The Limits of SAFRA

New reform measures won’t solve the problem of tuition rates

In March of 2010, Congress passed the Student Aid and Fiscal Responsibility Act (SAFRA), a collection of efforts meant to improve access to college. The bill is perhaps best known for ending subsidies to private student lenders. At the bill’s signing, President Obama praised the law, calling it “one of the most significant investments in higher education since the G.I. Bill.”
The measure comes at a crucial juncture, as a college degree is increasingly required for high-paying jobs. While well-intentioned, however, the government’s solutions seem inadequate. Unless Congress takes steps to address the root causes of increasing college tuition rates, rather than merely cushioning those hikes, college will remain out-of-reach for too many Americans.
The Tuition Treadmill
Over the past four decades, both private and public universities have increased tuition rates significantly.  According to The Economist, the cost of attending a private college has soared thirteen-fold over the past forty years, while household incomes have grown at only half that rate. For private institutions, the competition caused by college rankings has led to what Ronald Ehrenberg, a professor of economics at Cornell, calls an “arms race”—building new facilities and hiring new faculty to keep up with peer colleges. For public universities, decreasing appropriations from state budgets have forced them to seek new revenue sources. Yet at every school, administrators see no need to decrease the costs of a college education as long as the number of applicants keeps growing.
The increasing costs of higher education have paralleled decreased college accessibility. A recent report by the federal Advisory Committee on Student Financial Assistance found that in 2004, only 40 percent of qualified students from low-income families enrolled in four-year institutions of higher education, compared with 54 percent in 1992. The report blames the bulk of this reduction on rising costs. As the authors explain, “Financial concerns have played a far more significant role in the decision making of academically qualified students and their parents than previously believed, and will continue to do so in the future.” Even those who matriculate to college may prove to be worse off. Angela Peoples, a policy and advocacy manager for Campus Progress, told the HPR, “Folks are graduating with more debt, but they’re not graduating with a degree that they can use to get a job to help them pay back those loans.”
Recent Reform Efforts

In response to these concerns, Congress has tried a number of solutions. In 2009, a series of reforms capped the maximum length of student loans to 25 years after graduation and tied repayment to income level. Then, in March, SAFRA passed as an addendum to the health care reform bill. SAFRA enables the government to make loans directly to students and discontinues subsidies to private loan providers such as Sallie Mae. It also cut the 25-year term of student loans to 20, and slightly decreased the percentage of income that can go towards repaying loans. Finally, Congress voted to redirect some of the money saved by ending subsidies to lenders towards expanding the Pell Grant program—federal grants based on financial need, no repayment necessary.
Nonetheless, these changes may prove less significant than they first appear. In particular, the reforms do little to resolve ongoing problems with student loans. Mark Kantrowitz, publisher of the websites FinAid and FastWeb, argues that student loans have “not [been going up] at the rate that college costs go up. We’re not even treading water; we’re sinking.”
The government subsidies have proven little more successful. Kantrowitz told the HPR, “They did invest a lot of money into the Pell Grant program. But it’s not going to lead to substantial increases in Pell Grants.” Kantrowitz says that the Pell Grant program and subsidies to higher education more generally have suffered “anemic growth” throughout their history, as funding has grown more slowly than the economy or the price of college. Instead, Kantrowitz proposes that Pell Grants should be tied to the consumer price index, which would automatically increase government funding when college prices rise.
This problem with the Pell Grants parallels a problem with college funding more generally. Although President Obama’s “American Graduation Initiative” had initially promised $10 billion to support existing community colleges and build more nationwide, the administration has only funded a $2 billion increase. Furthermore, much of the money that the government has saved from switching to direct student loans has been diverted away from education funding entirely. As Kantrowitz told the HPR, “Right now there’s nobody in Congress who is making post-secondary education a priority.”
Why College Matters
The irony is that increasing college funding could be both good politics and good policy. Kantrowitz argues that increased funding to Pell Grants alone could cause “a reversal in the decline of bachelor degree attainment.” He said, “We’ll have probably an extra two- to three-hundred thousand bachelor degree recipients each year. And the interesting thing is that it will pay for itself because someone who gets a bachelor’s degree pays more in federal income taxes over their lifetime than someone who has just a high school diploma.” Yet the initiative mostly suffers from a lack of champions. Kantrowitz concluded, “What’s needed is for Congress and the American public to see college as an investment not just in the future of the individual student, but in the future of the country.”
Lily Ostrer ’14 is a Contributing Writer.
Photo Credit: Flickr (Ken Wilcox)