Romney education adviser Phil Handy, in a recent debate with an Obama counterpart, called the income-based repayment program a ‘‘creeping entitlement’’ but the campaign has not said publicly whether or how he would reform it. (A recent New America Foundation calls for reforms to the program so its benefits will be less weighted to higher earners).
Q. What about tax credits?
A. Obama wants to extend the American Opportunity Tax Credit, which provides about 10 million families a tax refund of up to $2,500 for tuition, fees and course materials. Romney’s tax plan would allow that credit to expire and revert to the old HOPE tax credit, which is less generous to students and less expensive for the government. Unlike HOPE, the AOTC is partly refundable, meaning low-income students can benefit even if they don’t owe taxes.
Some education finance experts have criticized the AOTC, arguing other programs channel benefits more effectively to the neediest students. Obama campaign policy director James Kvaal counters it’s important to help middle-class families afford college as well as the low-income students who use Pell Grants.
Q. What is the problem with Pell Grant funding and what will the candidates do about it?
A. Pell is the main college aid program for low-income students. The awards are given on a sliding scale, and only about one-third of recipients receive the maximum (currently $5,550). Typically those who get the maximum are the very poorest students (more than 90 percent come from families earning under $30,000).
Congress has essentially laid out a schedule of Pell awards where the maximum rises to $6,030 in coming years, but hasn’t provided full funding for that commitment. There’s a shortfall averaging roughly $8 billion annually starting in 2014. Obama’s latest budget proposal calls for filling the immediate shortfall, partly through redirected savings, and working with Congress on a long-term fix. But he doesn’t propose tightening eligibility requirements.
Romney said during the second debate he wants to keep Pell ‘‘growing.’’ But a Romney campaign paper calls for ‘‘refocusing’’ Pell on the neediest to preserve its financial viability. Handy, the Romney education adviser, said Pell Grants need to be ‘‘radically fixed.’’
In short, Romney’s campaign has made it increasingly clear he’s talking about keeping the maximum Pell on track for its scheduled increase, but limiting eligibility or lowering awards for the those who get less than the maximum — currently about 6.5 million students who typically come from families earning $30,000-$50,000 annually. If Romney ever signed into law the House budget of his running mate, Rep. Paul Ryan of Wisconsin, more than 1 million students could be on track to lose their Pell Grant eligibility over the next decade, according to an analysis by The Education Trust, a non-partisan Washington, D.C.-based policy and advocacy group.
Q. How do the candidates differ on student loans?
A. When Obama took office, two federal loan systems existed side-by-side — one offering direct loans from the government, the other subsidizing a kind of federal loan provided by private lenders. Obama ended the second system and moved entirely to direct lending.
Romney’s campaign says the decision ‘‘moved a trillion-dollar obligation’’ to the federal balance sheet and is proving more expensive than expected, citing a Barclays research report that estimates costs of direct lending have been underestimated by $225 billion between now and 2020. Even accounting for the $60 billion in lender subsidies Obama has eliminated, Romney contends returning to a system that incorporates private lenders would offer taxpayers more efficiency and students better service.
Obama argues the $60 billion previously allocated to paying private lenders was wasted. Kvaal says it’s actually Obama’s direct-lending approach that makes better use of market forces — instead of getting subsidy checks, the student loan companies now compete for government contracts to service the direct loans, replacing bureaucrats. Jason DeLisle, a former member of Senate Budget Committee’s Republican staff who now directs the Federal Education Budget Project at the New America Foundation, agrees, calling the changes Obama made ‘‘something Bain Capital would come up with’’ rather than the government takeover Romney describes.
Q. Is Romney right that Obama’s direct lending changes are costing the government and that taxpayers are ‘‘on the hook?’’
A. The short answers are ‘‘not really’’ and ‘‘possibly’’ — but those are complicated questions.Continued...