America's independent, non-partisan advocate for overburdened taxpayers.

 

Blog Contributors

Brandon Arnold
Vice President of Government Affairs 

Dan Barrett
Research and Outreach Manager 

Demian Brady
Director of Research 

Christina DiSomma
Communications Intern 

Timothy Howland
Creative Content Manager 

Curtis Kalin
Communications Intern 

Ross Kaminsky
Blog Contributor 

David Keating
Blog Contributor 

Douglas Kellogg
Communications Manager 

Sharon Koss
Government Affairs Intern 

Richard Lipman
Director of Development 

Joe Michalowski
Government Affairs Intern 

Diana Oprinescu
Communications Intern 

Austin Peters
Communications Intern 

Kristina Rasmussen
Blog Contributor 

Lee Schalk
State Government Affairs Manager 

Pete Sepp
Executive Vice President  

Nan Swift
Federal Government Affairs Manager 

Education

NTUF Celebrates National School Choice Week, Donates to Local Charter School
Posted By: Dan Barrett - 01/31/14

In celebrating National School Choice Week (NSCW), NTU Foundation and the Alexandria, Virginia chapter of Liberty on the Rocks brought together local taxpayers, educational freedom supporters, and students for a night of discussion, teaching, and skee ball. The Wednesday night event was one of over 5,500 events going on in every state that aimed to build awareness of local and national school choice efforts and educate citizens about the benefits and challenges of changing schools and school systems.

For this event, NTUF sponsored a “Skee Ball 4 School Choice” game where everyone played a game of skee ball and afterward joined in the larger group talks on what charter and voucher schools are, what everyone’s personal experience was and is in education, and where we see room for reform in educating students at all levels and ages. Congrats to Holly, Juli, & Demian for being the top three scorers in our friendly game of skee ball!

We also called on attendees to bring school supplies to help the efforts of Perry Street Prep, a DC charter school that serves low-income families and sometimes homeless students. The turnout for the students was overwhelming, collecting 3 boxes of assorted supplies like notebooks, composition books, crayons, and pens. Financial donations were also made to directly help the students and teachers at Perry Street Prep. If you would like to help NTUF’s and Liberty on the Rocks’ support, learn how to at their Giving page.

This was the first time that NTU’s education and research arm, NTUF, has hosted a NSCW event but it is not the only instance of our involvement in school choice. For the past three years, NTUF has organized in-person and online events for the Milton Friedman for Freedom Legacy Day, reaching hundreds of taxpayers across the country.

The Alexandria, Virginia chapter of Liberty on the Rocks has hosted school-choice events for three years, including NSCW and Milton Friedman for Freedom Legacy Day. The social group is dedicated to enhancing and expanding the cause of freedom. Check the group’s national site to see or start a chapter new you or go to the Alexandria chapter page to see when the next event will be held.

Thanks to everyone who donated or contributed to our school supply drive! Be on the look out for more chances to donate to Perry Street Prep and for more information on school choice.

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It’s National School Choice Week!
Posted By: Lee Schalk - 01/29/14

As we celebrate School Choice Week, we recognize that the key to economic prosperity and a brighter future is through empowering parents and giving children a first-rate education, not mindlessly throwing money at ineffective public school systems when they fail to deliver.

This past November, we saw yet another attempt at tax hikes for education; this time in Colorado. Fortunately, taxpayers rallied against the multi-billion dollar income tax hike and defeated Amendment 66 by a 3 to 1 margin. Coloradans—and millions of Americans—understand that our children deserve an approach to education that stresses increased accountability, more choice, additional parental control, and better use of our tax dollars.

Thanks to the hard work of school choice supporters, we’ve seen greater utilization of charter schools, tuition tax credits, and school vouchers. This has led to countless success stories in numerous cities and states. For the sake of America’s future, let’s keep that momentum going.

If you’re local to the DC area, please join us tonight at The Lighthorse in Alexandria, VA for a special School Choice Happy Hour. More info can be found HERE.

