How to Best Help Pay for College: Sec. Duncan Goes to the Hill

May 21 2009 Published by under Education, Politics

Education Secretary Arne Duncan testified for the first time in front of the House Education and Labor Committee yesterday, on the topic of the President's education plan. Duncan was the only witness for the hearing, and his testimony covered the broad spectrum of federal involvement in education. (As someone with a Bachelor's degree who is moving toward a secondary education career, I was particularly happy to hear discussion about the need for more of a focus on non-traditional routes toward teacher certification.)

One area that received a great deal of attention (and which will receive even more attention later today when a panel of witnesses testify in front of the same committee) was the President's decision to end the

Federal Family Education Loan Program (FFELP). That decision is, predictably enough, controversial. The student loan providers have already mobilized, and will be fighting as hard as possible to keep money flowing from us to them.

I find the debate around this issue fascinating for a number of reasons. How - or if - the government gets involved in helping fund college education sheds a great deal of light on our commitment to providing an equal opportunity for as many people as possible. At the same time, the debate over this particular program highlights a case where there's a very interesting tension between two different alleged conservative ideals: keeping government small, and saving taxpayer dollars.

The loans that are provided under FFELP, and that the President wants to end, are provided through the private sector. Stafford and PLUS loans both fall under this program, so I suspect that a substantial portion of my regular readers probably have some firsthand knowledge of how FFELP works. It's really quite simple. The banks provide low-interest loans to students. The Federal government - which is us - guarantees the loans. In exchange for annihilating the vast bulk of their risk, the lenders generously allow us to pay them a subsidy on each loan that they provide.

To sum all that up in a single sentence: Under FFELP, the Federal government pays banks to provide no-risk loans to students.

The President wants to end FFELP, and move all the loans over to the Federal Direct Loan Program. Under the Direct Loan Program, the government loans the money directly to the students, but contracts the administration of the loans out to private firms.

Secretary Duncan, in response to a question from Rep. Biggert (R-IL), outlined the differences between the programs and the advantages in moving everything over to the Direct program:

More loans for less long-term taxpayer expense. Sounds like a no-brainer, doesn't it?

This brings us to that tension I mentioned. The government wants to take over a program that has been run through the private sector since 1965 (Oh Noes! Teh Socialism!). On the other, the government will be spending less money on each loan (Mmmmmm! Fiscal Restraint!).

To me, this one seems like an easy choice. Moving to Direct loans will let us do more with less, and the private sector was only involved before because the government was giving them free money to stay involved. Based on the questioning during yesterday's hearing, the Republicans look like they're coming down on the side of business instead of taxpayers on this one, but we'll probably have a better idea after today's hearing.

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