Student loans are the bane of many a recent graduate's existence - and the ever-increasing cost of tuition means the debt load is continually getting heavier. Senator Ted Kennedy's (D-Mass.) plan to expand the student loan program is admirable and beneficial particularly at schools like Tufts that are not need-blind.
Kennedy's Student Aid Reward Act of 2005, or the STAR Act, co-authored by Senator Gordon Smith (R-Ore.), Congressmen Tom Petri (R-Wis.) and George Miller (D-Calif.), would allow U.S. Treasury funds to be used for loans directly, instead of the government underwriting and subsidizing loans from private banks. Although both methods are currently available, the act would give universities financial incentives to use the manner promoted by the STAR Act.
It appears that there is little difference between the role of a company like Sallie Mae under the current loan process and the role of these companies under the new STAR plan, since in both cases companies collect payments from graduates. Nevertheless, using U.S. Treasury funds would free up money that would otherwise be used on subsidizing these private companies. Kennedy estimates that this will allow an additional $17 billion to be used for loans each year, without increasing taxes. An additional $1,000 could be added to each student receiving federal Pell grants.
Grants should have been what the STAR Act focused on. Federal loans are usually capped at a low interest rate, but when a student borrows $20,000 a year, it adds up. The fear of graduating with a large debt persuades many students to either attend a school with a lower tuition or forgo higher education completely. It is admirable that more funds will be allocated to the Pell grant program. After all, unlike loans, grants do not need to be repaid on graduation. Congress needs to find more money that can be used for grants, which will encourage more students to attend college than loans would.
The STAR Act is not without its critics. The Council for Citizens Against Government Waste (CCAGW), a non-profit lobby group, argues that private companies can handle loans more efficiently than the government, which means the plan will cost more money in the long run. Granted, the name indicates a bias on the group's part, but the efficiency of government management in comparison to that of Sallie Mae must be considered.
Overall, the STAR Act has good intentions - increasing the amount of student aid available by way of using the most efficient means possible. In a press statement, Kennedy argues that subsidizing private companies' loans is only in the interest of corporate welfare, because the companies are the primary beneficiaries. While it is certainly true that the spread of higher education must be prioritized above benefits to companies, the STAR Act should be passed only if its plan truly employs the most efficient means available to manage loans.
Hopefully, further debate will allow for Kennedy and his co-authors to spell out exactly how they will manage loans in comparison to private companies. After this, Congress must increase grant payments as well, in order to send as many qualified students to college as possible.
