FEW WORDS in poltics today are bandied about with less meaning than "fiscal responsibility." The catchphrase has been used to justify just about everything from deficit spending to drastic cuts in social services. Naturally, the Bush administration and the Republican-controlled Congress have preferred the latter strategy for trying to control the nation's spiraling public debt, or at least giving the appearance that they are doing so.
The most recent $39.5 billion budget-slashing package just barely passed earlier this year, and the brunt of the cuts were borne by the poor and the elderly. But Congress also went after another group with limited political clout by cutting $12.7 billion from federal student aid programs over the next four years. This is possibly the most ill-conceived way imaginable to reduce the deficit.
When combined with other actions that amount to a reckless giveaway by lawmakers to the private companies that hold most student loans, the resulting damage done both to us college students and to the economy as a whole will make a mockery of responsibility, fiscal or otherwise.
The cuts to student aid, which passed the House by two votes and survived the Senate only with the help of Vice President Cheney's tie-breaking vote, will make it more expensive to go to college in two ways. First, it cuts the federal funds available for grants to low-income students, forcing them to borrow more money to attend college. Second and more importantly, it allows the interest rates on student loans to rise and severely limits students' opportunities to refinance or consolidate their loans, changes that took effect this July 1. Rates on Stafford loans, held by many college students, rose from 4.7 to 6.54 percent, one of the single largest jumps in the history of the college loan program. Meanwhile, the rates on the PLUS loans held by many parents of college students climbed from 6.1 to 8.5 percent. Students who consolidated before July 1 managed to lock in a lower rate for the life of their loans, but the rates are still higher than before.
At a time when the American economy is undergoing its biggest shift since the 1950s, higher education is becoming more and more crucial to both obtaining jobs that pay middle class wages. Manufacturing jobs and similar occupations that once paid these wages are being outsourced, and no workable tax incentives are going to stop that trend. America can't produce the kind of cheap labor that an India or China can, nor should we try to if we want to maintain our standard of living. Instead, the solution is to adapt our citizens to do the kind of technology and idea-powered work that America still produces better than any other economy, and that requires education.
Thus, it makes absolutely no sense to discourage people from going to college by adding new expenses onto already rapidly rising tuition costs. And thanks to Bush's $70 billion tax cut for the upper class passed earlier this year, the cuts to student aid will barely dent the deficit while weakening the economy's ability to adapt in the long term. This isn't fiscal responsibility and cutting costs -- it's just moving the costs of education to those less able to bear them.
It gets worse for student borrowers. Sallie Mae, the corporation that owns most student loans, was originally started as a public-private partnership, but in 1997 it was privatized. Since then the company has lobbied Congress unremittingly, and Congress in turn has stripped student borrowers of most common consumer protections. They can't refinance, opportunities for consolidation are extremely limited (especially after the recent legislation), declaring bankruptcy doesn't help and Sallie Mae and other debt-collectors are allowed to slap huge penalties and fees on student borrowers with delinquent debt.
With restrictions set aside by Congress, Sallie Mae has cracked down hard on defaulters and made huge profits in the process. In 2003, Chairman Albert Lord boasted that most of the company's 29 percent growth could be attributed to fees collected on defaulted student loans. Elizabeth Warren, a Harvard Law School professor, was quoted in the Wall Street Journals as saying, "Student-loan debt collectors have power that would make a mobster envious."
Congress' cuts to student aid while offering tax breaks to those who need them least and their shameless giveaways to collectors of student debt amount to a perfectly legal scam to line the pockets of the rich at the expense of the middle and lower classes. Whether they are simply ill-considered, malicious or both, the costs to America will be much higher than just the sum of all fines on defaulted student loans.
A.J. Kornblith is a Cavalier Daily Opinion columnist. He can be reached at akornblith@cavalierdaily.com.
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