Congress and college tuition

Before World War II, there wasn’t much. Because students and their families had to pay their own bills, college tuitions were quite low, compared to what they are today — even after correcting for inflation. But after World War II, a federal government heady from a dozen years of massive expansion and worried about a return to Depression-era levels of unemployment decided to “prime the pump” of postwar economic development by creating subsidies to enable returning G.I.s to buy a home and get a college degree — the latter essentially for free, under the G.I. Bill.

Fine. By the 1950s, most returning G.I.s who wanted a college degree had one. But it’s just not in the nature of federal bureaucracies to declare, “Mission accomplished. We’re closing down.”

Federal college grants and subsidies designed to expand constituent gratitude into the higher economic brackets had to continue, under the slogan of making college “more affordable for all.”

As usual, congressmen took the simplistic (and mistaken) view that tuition costs were pretty much fixed. If college cost $4,000 per year, and the government were to loan prospective students $2,000 per year, those young folk would find college more “affordable” at an immediate cost to the student of only $2,000 per year.

University administrators took a somewhat different view. More and better students — which eventually meant richer alumni donors — could be attracted if money were invested in more attractive new dormitories, libraries, student unions and sports facilities. It had already been demonstrated that families could afford $4,000 per year out of their own pockets. But now Uncle Sam was handing them another $2,000. Presto! Tuitions and fees rose to $6,000.

Congress loaned more. Tuitions went up again.

Now the bankers began to complain: The federal government was offering them unfair low-interest competition, stealing away their college loan business.

The solution? Because this game was getting expensive, instead of making direct loans to students, Congress decided to simply underwrite and guarantee low-interest student loans from banks.

Guess what? Recent congressional probes have found shocking — shocking! — conflicts of interest among lenders, universities and government regulators in what has now become the $85 billion-a-year college loan industry. So Democrats in Congress are pushing legislation that would cut federal subsidies to college lenders by something between $18.3 billion (the Senate version) and $19 billion (in the House).

With considerable Republican support — backing comes from the White House as well as from six of 10 Republican Senate committee members — Democrats now propose an end to the bank subsidies for student loans, instead going back to … the government loaning the money directly.

The proposal would drop a token $1 billion of the $19 billion savings into the “deficit reduction” barrel. The rest, The Washington Post informs us, would be shifted into direct federal student aid.

New college graduates will no longer owe money to banks. They’ll owe Uncle Sam.

But the word “loan” takes on a somewhat different meaning under this proposal — equivalent to what today’s congressmen apparently mean by “border security.”

The Senate measure would boost the maximum Pell grant, the nation’s main means of handing cash to low-income students, from $4,300 to $5,400 per year. The House plan calls for a smaller grant increase but would cut the theoretical interest rates on federally backed student loans in half, to 3.4 percent.

We say “theoretical” because borrowers would never have to use more than 15 percent of their discretionary income — not gross income or after-tax income, but “discretionary income” — to pay down these federal student loans. And anything still owed would be “forgiven” after about 25 years. Get it?

The legislation, which Senate Majority Leader Harry Reid, D-Nev., expects to bring to the floor in July, would constitute “the biggest single investment in college financial aid since the G.I. Bill,” says Rep. George Miller, D-Calif., the House education chairman.

“This legislation will help reverse the crisis in college affordability,” says Sen. Edward Kennedy, D-Mass., chairman of the education committee.

Gosh. Where have we heard that before?