House Democrats' Higher-Education Overhaul Boosts Spending Without Purpose

On Tuesday, Democrats on the House Education and Labor Committee unveiled their plan to reauthorize the Higher Education Act, the law governing federal support for colleges and universities. Much in the so-called College Affordability Act (CAA) has been proposed before, though there are some new and creative ways to spend taxpayer money on investments that likely won't pay off.

On federal student loans, the costliest proposal is a change to the way loan payments are calculated for borrowers in income-based repayment plans. Currently, borrowers in these plans pay an amount equal to 10% of their income above 150% of the poverty line (about $25,000 for a household of two). House Democrats would raise that threshold to 250% of the poverty line, slashing monthly payments for some borrowers and eliminating them for others.

Under income-based repayment, taxpayers forgive remaining balances after borrowers spend 20 years in repayment, or 10 years if the borrower is eligible for Public Service Loan Forgiveness. Since the Democrats' plan maintains these periods while cutting monthly payments, the volume of debt forgiven by taxpayers will shoot up. Those on the left grumble that the CAA does not include loan forgiveness en masse, as many Democratic presidential candidates have proposed. But the bill does include mass loan forgiveness-it's just hidden inside obscure changes to program terms.

Borrowers who use income-based repayment tend to be better off than the average person. Sixty-one percent of the loans in these programs belong to people who earn more than $80,000, and 65% belong to those with graduate degrees. These are hardly the individuals most in need of scarce taxpayer dollars. Even worse, the smoother path to loan forgiveness under the Democrats' plan will likely encourage future students to borrow more-and colleges to raise tuition.

The CAA also proposes allowing borrowers to refinance their loans at current interest rates. A Congressional Budget Office score of a similar proposal pegged the cost of this idea at $60 billion. Yet an independent estimate showed that the average borrower would see her loan payments decline by only $8 per month, which is unlikely to make or break any borrower's personal finances. That's because refinancing spreads government benefits among all borrowers, rather than targeting help to the people who need it most.

Another change allows people with Parent PLUS loans to opt into income-based repayment plans. Parent PLUS is a loan program that parents can use to borrow effectively unlimited amounts their children's college education. I've written before about how this program often loads up parents with unaffordable debts at high interest rates, all with the federal government's stamp of approval. It's long overdue for a change.

However, making parent borrowers eligible for income-based repayment and its associated loan forgiveness opportunities should only happen after Congress has fixed Parent PLUS by including commonsense caps on borrowing, or abolished the loan program altogether. Otherwise, the financial burden of excessive borrowing simply shifts from parents to taxpayers.

One obscure but costly change in the CAA allows students to use Pell Grants, a college grant program aimed at low-income students, on graduate school. This perverts the original intent of the Pell Grant program, which was to help students from disadvantaged backgrounds pay for an undergraduate degree. Yet now House Democrats want taxpayers to directly subsidize advanced study as well, to the tune of up to $6,700 per year.

The idea that the government should dangle the carrot of free money in front of millions of students to pursue graduate study is a dubious one. According to a report by Burning Glass and the Strada Institute, 43% of recent college graduates work in a job that doesn't even require a bachelor's degree, suggesting Americans' educational credentials have outpaced the needs of the labor market. Sending more students into the graduate-school pipeline would worsen this "degree inflation" problem even further, wasting both students' time and taxpayers' money.

To their credit, House Democrats do have a couple proposals that spend taxpayer dollars in a responsible way. Federal work-study provides aid for students who work part-time jobs while in school. But since work-study funding is limited, so current law allocates it mostly to schools that have participated in the program for a long time. Those tend to be well-established and wealthy schools. The CAA retools the funding allocation formula to give other institutions a shot at the money.

A second bright spot is a new pilot program for competency-based education, an alternative model of education that awards credit based on skills learned rather than hours spent in the classroom. Federal programs tend to favor traditional education models, so any effort to level the playing field towards more innovative providers is welcome.

But those two reforms are miniscule next to the billions of dollars House Democrats propose spending on the major loan and grant programs, with no clear benefit. And that's not all. In a follow-up post, I discuss what the College Affordability Act gets wrong in its approach to higher education accountability.