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Federal Student Loan Profits Rival Apple, Exxon Mobil
Posted By: Michael Tasselmyer - 11/26/13

It probably wouldn't come as a shock to most to learn that Exxon Mobil and Apple were two of the most profitable companies in the U.S. last year. With profits of $44.9 billion and $41.7 billion, respectively, the oil and electronics giants raked in quite a bit of revenue. But you may be surprised by which government program reported profits nearly as high: federal student loans.

USA Today reports that the U.S. government made $41.3 billion in student loan profits during the last fiscal year. That's down from the previous year's total, but the report comes just as student loan debt eclipses the $1 trillion mark.

In fact, Americans owe more in student loans than they do in credit card debt, as posted in the latest quarterly report from the New York Federal Reserve. And, according to the Congressional Budget Office, the popularity of these loans are unlikely to decrease: the non-partisan budget agency projects net loan volume (the total dollar amount offered in loans), net number of loans, and average loan amount to continue to increase every year for the next ten years.

The following two graphs (courtesy of zerohedge.com) strikingly illustrate the changing nature of credit card and student loan debt. Even as Americans' credit card balances shrink, student loan volume remains high:

creditcarddebt

studentloansgrowth

As Americans take out less in credit card debt and more in student loans, the percentage of those loans that ultimately wind up as "delinquent" continues to grow, as well:

studentloanbalance

These trends have many economists and policy experts worried about the increasingly negative effect student loan debt is having on the U.S. economy's ongoing recovery. Said Federal Reserve Chairman Ben Bernanke recently: "[Student loan debt] is affecting, for example, the ability of many young people to buy a first home, affecting other purchasing decisions they might make, affecting obviously their overall financial condition... To the extent that there's a lot of student debt held by people who are not working, it's obviously yet another drag on recovery."

In July, Congress passed legislation that would tie student loan interest rates to financial markets, locking those rates in for the duration of the loan and capping the maximum applicable rate at various levels depending on the type of loan and level of study they will pay for. CBO estimated that would increase federal outlays by about $25 billion over the next five years.

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Lots of Ways to Learn About Congressional Spending
Posted By: Dan Barrett - 11/11/13

NTU Foundation is getting the word out about how Congress is planning to spend your tax dollars. For 20 years, the BillTally system has tracked every proposal introduced in the House and Senate to show taxpayers and legislators exactly what would happen if one, several, or all the active bills in Washington, D.C. were enacted. The first half of 2013 saw many bills to cut government spending but many more to increase expenditures on an annual basis. In our latest study, NTUF researchers found that Congress would grow public programs and efforts by $1.28 trillion per year. But, of course, that's not the whole story and is just one of the several findings that NTUF's research has brought to light.

Elected officials in each Chamber of Congress have laid out many different paths for the country's fiscal future. Besides consulting the line-by-line details in the full BillTally report by Director of Research Demian Brady, there are a variety of mediums for you to get the information you need to educate yourself on where Congress wants to take your tax dollars.

For the visually inclined, there are four infographics, each detailing a part of the BillTally report. If you want to see what the entire Congress or what each chamber has proposed (House and Senate), we've parsed out the data so you don't have to. An interesting fourth visualization takes a look at when savings bills have been introduced in both the previous Congress and in 2013. One of the questions we are constantly looking at is when and how cut proposals are taken up because spending reductions do not happen without legislative action.

The audio-lovers are not forgotten as Brady went on NTU’s weekly podcast, Speaking of Taxpayers, to give you the highlights and important findings of how the Tea Party has affected spending proposals and whether net agendas are following historical trends or breaking new ground. For the first time, NTUF staff exhibited our on-camera skills by hosting a Google Hangout:

Of course, there are overviews of the report in the form of press materials and in-house summaries but perhaps more importantly are some posts by Policy Analyst Michael Tasselmyer that delve between the lines. So far, he has posted on two of Congress' larger spending categories, healthcare and jobs programs, and on the timing of savings proposals. Additionally, Tasselmyer explored the differing defense budgets of the House and Senate (the findings may surprise you). Perhaps you want to know which bills would most dramatically affect the budget? We've got you covered.

