to college to become highly educated not drug and sex overdosed. Sad state of our society.

[NCLaw441]

Some of us are wealthy, but most of us are not. Some of us are more intelligent than others. There is no right to a "free" college education. Some of us will have it harder than others...

Life ain't fair.

[Brilliant]

A lot of people do that. Of course, it would make a lot more sense if you could deduct the tuition, or at least the interest on the loan. For tax purposes, though, it's not treated like an investment or a business expense, irrespective whether you think of it as an investment or business expense in your own mind.

[VOA]

Just make the tuition deductible.

Every time the guvmint adds in a "tuition and fees deduction" or
an "education credit" the universtities forego their liberal rhetoric.

And act like robber-baron capitalists, raising their tuition.
The heads of the universities know that those tax incentives will
help maintain the status quo:
herds of students/parents paying way too much for average educations.