Columns

Dan Davidson ’11: SAFRA and the most important unknown statistic

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Tuesday, September 29, 2009

During last week’s meeting of the Clinton Global Initiative, former President Bill Clinton revealed what he says is “the most important unknown statistic out there.”

“In the last eight years,” Clinton said, the United States “went from first to tenth in terms of the percentage of 25- to 34-year-olds holding a bachelor’s degree.” Indeed, America is in danger of losing its academic edge. If we let our education system continue to slip, we will be feeling the economic repercussions for years to come.

It is clear that, like it or not, our economy is necessarily moving in new directions. This week’s G-20 summit is being held in Pittsburgh, in part to highlight the city’s attempt at reinventing itself. Pittsburgh is developing many new “green” initiatives as part of a broader effort to move beyond its outdated, Rust Belt economy. Their unemployment rate is below both the state and national averages.

Our country needs the human capital that college education creates to revitalize the economy through innovations like those on display in Pittsburgh.

One cause of our decline in education is the rapidly rising cost of college. The National Center for Public Policy and Higher Education reports that since 1982, college tuition and fees have risen 439 percent while the median family income has only increased 147 percent.

More federal student loans will not solve this fundamental price issue. Nor do they address other failures of our education system, most notably in our public schools. But student loans do go a long way in helping Americans afford college. In fact, two-thirds of students borrow money to help pay their way through school. Student loans are particularly critical during recessions, when many more high school graduates need help to continue their education as their families struggle to make ends meet.

The Student Aid and Fiscal Responsibility Act, which recently passed the House of Representatives, will help ease the burden of college tuition for many young Americans and their families. The bill would end the federal government’s subsidizing of private lenders to deliver student loans. Switching to direct lending would save nearly $8 billion over ten years, according to the Congressional Budget Office. These savings will be used to invest in community colleges and early education programs, and most importantly, to increase student aid through larger Pell Grants.

The economic crisis demonstrated the danger credit freezes pose to student loan availability. Congress bailed out lenders to keep student loans flowing when they couldn’t raise capital on their own. Robert Shireman, the deputy undersecretary of education, told the New York Times that SAFRA will “make sure that loans will be available regardless of the credit markets.”

SAFRA will also save the federal government money. Inserting a middleman between students and federal loans by subsidizing private lenders is inefficient. The Congressional Budget Office’s scoring of SAFRA found that eliminating the middleman would save “an estimated $86.8 billion over the 2010-2019 period.”

About half of these savings will then be used to increase Pell Grants. Currently the maximum Pell Grant is $5,350. If SAFRA passes, that amount will be $6,900 by 2019.

In spite of all these benefits, SAFRA is not assured passage in Congress. There are two camps of opposition, one rooted in a philosophy of blanket rejection of the majority’s proposals, the other guarding parochial interests.

Representative Michele Bachmann, R-Minn., summarized the arguments of the first group in a blog post entitled “Government to Take Over All Student Loans.” She calls SAFRA “the public option for higher education.”

Bachmann’s assertion makes no sense. If a public option were created in the health insurance industry, the government would offer insurance policies it currently does not. In the student loan industry, the government already provides money and backing. Instead of providing them directly to students, however, it doles out subsidies to private lenders.

Bachmann’s faulty logic is indicative of the philosophy guiding much of the Republican opposition to this bill. Drawing links to healthcare legislation that don’t even exist is merely a tactic to kill SAFRA, not on its weaknesses, but by tapping into general discontent with government.

Joining Ms. Bachmann in her opposition are lawmakers like Ben Nelson, D-Neb., who are blocking the bill to protect jobs in their states. Nelnet, one lender that would stand to lose business under SAFRA, is based in Lincoln, Neb., and employs roughly 1,000 people.

 It’s strange that someone trying to defeat SAFRA would even mention Nelnet, as Nelson has. A 2006 audit by the Department of Education’s Inspector General found Nelnet guilty of defrauding the government of at least $278 million.

Sadly, lawmakers who stand to suffer personally from SAFRA’s passage — Nelnet is one of Nelson’s top campaign contributors — can’t be expected to support the bill, no matter how strong the arguments are in its favor. Perhaps even more dismaying, however, is the almost universal Republican opposition to the bill based not on policy but on politics.

SAFRA does not represent a government takeover of the student loan industry. Instead, it represents an end to a corporate welfare policy that wastes money better spent expanding student aid.

Seldom does Congress consider legislation as blatantly beneficial as SAFRA. Let’s hope some Senate Republicans recognize SAFRA’s merits. Prospective college graduates everywhere will stand to gain from the bill’s passage.


Dan Davidson ’11 is a political science and music concentrator from Atlanta, GA. He can be reached at daniel_davidson (at) brown.edu