Alexander: “The Main Reason Tuition and Loans Are Going Up Is President Obama and His Healthcare Policies”
Says “federal Medicaid mandates are soaking up money that states would otherwise spend on colleges, forcing tuition increases”
Posted on April 25, 2012
“Today I'm introducing the Student Interest Rate Reduction Act to keep the interest rate at 3.4 percent for new subsidized Stafford loans, just as President Obama and Governor Romney have proposed. We will pay for that by taking back from the health care law money that the Congress overcharged students on their student loans.” – Lamar Alexander
WASHINGTON – U.S. Senator Lamar Alexander (R-Tenn.), along with Republican Leader Mitch McConnell (R-Ky.), Ranking Member of the Senate Health, Education, Labor Committee, Mike Enzi (R-Wy.) and 11 other Republican senators, today introduced the Student Loan Interest Rate Reduction Act to keep the interest rate on subsidized Stafford loans at 3.4 percent for loans made between July 1, 2012 and June 30, 2013 paid for with money from the health care law, which is paid for in part with government profits made through higher rates on student loans. Senate Democrats want to pay to keep the rate at 3.4 percent by increasing taxes on small businesses.
Alexander said: “President Obama's speeches on college campuses around the country about student debt are incomplete because the rest of the story, unfortunately, is that the main reason why college tuition is going up and the main reason therefore why loans are going up is President Obama and his health care policies.”
“When tuition goes up at the University of California, and you see students protesting, the reason is because of Washington. As I said, President Obama didn't invent this problem -- this is a 30-year old problem -- but he has made it worse. He made it worse with laws that say when States have less money, they have to spend more on Medicaid. If they are told from Washington to spend more on Medicaid, even though they have less revenues, they are going to spend less on something else. So they spend less on the University of California, or the State University of New York, or the University of Tennessee.”
“We cannot continue to order the States to spend more for Medicaid and expect our great colleges and universities to be affordable and continue to be the best in the world. That is the real reason why tuition is going up and loans are going up.”
The full transcript follows:
Madam President, I am glad I had a chance to hear my distinguished friend from Illinois speak about student loans and college costs. All of us would like to make it easier for Americans to be able to afford college. At another time, I will speak about some of the other options available. The average tuition at 4-year public colleges in America is $8,200. The average tuition for a community college is $3,000.
I know at the University of Tennessee, where tuition is about $7,400, at a very good campus in Knoxville, virtually all the freshmen show up with a $4,000 Hope Scholarship, which is a State scholarship. Of course, if they are lower income students, they are also eligible for Pell grants and other federal aid.
So we will continue to work, on a bipartisan basis, to make college an opportunity available to students. If there are abuses in the for-profit sector or other sectors of higher education, we should work on those together.
I would like to talk a little bit more specifically this morning about the issue of interest rates on student loans. President Obama is busy this week traveling to campuses across America to talk about student loans. It is a noble goal to talk about making it easier for students to afford college. It is a goal we all share.
But I am afraid the President is not telling the whole story. Because if he were to tell the whole story, what he would have to tell the students is that the principal reason for the rise in tuition at public colleges and universities and community colleges across America and the principal reason for the increase in student loans is President Obama himself and his own health care policies.
To be fair, he did not start many of these policies. They have been going on for a good while. But he has made them worse over the last several years. When the new health care law goes into effect in 2014, with its new mandates on States, we will find an exaggeration of what has already been happening, which is that Federal health care mandates on States are soaking up the money States otherwise would spend on the University of Oklahoma, and Tennessee, and the State University of New York.
When States do not support their public colleges and universities, which is where approximately three-quarters of our college students attend, then the colleges’ only choice is either to become more efficient, to decrease their quality or to raise tuition. Most of them are trying to do all three.
So Federal health care policies are the main reason tuition is up, and the reason tuition is up is the main reason debt is up. Specifically, what we are talking about, and what the President has been talking about, is a 3.4-percent interest rate for some student loans.
Here are some facts about that. The President has proposed that for 1 year, for new Stafford subsidized loans, rates would remain at 3.4 percent. Governor Romney agrees with him. I agree with him. So there is substantial support from both the President and his probable Republican opponent in the Presidential race for this next year. New loans, after July 1, which are now at 3.4 percent, would stay at 3.4 percent. The benefit to students who get the advantage of that lower rate -- most other loans are at 6.8 percent by law -- is about $7 a month, according to the Congressional Research Service.
All this talk is about offering students the benefit of about $7 a month for new loans. It is important to notice that no student who has a 3.4-percent loan today will see his or her interest rate go up. I will say that again. If you have a loan and you are going to the University of North Carolina and are paying 3.4 percent today, your rate will not go up on July 1. The law only affects new loans, and it doesn't affect 60 percent of loans. For 60 percent of those getting new loans after July 1, they will continue to pay the 6.8 percent set by Congress a long time ago.
