Obama’s Budget: Supporting Students, Not Banks

By Eric Lotke, Christine Lindstrom and Armand Biroonak
Institute for America's Future, U.S. Public Interest Research Group

March 26th, 2009

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President Obama’s budget proposal would transform the federal financial aid system that struggling students and families rely on to pay for college. The proposed budget cuts excessive lender subsidies, moves to more efficient direct lending instead, and invests the savings in students. The changes are major steps toward making college opportunity affordable for all Americans. This report explains the impact for students, nationally and by state.

» Download the full report (PDF)
» Related Reading: The Obama Budget: A Stick In the Eye For Banks

Over the past decade, states have cut their contributions to college budgets and grant aid has stagnated. Students have been forced to pay ever higher tuition and costs. At the same time, wages are flat and savings have plummeted. Facing skyrocketing cost, students and families have increasingly turned to loans to pay for college. The number of college students graduating with over $25,000 in student loan debt has tripled in the last decade. The rising debt squeezes students and families out of higher education.

New data from the National Center on Education Statistics show that in the United States, the average cost of tuition at a public four-year college increased $1,729, or 29 percent, between 2000 and 2007. Tuition went up 5 percent last year alone.

Among other changes, the Obama budget eliminates the Federal Family Education Loan Program, which excessively subsidizes banks, and moves to the U.S. Department of Education’s Direct Loan program. The Congressional Budget office projects this move to save $94 billion over nine years. The Obama budget then redirects the savings to students. The Congressional Budget Office estimates that in 2010-2011, $5 billion would be cut from subsidies to banks and lenders, and invested in students instead.

Redirecting the bank subsidies toward Pell grants would solidify the grant program as the premier source of assistance for low-income students. The Pell grant maximum would increase from $5,350 to $5,550; the estimated national average Pell grant award would increase by $121, from $3,299 to $3,423. Increasing the award will also enable an additional 130,000 more students to attend college per $100 increase in the maximum award.

This bold move is the type of reinvestment that is needed to get students into college so they get the education they need to move the country forward.

State Impact

These reports outline the impact of tuition cost increases in each state and the difference the Obama administration's student loan proposals would make by shifting funds from bank subsidies to direct student loans. (Click here for a map by Campus Progress showing this data.)