Is this the first you're hearing of the many levels of BillTally analysis? If so, you can be on the cusp of Congressional research by subscribing to The Taxpayer’s Tab, NTU Foundation's weekly update. Tab subscribers are the first to see the costs and implications of bills making the headlines and generating buzz in the policy world. Not a fan of email or love NTUF so much that you want more? Follow us on Twitter and give us a shout out! And remember, there's a lot of ways that NTU Foundation helps out Americans and we're always looking for new members. Are you up for a challenge of getting government spending under control? We need you!

Was there a part of the recent BillTally report that surprised you? Post what your thoughts are on the $1.28 trillion in new spending that Congress could pass below.

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“Universal” Preschool Proposal a Lot Like Costly Medicaid Expansion
Posted By: Lee Schalk - 09/09/13

President Obama wants to lure states into his Preschool for All initiative (“universal” pre-K for moderate-income and middle class 4 year-olds) with the promise of $75 billion in federal tax dollars over 10 years. But while educating the next generation is a worthy cause, the President’s plan is chock-full of problems for taxpayers.

The President has suggested a 94-cent-per-pack cigarette tax hike to pay for the program – a regressive tax that would generate an unreliable revenue stream, to be sure. If the President has his way with cigarette taxes, he’ll have increased the federal cigarette tax rate by an unbelievable 500 percent. You read that right. Back when the President assumed office, the federal rate was 39 cents per pack. That all changed in 2009 when the Children’s Health Insurance Program Reauthorization Act was signed, upping the rate to $1.01. Tack on an extra 94 cents, and smokers would be forced to shell out nearly $2 per pack on top of their state and local rates. This is bad news for smokers and non-smokers alike, because smoking rates in the U.S. have been declining over the past 50 years, meaning that cigarette taxes should not be relied on for long-term funding.

There simply wouldn’t be enough cigarette tax revenue to keep the universal pre-K program up and running, and additional tax hikes would be necessitated. The historical precedent for this outcome is strong: as a recent report from our research affiliate determined, in roughly 7 out of every 10 cases, state-level tobacco tax hikes enacted between Fiscal Years 2001 and 2011 subsequently fell short of their initial revenue estimates. Not surprisingly, 66 out of 96 state actions to raise tobacco levies during that same period were followed by increases in other kinds of taxes within a two-year period after each instance.

The proposed cigarette tax hike isn’t the only major problem with Obama’s pre-K plan. The Preschool for All initiative also bears a striking resemblance to another troubled federal-state venture that is currently being touted by the Administration—Medicaid expansion under the Affordable Care Act or “Obamacare.” In both instances, the federal government has offered up attractive funding match rates. While half of states have resisted Medicaid expansion so far, many lawmakers and governors have bought into the idea of “free” federal money, since the federal government is offering to cover 90 percent of the costs in the long term. With Preschool for All, states would chip in 10 percent of the costs in the first two years, 50 percent by year six, and eventually 75 percent in year ten. But what’s to stop the feds from reneging on their funding commitments? For Medicaid expansion, the President has already floated the idea of lowering match federal match rates, which would leave states with a greater burden than originally anticipated. It’s not difficult to imagine a similar bait-and-switch with Preschool for All, especially once its major revenue stream—cigarette taxes—falls short of projections.

Also like Medicaid expansion, the Administration is keeping mum on the topic of long-term cost for universal pre-K. At the state level, all we’ve heard about so far is the magical first year. Minnesota, for example, would receive close to $39 million from Uncle Sam in year one and only have to kick in $4 million in state funds. In year ten, Minnesota’s share will be 75 percent, or $32.25 million, if the match rates go as planned. But many unprincipled lawmakers simply can’t resist another hit of federal cash and are willing to ignore these future state costs in order to get the program started.

For the federal government, we’re told that the program should cost around $75 billion in the first 10 years, but beyond that, who’s to say? Is this another “camel’s nose under the tent” proposal? Some in Congress have called for an even larger federal role in pre-K and so has the President. Medicaid was not originally intended to cover folks living up to 133 percent of the poverty line, but that’s exactly what the current expansion push is all about. Once pre-K for 4 year-olds is in place, there will be increased efforts to expand the program and its budget. Are taxpayers prepared for more tax hikes to underwrite it?

