Republican Education Bill Would Boost Profits for Private Student Lenders and Raise Financing Costs for Students (Michael Simkovic)

House Republicans recently voted along party lines in favor of a tax bill that specifically targeted higher education institutions and students for tax hikes, while providing large tax cuts for corporations and wealthy individuals.  The Wall Street Journal reports that House Republicans are proposing an additional higher education bill that would make the terms of federal student loans less flexible and less generous and limit federal student loan availability.  Specifically, the bill would eliminate Public Service Loan Forgiveness and reduce the availability of flexible repayment plans for all borrowers. It would also cap maximum borrowing from the federal government at a lower level.

These measures, if enacted, would be a boon to private student lenders like Sallie Mae, who would be able to both increase their prices and increase their market share as federal student loans become less competitive and less available.  Consequently, expected financing costs for students will likely increase, to the detriment of both students and educational institutions.

According to a study by the Government Accountability Office and the Department of Education, loans to graduate and professional students are the most profitable in the government's portfolio--even after income based repayment and debt forgiveness.  Capping loans to these attractive borrowers may reduce the overall profitability of federal student lending, and pave the way for arguments for more cuts to federal lending in the future. 

The bill reportedly will also reduce regulation of for-profit college sales and marketing, and provide greater funding for 2-year degrees and apprenticeship programs.  Labor economists who have studied 2-year degrees and apprenticeship programs typically find that these programs provide relatively low benefits (in terms of increased earnings and employment) compared to 4-year college degrees and graduate degrees, even after accounting for differences in the costs of these programs and differences in student populations.  Thus, increasing funding for apprenticeships while reducing funding for 4-year degrees and advanced degrees is likely to impede economic growth.

These educational priorities, may however, provide Republicans with political advantages.  Political scientists and pollsters have found that as education levels increase--after controlling for income, race, sex, and age--individuals become more likely to identify as Democrats and less likely to identify as Republicans.  The association is particularly pronounced among scientists and others with graduate degrees.