Next President Likely to Face College Funding Challenges
By the end of the night (hopefully), we’ll know whether our next president is going to be Barack Obama or John McCain. No matter who wins, the next President is going to face several challenges in making sure that college is affordable for everyone. The Higher Ed Watch blog lists the federal budget deficit, the continuing credit crunch, a budget shortfall in the Pell Grant program, and expiring student aid programs and benefits as major obstacles to each candidate’s plans for making college more affordable. One important program set to expire is the interest rate reduction for subsidized federal student loans.
The interest rate reduction that Congress approved for subsidized federal student loans is due to expire at the end of the 2011-12 academic year. In other words, under current law, loans issued that year will have a fixed interest rate of 3.4 percent for the life of the loan, but loans issued the following year will carry a fixed rate of 6.8 percent. The new president will have to decide whether he supports extending the 3.4 percent interest rate. Doing so could cost as much as $3 billion a year. Of course, allowing student loan interest rates to double could be politically risky, no matter the costs or public policy implications. [At Higher Ed Watch, we believe that policymakers should consider expanding the existing student loan interest rate reduction instead. That proposal would be less costly and better targeted on recent college graduates with burdensome levels of debt.]