All indicators point to the Preschool for All initiative being a bad deal for taxpayers. Its prime target for tax hikes is smokers, and once that revenue fails to materialize, all Americans will be made to pay. Education and health care are both important domestic issues and not without their share of challenges. But taxpayers shouldn’t be fooled into thinking universal preschool and Medicaid expansion are the answers. As our economy struggles to get back on track, Americans need tax relief, and that can only happen if Washington and the states control their reckless spending habits and avoid costly programs like Preschool for All.  

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Celebrating Milton Friedman and School Choice
Posted By: Austin Peters - 08/07/13

In a time of increased federal government intervention, school choice has been a silver lining for small government supporters. The idea that parents should be empowered to choose the school their children attend and that market mechanisms can be utilized to fix the declining American school system has gained popularity with both politicians and the public. Surprisingly, many forget who the intellectual father of the school choice movement is none other than the esteemed economist Milton Friedman.

Friedman's discussion of school choice started over 50 years ago in an essay "The Role of Government in Education." The piece outlined two main arguments for school vouchers that are still the basis of the voucher system today. First, he argued that schools based on choice would lead to competing among local institutions. The better a school's results, the more students the school would have elect to attend, and the more money they would receive through either government payments or vouchers. Secondly, Friedman argued that voucher programs are a more moral system because it did not limit children's choice of educational institutions to one designated by their home address.

From 1955 on, Milton Friedman became one of the lead champions of school choice. However, the idea faced heavy resistance from teacher unions and politicians on both sides of the isle. Nonetheless, in typical Friedman style, he pushed on with his efforts. Over time, he succeeded in sidestepping special interests and politicians by finding avenues to speak directly with citizens about the issue. For example, Milton dedicated a full episode to the topic during his very popular PBS Free to Choose Series that aired in 1980.

The concept of school choice continues to fight for acceptance. Initially a preferred method of liberal activists to help impoverished urban minorities escape poverty, the idea was later adopted by the Republican Party when Ronald Reagan made it the focus of his education plank in the 1980 Presidential Election. After Reagan's electoral success, it took another decade before Friedman saw his ideas become reality in the city of Milwaukee, Wisconsin when a voucher program was adopted for some students in its school district in 1990.

While Milton would prefer to see every child already enjoying the option of choice, the movement has made significant progress since it was first conceived. There is no doubt that the father of school choice would be proud to see Wisconsin, Ohio, Florida, Georgia, and even the District of Columbia adopt some variation of a voucher system. He would surely smile his iconic smile at the innovation school choice supporters have utilized to create charter schools and tuition tax credits in various states across the country.

With Friedman Legacy Week over, many of us reflect upon the economic genius of the man who shaped so much of the world as we see it but let us not forget his devotion to promoting school choice.

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Ac-“customed” to Waste?
Posted By: Pete Sepp - 08/05/13

All too many federal agencies can be cited for having budgetary skeletons in their closet, and U.S. Customs and Border Protection (CBP) is no exception. From poorly managing a drone fleet purchase, to making questionable demands for more employees, CBP has raised fears for the security of taxpayers’ wallets in the past. Yet, Congress has an opportunity to ease future fears, over a controversial new CBP project, before it can cause a fiscal fright.

Two years ago, the U.S. Department of Homeland Security (DHS) concluded a letter of intent with the United Arab Emirates to build a “pre-clearance” facility at Abu Dhabi airport which would allow travelers to the U.S. to clear customs before arriving on American soil. So far, so good: pre-clearance can not only save time and reduce congestion at U.S. points of entry, it can also help ease the way for tourists who contribute to economic activity while visiting here.

Now for the not-so-good:

  • According to Airlines for America statistics, Abu Dhabi airport accounted for less than 600 passenger arrivals per day to the U.S. in 2012, ranking it #80 on the list of top origin points to our country.
  • Right now, no U.S.-based carriers even fly from the Abu Dhabi International Airport back to here.  All other CBP pre-clearance zones in Canada, Ireland, and the Caribbean serve many airlines, including U.S.-flagged ones.
  • The primary beneficiary of the deal would be Etihad Airways, the state-owned airline of UAE. Thanks to this status Etihad enjoys an advantage over private airlines around the world that are subject to corporate profit taxes of their home countries. Which brings us to …
  • Another advantage conferred by the United States under the auspices of the Export-Import Bank (Ex-Im), whose risk-taking and subsidization have long been a concern for taxpayer advocates such as NTU. Etihad snagged $593 million in loan guarantees from Ex-Im last year for aircraft purchases, and could qualify for preferential financing that our own airlines (by definition) can’t get through Ex-Im.
  • Meanwhile, The Wall Street Journal is reporting that over the preceding year (before overblown sequester scare tactics), the wait times for getting through customs at stateside airports have “increased dramatically.”

