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ISSUES

Cutting Lender Subsidies

 

What's New

On Friday, September 7th, the U.S. Senate and House of Representatives passed the College Cost Reduction and Access Act by votes of 79 to 12 and 292-97 respectively. The bill now goes to the President who has said he will sign the legislation into law. The legislation will Finance increased education spending by reducing subsidies to student lenders. Lenders will receive a reduced rate of return for offering federal student loans and a slightly reduced reinsurance rate from the federal government. As a result, the increased grant aid and loan benefits will have no additional cost to taxpayers.

Overview

Currently, the federal government operates two major programs to provide loans to help students pay for college: the private sector Federal Family Education Loan (FFEL) program and the government’s Direct Loan (DL) program.

President Bush’s recent budget reveals that the bank (FFEL) program costs taxpayers billions of dollars more each year to run than does the DL program. From 1992 to 2004, the cumulative taxpayer subsidy costs were $39 billion for FFEL loans, and only $3 billion for Direct Loans. For a typical college student’s debt of $20,000, the federal government spends nearly $2,200 more in subsidy costs for a loan through the FFEL program.



 

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