LAST WEEKEND, the Bush administration floated a proposed change in federal laws governing student loans that would have squeezed an additional $1.3 billion out of cash-strapped graduates. It met with fierce resistance from Senator Ted Kennedy, chair of the Senate Health, Education, Labor, and Pension Committee, who immediately scheduled a May 9 hearing on the proposal, and 46 Democratic senators who signed a letter to the president expressing their "deep concern" about it. Aside from a few news reports on the issue, Bush’s proposal and Kennedy’s offensive against it went largely unnoticed by the public.
That’s too bad. Because the quick battle illustrates that there are, in fact, key differences between the two major parties, notwithstanding recent protests to the contrary by a certain Green Party presidential candidate.
Bush’s plan — he backed off after encountering quick Democratic resistance — would have had expensive consequences for anyone paying tuition bills with student loans; today, about nine million college students rely on such financing. It also would have signaled a 180-degree shift in the nation’s commitment — as embodied in the Higher Education Act of 1965, which created programs offering financial assistance to students — to making college accessible to everyone, regardless of income. (In a bit of political gamesmanship, Bush signed a law extending the Higher Education Act last Friday — the same day his budget director floated his ill-fated plan to increase interest on student loans to House Speaker Dennis Hastert.)
Bush’s plan would have ended the practice of allowing student borrowers to consolidate their loans at a federally subsidized, fixed interest rate. Sallie Mae, the nation’s leading lender to students, offers a consolidation program called "Smart Loan" that reduces initial loan payments by as much as 40 percent. About 700,000 borrowers take advantage of the program each year, according to a report in the Washington Post. Under Bush’s proposed change, loan consolidations would have still been offered, but at variable interest rates. The move would have saved the federal government about $1.3 billion, but at a cost to individual borrowers. During a press conference Tuesday at Northeastern University, Kennedy estimated that the plan would "increase student-loan payments by 15 percent in the near term, and as high as 29 percent in the long term." And in their letter to the president, Democratic senators charged that "[e]limination of this program" would add "tens of thousands of additional dollars in additional loan costs to students and their families."
Kennedy claimed that the "Bush administration is slashing education to pay for more and more tax breaks for the wealthiest Americans." The charge was echoed by David Sirota, a spokesman for Democrats on the House Appropriations Committee, who told the New York Times that the move illustrated Bush’s "misguided priorities" and was nothing less than an example of funding corporate tax cuts by "effectively raising taxes on middle-class students and their families."
Although Bush’s move displayed "misguided priorities," it’s not because he expected those scrambling to pay their tuition bills to help fund his massive tax cut. After all, the Bush tax cut contained a generous change for parents struggling to save money to send their children to college: the law now exempts from tax the earnings made in state-run college-savings plans. In other words, Bush’s proposal to make student borrowers pay back more money would have helped pay for his previously established program, which gives generous tax breaks to parents who save money for their children’s college education. Or, as Kennedy put it, it’s "rob[bing] Peter to pay Paul."
At first glance, the decision to reward those who save in advance to pay their tuition bills (or, rather, reward those parents who save in advance) while penalizing those who haven’t saved and thereby need to take out numerous loans would seem to encourage fiscal responsibility. Which is a very GOP thing to do.
But it’s not that simple.
The Democrats immediately saw Bush’s willingness to cut taxes for families saving for college while ending a federal subsidy for students paying back loans as an outrage against the supposedly American ideal that income shouldn’t be a barrier to higher education.
State-sponsored college-saving plans work best for families making more than $60,000 a year. Shortly after Bush’s tax cut was signed into law, Michael A. Olivas, director of the University of Houston’s Institute for Higher Education Law and Governance, told the Chronicle of Higher Education that the tax break on state-sponsored college-savings plans was simply an entitlement for wealthy families.
By contrast, students from poorer families are much more likely both to need — and to qualify — for numerous school loans. These students are the ones who take advantage of the fixed-interest loan-consolidation program.
What Bush has done is tell us that he values the effort put forth by middle- and upper-income families to send their children to college and that he’s willing to reward that effort with generous tax breaks. As for the effort put forth by students from lower-income families, well, that’s a different story.
The partisan skirmish blew up over a weekend and was resolved three days later — thanks in large part to Kennedy’s actions and influence. With the news dominated by the ongoing clergy sex-abuse scandal, Middle East mayhem, and, locally, a Beacon Hill budget crisis that may result in tax increases, the student-loan brouhaha barely registered. But for those who noticed, it showed that there are important differences between our two major parties and that partisan politics, while frequently ugly, has its place in policy debates.
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