All these drawbacks lead to one long question: Given CBP’s service challenges at existing airports, is it really a good idea to plow ahead with a facility whose use will be comparatively scarce in the near term, and give another leg-up to an airline backed by its own government as well as ours, at the expense of an already overtaxed flying public?

And “overtaxed” is an understatement. As NTU has often noted, the typical overall government tax and fee burden of 20 percent on a $300 domestic airfare is higher than the average effective rate a middle-class American is likely to pay on his or her 1040 income tax return. International air travelers can have it even worse, with impositions such as separate departure and arrival taxes along with a passenger agricultural inspection fee (which the Obama Administration ill-advisedly considered raising in 2009) and a customs fee.

Proponents of the CBP station at Abu Dhabi argue that the investment of U.S. tax dollars will be minimal since UAE will pick up 85 percent of the project’s expense under the current agreement. But that’s little comfort to tax-weary travelers in America (see above), who remain worried that whatever share they will be forced to commit could escalate if construction or operating costs are not contained. Meanwhile, there’s that pesky matter of how best to apply CBP’s fee collections as well as appropriations from general funds – should they be used to expedite higher-priority passenger and cargo entry-exit services?

Many Members of Congress seem to think so. In June, the House of Representatives passed an amended FY 2014 DHS Appropriations Bill specifically blocking the Abu Dhabi pre-clearance scheme. In May, a bi-partisan group of 11 Senators echoed the sentiment of their House colleagues in a separate letter to DHS Secretary Janet Napolitano, questioning whether the agency’s “decision was made as a result of a risk based analysis.”

Alas, earlier this month DHS announced it was moving forward with a data-sharing agreement that could pave the way for the facility’s activation, even as it faces a concerted petition effort from interested industry groups with considerable clout.

Regardless of the politics involved, the taxpayer aspects of the issue deserve further exploration – that goes not only for the Abu Dhabi pact but also the ever-troubling direction of the Ex-Im Bank. Allowing the free market and fiscal responsibility to sort out needs from niceties would provide some badly-needed bone-rattling for those accustomed to budgetary business as usual in Washington.

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A Student Regards the Senate Student Loan Agreement
Posted By: Sharon Koss - 07/24/13

As a student currently applying for loans to attend my final year of college, I ask Congress to please help today’s students by not helping. On July 1, 2013, the 3.4 percent federal student loan interest rate expired and the rate returned to 6.8 percent. The Senate is now taking up the Smarter Solutions for Students Act, passed by the House, that would tie federal loans to the 10-year Treasury note borrowing rate plus varying rates based on the type of loan with interest rate caps starting at 8.5 percent. A bipartisan substitute amendment tweaks the House language to postpone the immediate rate hike, allow students to lock in interest rates, and even manages to find some meager savings. While this compromise does allow the free market to place a heavier influence on interest rates, it does not completely remove the government from the student loan process..

Over time, achieving a bachelor’s degree has become conflated with the “American Dream,” propped up by politicians who advocate for making college cheaper through subsidizing and capping loans. However, the Heritage Foundation points out that the government is not pulling from its own stash of money but is requiring that taxpayers pay $6 billion each year, the current annual cost of the loan policies over the past six years, saving students on average only $7 per month. The money comes from taxpayers to fund the 30 percent of Americans who go to college. That means that the 70 percent of Americans who work blue collar jobs at construction sites, grocery stores, or power plants pay for the selected few.

Rather than making college more affordable, a Cato study shows that increasing federal aid has made college more expensive. While federal aid tripled, the average cost for public and private schools went up 42 and 31 percent respectively. Artificially distorting the real cost of a college degree is also resulting in many high school students deciding to take out loans to pursue degrees that have very limited market value upon graduation. Greater numbers of people entering the workforce out of college means higher competition for post-graduate jobs. Degree holders must compete for lower paying jobs or end up taking jobs which may not have required a degree – and the “reward” is to be saddled with overwhelming debt. Put simply, more graduates devalue the importance of a college education.

