If the current bill being discussed by the House of Representatives and the Senate - which would drastically increase the price of student loans - is made law, the future of higher education in America may be jeopardized.
Bill HR-4241 was narrowly passed by the House and is now in a process of reconciliation with the Senate to arbitrate differences in each chambers' approved legislation. Both versions foresee a $14-15 billion dollar cut in funding to the government's student loan budget.
The cuts will come primarily from reductions in subsidies given to private lenders and student loan guarantee agencies. Estimates from the Congressional Budget Office indicate that charges to students and families will reach nearly $8 billion dollars and come primarily from increased lending fees and increased interest rates.
One of the key elements of the legislation is the loan consolidation element. Currently, borrowers are allowed to lock in a fixed rate for up to 30 years, and banks are secured against adverse interest rate fluctuations by the government. Because this has become costly for the government, lawmakers are seeking to keep interest rates more in line with the market.
Under the proposed plan, students would still be allowed to choose between a fixed - and more expensive - rate, and a variable rate according to the market. But in a situation where interest rates drop, making it more attractive to refinance, borrowers would be charged a fee equal to one percent of the outstanding loan.
Additional measures also hurt students such as an increase in the cap on student loan fees, and the prohibition of banks from waiving lending fees - taxable revenue for the government.
These provisions are unnecessarily placing a considerable financial burden on those who are least able to handle it: indebted students. Nearly all advantages that a borrower has are removed. Students will be locked into contracts which prevent them from benefiting from all the free market has to offer.
If borrowers are unable to reduce their loans through refinancing, then more students will question the need to heavily indebt themselves for higher education. Removal of the ability for banks to offer incentives represents the opposite of the type of government intervention one would expect in the education loan market - self serving.
All of these changes shift more market power into the hands of larger institutions and the government. A back-scratching bump in lenders revenue precludes a democratized market. If small actors are disproportionately charged to participate in a free market, it not only shifts the burden unfairly, but also over taxes the valuable asset of young American minds.
Higher education in America has achieved its unparalleled success thanks in large part due to free market mechanisms. Private universities, corporate partnerships and a culture of wealthy benefactors have forged the conditions necessary for the brilliant leaders of society to develop. American university facilities are among the best in the world, and they can only stay this way with high tuition costs.
But this cost is prohibitive for most students, and the need arises for an active student loan market. It would be a shame to see this bill pass, allowing the government to reduce its massive budget deficit. There are many other items on the United States budget that are not producing the returns of higher education which can be cut.
