Pelosi’s Tuition Pledge Could Hurt More Than Help

Daily News Article   —   Posted on January 4, 2007

(Editor’s note: During her “first 100 hours” as speaker of the House of Representatives, Rep. Nancy Pelosi has identified seven key agenda items, one of which is to cut in half the interest rates on college loans.)

(By Nathan Burchfiel, – 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.

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