What people should be worried about is the graduation rate, which is distressingly low. Only 54 percent of those who enter four-year colleges complete their education within six years. These low graduation rates can be partially attributed to a distorted understanding of the risks involved with college. To many, it is viewed as a rite of passage rather than a serious educational endeavor requiring a copious amount of studying and hard work. NTU’s Nan Swift earlier remarked:

Taxpayer-funded subsidies that keep student loan rates artificially low have had the extremely negative impact of both inflating the cost of college degrees and opening the floodgates to a host of students with a higher risk of default or who are ill-prepared for the academic rigors of higher education. These students would have avoided taking on the enormous debt increasingly associated with a college degree where it not for the abundance of cheap credit at taxpayer expense.

The amended Smarter Solutions for Students Act is a compromise which many Members of both parties in the Senate, House Republicans, and the administration all agree on.  The Brookings Institution even acknowledges that:

When you let Congress set the rate and then the market moves around that rate, the market rate and the student loan rate set by Congress get completely out of whack…So tying it to the market rate fixes that problem.

Still, the legislation has considerable drawbacks. According to the Congressional Budget Office (CBO), this bill is projected to reduce the deficit by a net amount of $715 million over a ten-year period. Setting aside the controversy among primarily left-of-center commentators over whether government should “profit” from the student loan business, it’s important to read what’s behind CBO’s topline estimate. For one, offsetting savings don’t begin to occur until 2017; spend now, save later is a familiar feature of many proposals in Washington. Furthermore, CBO’s numbers don’t use “fair value” scoring assumptions, which better account for market risk in credit programs. Thus, deficit-neutrality may turn out to be an illusion.

In the end, therefore, passing this piece of legislation represents only a modest step in the right direction for taxpayers’ wallets, for the national deficit, and for reducing artificial control over interest rates. As the compromise bill is voted on in the Senate today, Congress and the administration have a chance to allow prices to rise and fall more closely with market conditions. As bipartisan support for student loan reform grows, perhaps one day we’ll be able to get Washington out of this business entirely.

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Student Loan Deadline Passed, Now What?
Posted By: Dan Barrett - 07/01/13

If you have been following the news out of Washington, DC over the last week or two, one thing really stands out: legislators had until today, July 1st, to reach an agreement on extending federal subsidized student loan interest rates or see them double to 6.8 percent. That deadline has come and gone (Congress left town for an early start to the Fourth of July holiday) but what does that actually mean? NTUF analysts have already written about how student loans are funded by the federal government or what the different types of loans there are. Below I’ve listed some myths that I kept hearing repeated by politicians, advocates, and everyday Americans.

Myth: The interest rate increase was a surprise.

Not True. If you recall, last year, Americans faced the same scenario (with much the same rhetoric of impending doom for life as we know it). President Obama and Members of Congress enacted a short stopgap measure before ultimately passing legislation to continue the funding for the lower rates until today. Everyone involved knew this day would come and had (or rather, continue to have) time to address the situation, though solutions can take different forms.

Myth: Doubling the interest rate will mean double the repayments.

Absolutely Not True. I have unfortunately heard this mostly come from alarmist Members of Congress. According to many sources, including the Brookings Institution and the Congressional Budget Office (CBO), an increase of interest rates for subsidized loans will mean a higher per month payment requirement once those students graduate. How much? The Joint Economic Committee reported that college students will have to pay an average $2,600 more over the course of the life of the loan. Spanning over years, that could be $20 or $50 but CBO found that it averaged out to be a $38 increase per month (assuming the loan is repaid over ten years). Though I would not welcome such an increase in repayment costs, it is a marginal change nonetheless.

Myth: Extending the lower interest rate is no cost to taxpayers.

