If savings were kept inside the loan program, instead of transferred to Obamacare, as some Republican senators are suggesting, they could allow the Department of Education to lower student interest rates to 5.3 percent from 6.3 percent, according to the CBO.
The nearly $9 billion being used to fund Obamacare is derived from $61 billion the government says it will save by administering student loans in-house.
Late last month former secretary of education and ranking member of the Senate Committee on Health, Education, Labor and Pensions Lamar Alexander (R-Tenn.) seized on the diversion of the funds as one solution for lowering student interest rates, which are set to double on Monday.
“The Congressional Budget Office estimates that if we applied that $61 billion savings to student loans, we could have reduced the interest rates to about 5.3 percent and save the average student $2,200 over 10 years,” said Alexander, speaking from the Senate floor.
Under the current plan, which was brokered during last minute negotiations over Obamacare in 2010, $39 billion of those savings will go towards Pell Grants, $10 billion towards deficit reduction and $9 billion towards funding the health care law. The remainder will be used for administrative and other purposes.
Speaking from the floor, Alexander said he believed all of the savings derived from efficient handling of the student loan program ought to be applied towards lowering interest rates for students.
“That $61 billion ought to go to the students who are getting the loans,” he said. “That is my view. That is our view.”
But, in the same exchange, Sen. Tom Harkin (D-Iowa), who is chairman of the Senate Committee on Health, Education, Labor and Pensions, suggested Republicans alternative motive was to defund President Obama’s landmark healthcare legislation.
“I will be honest about this,” he said, speaking to Alexander on May 8. “$9.2 billion went to other health care programs, including requiring dependent coverage in the health care bill.”
“I just have to ask a question,” he said “[A]re we having a health care debate here or an education debate? I thought we were talking about education. We are talking about whether student loan interest rates on subsidized Stafford loans are going to double on July 1. Now it has morphed into some kind of big health care debate.
Harkin also said the diversion of the funds was justified because Obamacare would benefit students.
“How many students now are covered under their parents' policies until they are age 26?” he asked. “[S]ome of this money was used to invest in that or community health care centers.
In a floor speech earlier this month Senate Minority Leader Mitch McConnell (R-Ky.) also pointed to the provision as one contributor to high interest rates on government student loans.
“Rates are going up, and the tuition is going up so [students] have to pay back more at a higher rate … all because of something young people had nothing to do with — and that’s the passage of ObamaCare,” said McConnell.
Neither the CBO or the Department of Education replied to requests for comment from Campus Reform.