Affordable Higher Education News

College students could receive nearly $3 billion in additional student aid next year from the federal government without costing taxpayers a dime, according to "Easy Money: How Congress Could Increase Federal Student Aid Funding at No Additional Cost to Taxpayers," a report released today by the State Public Interest Research Groups' Higher Education Project, the U.S. Student Association, and the American Association of Collegiate Registrars and Admissions Officers. The report analyzes the potential student aid increases that would be available under federal legislation to redirect subsidies currently going to student loan companies each year to student aid.

"At a time in which the cost of higher education is skyrocketing, this is an opportunity for the federal government to dramatically increase student aid at no additional cost to taxpayers," said Kate Rube of the State PIRGs' Higher Education Project. "It's a win-win proposal to make college more affordable."

According to "Easy Money," the Student Aid Reward (STAR) Act could increase new federal funding by $4.4 billion, of which at least $3 billion would be available to increase federal student aid funding each year. This $3 billion would be enough money to increase every Pell Grant recipients' scholarship by $600, without costing taxpayers any additional money. The nonpartisan Congressional Budget Office estimated that the Student Aid Reward Act, which redirects subsidies from student loan companies to needy students, would generate $17.25 billion in additional student aid over ten years. The Student Aid Reward Act was reintroduced in Congress with bipartisan support in March.

The federal government spends billions of dollars each year subsidizing banks and private lenders to provide student loans through the Federal Family Education Loan (FFEL) program. At the same time, the federal government also operates the Direct Loan program, which actually saves taxpayers nearly $11 on every $100 loaned, according to President Bush's 2006 budget documents, compared to the FFEL program.

The Student Aid Reward act would provide colleges and universities incentives, in the form of additional student aid, to use the Direct Loan program in favor of the more expensive FFEL program. The federal government makes loans available directly to students in the Direct Loan program. In the FFEL program, private lenders - backed by government subsidies and guarantees—provide the capital for student loans. The terms and conditions on these loans are the same; the only difference between the two programs is the cost to the federal government.

"We believe that this is an opportunity for Congress to put the interests of students first," said Jerome H. Sullivan, executive director of the American Association of Collegiate Registrars and Admissions Officers.

This increase in student aid funding would come at a time in which higher education is becoming increasingly less affordable for students and families. Over the last year, tuitions have increased by 10.5 percent at four-year public institutions and by 6 percent at private institutions. For the last three years, funding for federal student aid programs, including the maximum Pell Grant award, has been frozen. Last week, Congress passed a budget for 2006 that includes $7 billion in cuts to student loan programs that help millions of students afford college each year.

"We should never pass up the opportunity to increase student aid," said Jasmine Harris, legislative director for the U.S. Student Association. "But Congress would be especially foolish to pass up the opportunity to increase student aid funding without costing taxpayers a dime."

The State PIRGs, the U.S. Student Association, and AACRAO are calling on Congress to pass the Student Aid Reward Act, which could provide $3 billion in additional student aid funding a year to needy students and families.