President Obama has made reforming federal assistance to college students—with the aim of making it financially easier for more of them to obtain their degrees—-a centerpiece of his administration’s goals. In his State of the Union address on Jan. 27 he called for expanding the Pell grant program that currently serves about 7 million low-income college students, both by raising the maximum annual amount of the grants, currently $5,500, to $6,900 by 2019, and by turning the Pell program into a Social Security-style entitlement that would require Congress to allocate funds automatically to cover every student who qualified.
The rationale that Obama gave to Congress for the huge proposed boost in the size of Pell grants, outstripping inflation and accounting for a major portion of the president’s proposed $77.8 billion in Education Department spending for fiscal 2011 (a 31 percent increase over fiscal 2010) is that “no one should go broke because they choose to go to college.” That’s a worthy sentiment, but it raises an important question: What exactly will a massive additional transfer of federal funds to college students accomplish? The Pell program already costs the government $18 billion a year (Obama’s proposed changes would raise that amount to $30 billion), and another $92 billion goes to support the federal student loan program. Yet there’s evidence that, while the cash infusions from the government, which date back to President Johnson’s Great Society initiatives of the 1960s, have certainly boosted college enrollments, they have also contributed to skyrocketing college tuitions (a 500 percent increase since 1980, far outpacing inflation), along with generally dismal graduation rates indicating that for nearly half of all young people who enroll in college these days, the years they spend there are a waste of time and money, much of it taxpayers’ money in the form of grants and loan assistance.
Yet the Obama administration seems determined to throw good higher-education money after bad, so to speak. In his State of the Union address, Obama also proposed making it easier for college graduates with low-paying jobs to pay off their federal loans. Their monthly payments would be limited to no more than 10 percent of their “discretionary income” (adjusted gross income that exceeds 150 percent of the poverty line), and after 20 years (10 years if they work in public service), all federal loan balances would be forgiven. Under current law (enacted by Congress in 2007) student borrowers already have a pretty good repayment deal in the federal loan system: Monthly payments can’t total more than 15 percent of discretionary income, and loan balances are forgiven after 25 years. Obama’s proposals would make the deal even sweeter, and also more expensive for taxpayers.