No & It Gets Worse. CBO scored a basic two-year extension of just the subsidized student loan interest rates as an $8.3 billion cost spread out over four years. Currently, the income from interest and loan repayments is projected to net the government $6 billion in FY 2013 BUT the spending will soon outweigh the income. As explained in The Taxpayer’s Tab, administrators borrow money by issuing U.S. Treasury securities and use the new money as loan capital and subsidies. This system works as long as loan interest is higher than securities interest. However, by 2018, the interest on new debt will be quite close to set interest rates (and when you account for administrative costs ($15 billion over ten years, you’re no longer in the black). Simply put, if the government keeps borrowing at this rate, student loans will quickly become a liability for taxpayers, who would be footing the bill for a bailout if it comes to that.

http://www.ntu.org/ntuf/taxpayerstab/4-21.html

Myth: There is nothing anyone can do now.

All Is Not Lost. With the deadline passing only today, legislators could come back from their break and pass legislation that could do a number of things for student loans, including:

  • Simply Extend Lower Interest Rates, an $8.3 billion new cost.
  • Extend Lower Interest Rates With Conditions, some legislation is calling for revenue increases while others seek spending offsets to make the extension revenue neutral.
  • Find Other Sources of Funding, one bill would require the Federal Reserve to expand its ledger and take on new student loans, CBO has not released an estimate for Rep Tierney’s and Senator Warren’s bill.
  • Peg All Loans at Changing Interest Rates, Senator Coburn’s measure would lock rates in at securities interest plus three percent for administrative costs, a $32 billion new cost (but ultimately a net $15.6 billion savings over ten years).
  • Make Rates Change with the Economy, House Republicans passed a bill to peg rates according to economic conditions, a $330 million new cost (but an eventual $3.7 billion savings in ten years).

There are resources on the web for students to consider their options, like this one by Brookings. However, students need to understand the market conditions they live in and how their borrowing affects the economy. I encourage all students to do their best to get scholarships and get the grades they need to better their initial standing in higher institutions. But if going to college is too expensive, other options exist that are just as viable. Tech and certificate programs, community college, and simply working now to go to school later are considerations highlighted by not only CBO but parents who are likely expected to shoulder some of the cost of their child getting a higher education. They also need to understand the financial committment of possibly failing in their academic venture. Don't believe me?  A third of student loan borrowers never earned a degree.

Here's to hoping that students are more skeptical when hearing these myths, especially when their financial futures are on the line.

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Federal Student Loans: A Summary
Posted By: Dan Barrett - 06/13/13

In anticipation of both more heated debates in Congress on whether or not to extend lower interest rates for incoming college students and a feature in this week’s Taxpayer’s Tab newsletter, I put together a quick reference to show exactly what loans are in question and what other loans are available to students.

The federal government offers many forms of financial assistance for college education, but a large portion of that help -- approximately $106 billion each year -- comes in the form of loans. While some loans are given to students based on financial need, others are issued with only the personal needs and considerations of the applicant. While some loans are given to students based on financial need, others are issued on an individualized, case-by-case basis that takes into account personal considerations of the applicant. Some students choose to forego full- or part-time employment during college and instead supplement their living expenses with loans. Though there are other options, such as private loans and Pell grants, government-backed student loans come in three forms:

  • Subsidized: Granted only to undergraduate students based on financial need with a lifetime borrowing limit of $23,000. While the student is in school (or does not have a deferment), interest does not accrue until after graduation (or until their deferment runs out).
    • Current Interest Rate: 3.4%
    • Interest Rate after July 1st: 6.8%
  • Unsubsidized: Offered to students pursuing either undergraduate or post-graduate degrees, these loans do accrue interest while the student is in school, but the loans are not based on financial need, allowing recipients to use the funds as they see fit. Borrowing limits vary (between $31,000 and $138,500) according to the level of educational degree (undergraduates receive less compared to graduate and professional students).
    • Interest Rate Currently and after July 1st: 6.8%
  • PLUS loans: Used to supplement parents of dependent students and graduate students who have passed the limits of Subsidized and Unsubsidized loans. These loans are not based on financial need. Similar to Unsubsidized loans, interest accrues immediately after being issued. There is no lifetime borrowing limit but has annual limits.
    • Interest Rate Currently and after July 1st: 7.9%

For a more detailed (though wonk-ish) summary, check out this great report by the Congressional Budget Office.

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