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Easy Money: How Congress Could Increase Federal Student Aid Funding at No Additional Cost to Taxpayers Easy_Money.pdf

Executive Summary

Over the last three decades, higher education has become an even greater necessity for all Americans. Our citizens know that the key to economic success for them and their children is to invest in education.

Since the Higher Education Act was passed in 1965, the nation has made enormous strides toward realizing the dream of equal access to a college degree. However, we still fall short of ensuring that every qualified high school student has the opportunity to pursue postsecondary education, regardless of income.

Over the last three years, higher education costs have increased, largely as a result of state budget cuts. Over the same period, funding for critical federal student aid programs has been level-funded, decreased, or proposed for elimination entirely.

Congress recently passed a budget for Fiscal Year 2006 that includes significant cuts to critical student aid programs, including $7 billion to federal student loan programs. These cuts threaten to put affordable higher education even further out of reach for millions of students.

Congress has the opportunity this year, however, to increase student aid funding by billions of dollars at no additional cost to taxpayers. Bipartisan legislation is pending in Congress that would increase federal student aid for those colleges and universities that utilize the more economically efficient of the two federal student loan programs. The Student Aid Reward (STAR) Act, introduced in March 2005, would increase student aid funding by redirecting the subsidies currently going to student loan companies to needy students.

Currently, two federal student loan programs provide essentially the same loans and interest rates to students, but one costs taxpayers and the federal government several billion dollars more annually than the other. According to President Bush's 2006 education budget, student loans made through the more expensive program cost the federal government nearly $11 more for every $100 loaned to students than the same loans made directly by the federal government. By encouraging more schools to participate in the more efficient program, Congress has the opportunity to increase student aid funding by billions of dollars, without any additional cost to taxpayers, students, or their families.

Key findings:

• The Student Aid Reward Act could generate $4.4 billion in new federal money next year, based on the savings of all colleges and universities switching into the more cost effective Direct Loan program.
• At least $3 billion of this money could be used to increase federal student aid funding at all colleges and universities across the country. This student aid increase would be available at no additional cost to taxpayers.
• This $3 billion increase would be enough to give each Pell Grant recipient almost $600 more in additional grant aid a year, which is six times the proposed increase in the Pell Grant maximum for next year in the FY06 federal budget.