I am glad the President is bringing this issue up, because the real driver of higher tuition and higher interest rates is the President's own policies -- in two ways: The government and congressional Democrats who passed the health care law are actually overcharging students -- all students -- on student loans and using some of the money to pay for the health care law. These aren't just my figures. The Congressional Budget Office said when the new health care law passed, Congress took $61 billion of so-called savings -- I call them profits on student loans -- and it spent $10 billion to reduce the debt, $8.7 billion on the health care law, and the rest on Pell grants.
How does that work? How could Congress be overcharging students? Well, under the health care law, the government borrows money at 2.8 percent. The government then loans to students at 6.8 percent. That produces a profit. The Congressional Budget Office has said that the Congress could have lowered the interest rate from 6.8 to 5.3 percent and save all students $2,200 over the life of their average 10-year loan.
I am introducing legislation today on my behalf and on behalf of others called the Student Interest Rate Reduction Act. This law proposes to keep the interest rate at 3.4 percent for subsidized Stafford loans beginning July 1 of this year, just as the President and Governor Romney proposed. We will pay for that by taking back the money that the Congress overcharged students on their student loans under the health care law.
This 1-year solution, as I said, will save students about $7 a month on interest payments on their new loans, or about $83 a year. It will cost the taxpayers about $6 billion, which will be paid for by reductions in savings from the new health care law.
Let's talk a moment about the real cost of tuition and student debt going up -- that is, Federal health care policies. When I was Governor of Tennessee in the 1980s, the same thing would happen every year as I made up my State budget, and it is happening today in every State capital in America. I would work through all the things we had to fund with State tax dollars -- the roads, the schools, the prisons, and the various State agencies. Then I would get down to the end of the budgeting process and have some money left. The choice would always be between Medicaid and higher education -- our public colleges and universities.
I spent my whole 8 years as Governor trying to keep the amount we gave to Medicaid down so that I could increase the amount for colleges and universities, because I thought that was the future of our State.
In fact, we had a formula then that said if you went to a public college or university, the taxpayer would pay for 70 percent of it and the student would pay for 30 percent. If we raised your tuition, we would raise the State's share. We kept that 70/30. That is now turned completely around in Tennessee, where it is closer to 30/70 now; the student pays 30 percent and the taxpayers pay nearly 70 percent. This shift is because Medicaid mandates from Washington on every State have forced Governors and legislatures to take the money they would otherwise spend for public colleges and universities and spend it instead for Medicaid. As a result, State colleges and universities have less money, and to get more money, they must raise tuition.
When tuition goes up at the University of California, and you see students protesting, the reason is because of Washington. As I said, President Obama didn't invent this problem -- this is a 30-year old problem -- but he has made it worse. He made it worse with laws that say when States have less money, they have to spend more on Medicaid. If they are told from Washington to spend more on Medicaid, even though they have less revenues, they are going to spend less on something else. So they spend less on the University of California, or the State University of New York, or the University of Tennessee.
Last year in Tennessee, State funding for Medicaid went up 16 percent in actual dollars; as a result, State funding for community colleges and the University of Tennessee went down 15 percent in real cuts. That was not a cut in growth. That was a real cut. What did the state colleges and universities do? They raised tuition 8 percent. What did students do? They borrowed more money.
I have been trying to get this point across ever since I became a Senator. I said during the health care debate that everybody who voted for it ought to be sentenced to serve as Governor for 8 years in his or her State so they would understand this problem.
We cannot continue to order the States to spend more for Medicaid and expect our great colleges and universities to be affordable and continue to be the best in the world.
That is the real reason why tuition is going up and loans are going up.
Mr. President, again, I am introducing today the Student Loan Interest Rate Reduction Act. It addresses exactly the subject President Obama is talking about on the campaign trail these days. How do we keep the interest rate on subsidized Stafford loans, the new loans that began July 1 -- how do we keep that at 3.4 percent for 1 year? Governor Romney supports that. President Obama supports that. I support that. The only difference is how we pay for it. It will cost $6 billion.
Our friends on the Democratic side have come up with their usual methods of paying for it: They are going to raise taxes on small business and people who create jobs.
We have a little better idea on this side, which is, let's take the $8.7 billion back that the Federal Government overcharges students on student loans today to help pay for the health care law and give it back to the students, and let's extend this for 1 year. That will leave nearly $3 billion extra, which we can use to shore up the Pell grant funding gap that is expected over the next couple of years.
Respectfully, I say to President Obama, when you visit the next college campus, tell the whole story. It is hard to attend and pay for college. There are many good options. Debt is up. But in fairness, the principal reason tuition is rising, and therefore debt is rising, is because of President Obama's own health care policy. He didn't start it, but he made it worse. What he has done is put into place a set of policies that are soaking up the money States would use to fund public colleges and universities and community colleges across this country, forcing them to use that money for Medicaid. As a result, the universities and community colleges have less money, they raise tuition, and that is the principal reason why we have higher tuition and higher interest rates.
The way to stop that would be to either repeal the health care law or repeal the Medicaid mandates. That would improve the quality of American public higher education, and it would improve access to higher education. It would slow down the rising of tuition and slow down the rising of student debt.
I thank the Chair and yield the floor.
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