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game in ways that public schools can’t, by turning away at-risk
applicants and lowering even legitimate barriers to graduation.
There was one more giant pot of money that the president
could still divert to higher education: the massive subsidies,
which the Congressional Budget Office projected to be
worth some $87 billion over ten years, that went to banks
providing student loans. And in spite of dogged lobbying by
private lenders, the Democratic-controlled Congress added
an amendment to the healthcare bill eliminating subsidies for
banks and switching to direct-to-student loans. It was a big
fourth-down higher education score for the Obama camp. But
there was little-noticed angst and intrigue even with this.
For one thing, although they didn’t oppose it, the alphabet
soup of higher-education associations that ringWashington’s
Dupont Circle, including the American Council on Education
and the National Association of Independent Colleges and
Universities, did curiously little to help get student-loan reform
across the goal line, even knowing that the billions in savings
would be used for Pell grants—and even though such benefits
as lower interest rates that lenders once offered university
financial-aid officers to keep themon their side had long ago
dried up. “If you look at the student-loan fight, you didn’t see
NAICU, you didn’t see ACE heavily supporting something
that was going to result in their members getting billions of
additional dollars,”Miller said.
It was an important turning point.That’s because the higher
education associations, which had largely welcomedObama,
the Democratic Congress, their higher education platforms,
and the huge amounts of money they were likely to receive,
were starting to growworried that the president envisioned a
greater federal regulatory role, including by attaching exactly
the kind of new conditions to the money generated by the
student-loan reform that it hadn’t required in exchange for the
stimulus funding. “There were some concerns with some of the
administration’s policy proposals, in terms of expanding the
state role in higher education, and that somewhat diminished
our willingness to provide an open-ended endorsement,” said
Terry Hartle, senior vice president for government and public
affairs at ACE.
Another problemwas that the projected return to the
government from cutting subsidies turned out to have been
vastly overestimated. Many universities had already voluntarily
switched to direct lending, whichmeant their students’ loans
were no longer federally subsidized.That helped diminish
the expected savings to $46 billion over ten years instead
of the predicted $87 billion. Most of the total ($39 billion)
went, as promised, to the Pell grant program—allowing for
an impressive doubling of the amount available to be divided
among the growing number of income-eligible students, and
enough to raise the individual maximumgrants themselves
by the inflation rate for four years beginning in 2013—but not
immediately, or for ten years, as originally intended.That was
partly because the projections had been so overly optimistic
and partly because more than a third of the Pell grant money
ended up going to cover previous years’ shortfalls caused by
burgeoning demand for aid from students and their families
struggling to pay persistent hikes in college fees in the midst of
the recession.
After taking 35 years to grow to $13 billion in 2007,
when there were 12
million applicants and
five million recipients,
the cost of Pell grants will
have mushroomed to an
estimated $35 billion by
next year, when there will
be an estimated 19million
applicants and nine million
recipients.That’s more
money than the budgets
of eight cabinet-level
government agencies.The
runaway upsurge in the
cost of Pell grants has been
propelled in part by those
tuition increases—7.9
percent for public and
4.5 percent for private
universities and colleges
this year, according to the
College Board, during a
time when other consumer
prices actually fell by one percent, and family income grew
by only one percent. Only 24 states used any of their stimulus
money to keep tuition down.
Obama also pledged to commit $12 billion of the loan-
subsidy savings over ten years to help community colleges meet
his goal of boosting graduation rates withmore online learning,
business partnerships and worksite education, plus facility
improvements. But that amount kept dropping, too, to $10
billion in the House bill and $2 billion in the final legislation.
The balance went to offset some of the cost of the healthcare
bill.The $2 billion that was left for higher education would still
be destined for community colleges, but not for the purpose
of increasing access or completion rates. It would go to job
training, especially for mid-career
workers and workers whose jobs
had been exported. And it would
be spread out over four years, in a
program run not by the Education
Department, but by the Department
of Labor.
It was at a community
college inMichigan that Obama
had announced his American
Graduation Initiative to increase
the proportion of 25- to 34-year-
olds with associate’s degrees or
higher, from38 percent tomore
than half, restoring the nation
fromninth (or tenth, depending
on the source of the statistics) to
first in that measure by 2020.The
number of jobs requiring at least
an associate’s degree is growing twice as fast as the number
of jobs that don’t, and the Center on Education and the
Workforce at GeorgetownUniversity estimates that, if current
trends continue, the United States will fall short of meeting
The Obama administration
accomplished what
earlier administrations
could not: They eliminated
billions of dollars in
federal subsidies to
banks for student loans
in favor of lending the
money directly.
“Taxpayers are entitled to ask legitimate questions
about what they’re getting for their money,” says
Harris Miller, president of the Association of Private
Sector Colleges and Universities.
Dennis Brack, Black Star, for CrossTalk