When Congress passed an overhaul of federal college aid recently, Democratic leaders crowed that the legislation was like the GI bill, which guaranteed free education for soldiers returning from World War II.
Bronx cheer. Sorry, it’s not even close.
While the new law will increase aid to low-income students, give a break for students pursuing public service and reduce subsidized federal-loan rates over time, it won’t mandate that any colleges rein in their costs. Since all colleges increase tuition and fees to cover those rising costs, total student expenses are moving significantly higher.
The 35-percent surge in inflation-adjusted tuition and fees since 2001-02 is the largest for any five-year period, according to the College Board, which has tallied education expenses for three decades.
Soaring college bills have forced more students to borrow. That’s why business has been great for the $85 billion college-loan industry. With the federal government guaranteeing as much as 98 percent of the value of some loans in case of default, profits have been solid. Congress also provided extra carrots in the federal programs in the form of subsidies.
That will shrink under the new law, and the $20 billion in savings will go to other programs. On Stafford and consolidation loans, “special allowance payments” to lenders will be cut by 0.55 percent and 0.85 percent for Parental Loans for Undergraduate Students, usually known as Plus.
In addition, rates on subsidized Stafford loans will be pared. They will drop from 6.8 percent in the 2006-07 year to 3.4 percent by 2011-12. The total Pell Grant for low-income students will rise from $4,800 in 2008 to $5,400 in 2012.
One driver of the continuing cost increases is the power of demand-side economics coupled with a surge in the college population. Enrollment reached record highs in 2005 and 2006, with more than 17 million students attending, according to the National Center for Education Statistics.
The enrollment growth has been building over the past quarter century. Between 1980 and 2005, the number of college students younger than 25 grew 40 percent and those older rose 52 percent.
Yet states, which provide more than half of the funding for U.S. public colleges, haven’t been able to keep pace with burgeoning enrollment and institutional expenses. Education support may even weaken as state revenue drops as a result of the housing bust and lower economic growth.
So if you are shopping for college loans, you have to do it the old-fashioned way: Compare each offer by hand.You can also obtain discounts for auto-debit and on-time payments. Be careful though. Many banks will rescind their incentives if you pay late even once.
Always start with the federal loans before considering private offerings. The least-expensive ones are through the Perkins and Stafford programs. Parents can apply for Plus loans. Keep in mind that there are several Internet student-loan search services, although lenders displayed on those sites may have paid for placement.
Likewise, lenders may have offered inducements directly to colleges for inclusion in “preferred” lender lists provided through financial-aid departments.
Better yet is a concentrated search for grants and scholarships, which don’t have to be paid back. While politicians didn’t do enough to expand this pool of money, if you diligently search private and public sources, you will be rewarded with a lower college bill. But you have to do this work yourself. The government isn’t there to help. •
John F. Wasik, author of “The Merchant of Power,” is a Bloomberg News columnist.
