Surging Numbers of College Applicants Putting Pressure on Direct-Loan Debate

It’s never seemed like much of a debate. Should the government spend $61 billion over the next 10 years to continue to subsidize the private lenders who have long acted as middlemen for student loans that are guaranteed by the federal government? Or should we cut out the private lenders and completely convert to the government’s direct-loan program, which already provides about half these college loans at a cheaper cost, and funnel the savings into programs that help low-income students finance their education and encourage colleges to do more to help them graduate and find jobs?

A showdown on the issue, one of the Obama administration’s top education goals, is expected next week now that the student-loan proposal has been bundled up with the administration’s health-care bill into a single package. Both initiatives will need only a simple majority to pass both the House and Senate, but neither house has yet nailed down the votes they need.

Private lenders, determined to keep the subsidies flowing, have been intensely lobbying against the student-aid bill, arguing that if the spigot is turned off, some jobs will be lost. However, the U.S. Department of Education says that even if the subsidy ends, it will still hire private firms to service the loans, which should reduce job loss, something independent analysts have verified.

But now comes a new wrinkle in the debate.  Because of the recession and continued high jobless rates, a surge of prospective students are heading to college to gain a competitive advantage in the job market, and an unexpectedly large number of  them are applying and qualifying for Pell grant money to help pay for their classes. The U.S. Department of Education says  2.6 million more people have already applied and qualified for Pell grants for fall 2010, compared with academic years before the recession began. Specifically, between fiscal year 2008 and fiscal year 2011, the number of qualified applicants has risen from 6.1 million to 8.7 million.

During a conference call with reporters late Thursday, Education Secretary Arne Duncan stressed that if the direct-student-loan bill fails to pass, there will be no way to span the gap between the money already allocated for Pell grants this fall and the increased demand for financing. The result would be that many qualified applicants would not get the maximum of $5,150 but a whittled-down check averaging $2,150.

The savings from the bill, Duncan said, could help the country “educate our way to a better economy. The downside, if we do nothing, is that as many as 8 million students will see their aid cut by as much as 50 percent. This is a huge, huge opportunity.”