In theory it is a proposal that will have students serving the
country, take profits away from banks, and give money back to the
federal government.
But analysts dispute whether this is necessarily the case.
Sen. John Kerry, the likely Democratic presidential candidate,
unveiled his proposal April 14 to make college more affordable for
students.
In his speech at the City College of New York, the senator from
Massachusetts explained his two-part plan ““ to auction off
the right to banks to issue subsidized student loans and to pay
students’ tuition in exchange for national service.
The first part of Kerry’s plan does not directly influence
students but supposedly will allow the federal government to
decrease subsidies to banks because the banks and other private
institutions would be competing for the right to offer these
loans.
“Right now the program guarantees billion of dollars in
profits against taxpayers,” said Eric Schultz, a spokesman
for the Kerry campaign. “Studies show that rates are
substantially greater than banks need to make students’
loans. Low cost and quality service will be rewarded.”
With rate decreases there would be a potential $14 billion saved
per year for the federal government, according to the Kerry
campaign.
The money saved would then be implemented to fund the Service
for College Plan. Under this plan, Kerry wants to expand the
AmeriCorps program by about 500,000 students.
About 200,000 of these students would receive tuition money for
up to four years at a public institution in exchange for two years
of full-time service. The remaining 300,000 students would serve
part-time while they are in school, earning up to $4,700
annually.
“Kerry pledged to get them involved, and in return he will
help make college more affordable,” Schultz said.
Sara Mead, a policy analyst with the Progressive Policy
Institute said the plan would be beneficial for all aspects of
society, both for students and the rest of the country.
“It is a win-win proposition,” Mead said. “It
helps students to go to college, makes them lifelong contributing
members to society, and “¦ (lets them) provide services that
are needed.”
In general, responses to the Service for College part of
Kerry’s plan have been positive, but there is concern
regarding the program’s funding, which is supposed to come
from the auction idea.
Jonathan Brown, the president of the Association of Independent
California Colleges and Universities, said money would not
necessarily be saved by the auction proposal because there already
is a competitive market in student loans.
Target rates are already set for subsidized loans, and financial
institutions decide whether to purchase shares of that debt, Brown
said. But with an auction he worries that there will be no cap or
limit on rates.
“It puts student loans at much more uncertainty than they
are at now,” Brown said. “The existing markets are
reasonably more affordable for students.”
President Bush’s campaign also expressed concerns
regarding the proposal, noting it relied on the competition of the
student loan market, which would not necessarily yield the savings
needed to fund the Service for College program.
Another concern was that it would increase administration costs
and needs as well as require a complete restructuring of existing
programs, placing an additional burden on administrators.
A similar program was set up in 2001, but it met too many
problems, and an auction system was not instituted, largely because
of restructuring difficulties.
The primary concern lay in differential rates, which would cause
students attending different universities to pay different rates
based on the school’s loan default rate.
“Depending on how much the federal government needs, what
is going to happen is you are going to lower the subsidy, and it
will raise the costs for students,” Brown said.
“That’s the simple equation.”
Auctions will not necessarily lead to an increase in costs, but
they will also not necessarily lead to savings for the federal
government, according to analysts.
Instead, they say the most fail-safe method is either to
continue with existing programs, such as increasing funding for
grants, or to look at other methods to make current laws more
effective.
“There is a whole set of policies that have been run up
over time, and it would be a good thing to look at all of the
policies,” Mead said. “This would allow for proposals
or innovations (and) change the whole system.”