What Does Paul Ryan’s Budget Plan Say about Student Loans?

Barry Lenson

What Does Paul Ryan’s Budget Plan Say about Student Loans?

What Does Paul Ryan’s Budget Plan Say about Student Loans?  We hardly ever write about politics on the StraighterLine blog.

In fact, we’re not writing about politics today. The purpose of today’s post is purely informational. We are only trying to answer the question that is posed in the title of today’s post: “What Does Paul Ryan’s Budget Plan Say about Student Loans?”

We are not saying that Ryan’s plan is going to become law, or will immediately affect student loans if the Romney/Ryan ticket wins. We are not trying to contrast Ryan’s plan against plans that are being put forth from the Obama/Biden ticket. Again, we are only trying to answer the question that is posed in today’s title.

So, what does the Ryan budget plan say about student loans?

To find the answer to that question, we went right to the source, which is known as “The Path to Prosperity: A Blueprint for American Renewal.” It is a budget plan that Rep. Ryan, as House Budget Committee Chairman, submitted to the House for approval. You can get your own copy to review at http://budget.house.gov/prosperity/.

You have to dig a bit to find out what Ryan is proposing about student loans. But if you do that digging, here are some quotes that you will find . . .

  • “. . . instead of helping more students achieve their dreams, studies have shown that increased federal aid is simply being absorbed by tuition increases. While financial aid is intended to make college more affordable, there is growing evidence that it has had the opposite effect. Economists such as Richard Vedder point out that the decisions of colleges and universities to raise their prices would have been constrained if the federal government had not stepped in so often to subsidize rising tuitions.” – Page 40
  • “Reform  the  Credit  Reform  Act  to  reflect  the  true  cost  of  federal  student loan  programs  that  are  driving  up  the  cost  of  tuition. In 2010, the government went from primarily guaranteeing private student loans to lending 100 percent of its student loan money directly through the Department of Education, turning the agency into one of the largest lending banks in the country. These student loan funds have to be borrowed from global credit markets at an average of at least $100 billion per year, adding to already dangerous federal debt levels. Even more problematic, according to outdated current scoring rules, these extremely risky loans appear as profit-making investments in the federal government’s books, thus encouraging more loan expansion, even though there is evidence that subsidized lending contributes to tuition inflation. Accounting for market risk in the scoring of these programs would simultaneously reflect their true cost to taxpayers and make risky expansions of these programs less likely to occur. To that end, this budget authorizes the use of fair-value accounting principles for any legislation dealing with federal loan and loan-guarantee programs.” - Pages 43-44
  • “Return Pell Grants to a sustainable funding path to ensure aid is available for the truly needy and to curb tuition inflation for all students.  Even the President’s budget acknowledges that college costs are on an unsustainable path. Furthermore, recent studies have demonstrated that increases in Pell Grants appear to be matched nearly one for one by increases in tuition at private universities. This budget puts Pell on a sustainable path by limiting the growth of financial aid and focusing it on low-income students who need it the most. This will force schools to reform and adapt. It will also ensure that Pell spending goes to students who truly need it.” – Page 44

So, what does this budget plan say about student loans? You can read the core of it above. To summarize, the plan says that federal loan programs have contributed to the growth of tuition at colleges and universities; that American taxpayers are contributing lots of money to loan programs that are not really helping students; and that the Pell Grant program needs to be reformed so that it provides more aid to needier students.

Related Readings

President Obama to Colleges: Keep Costs Down, and You’ll Get More Federal Dollars
The Cost of Education: Trends and Options
What Will the 2012 Elections Mean for American College Students?
Three Compelling Reasons to Avoid College Debt
New Country Financial Survey Finds that 25% of Americans Feel College Is Not a Good Investment
Student Loan Programs under Fire in Washington Budget Talks