The Congressional Democrats say they can save you money on your student loans by cutting out the subsidies the government currently pays to private lenders. If there are no private lenders, then all of those subsidies could go into increased aid to students. That’s the theory.

Let’s look at what the subsidies pay for. FFELP lenders use the subsidies to cover the costs associated with administering the program, and to fund the incentives they pay to borrowers. The incentives that Congress is complaining about are not cash bribes, as some in Washington would have you believe. Borrowers typically see incentives as reductions in interest rates or fee waivers for developing good payment histories, electronic payment participation, and on loan initiations and consolidations. These incentives directly benefit the borrower’s bottom line. Subsidies also fund borrower education, marketing and operational costs for the FFELP loans.

Congress says it can save money by eliminating these subsidies and redirecting a portion of these funds to student aid. Let’s put a little sunshine on that claim. In the FDLP, the government won’t pay for administrative costs associated with FDLP loans. The universities and colleges must pay those, which is why most higher ed institutions avoid the FDLP like the plague. The administrative costs for these loans are high!

If the Congressional Democrats get their way, colleges and universities will have no choice except to play the government’s game. The colleges and universities won’t absorb those costs, though. They will pass the costs on to their students in the form of tuition increases and fees. Students will have to borrow even more money to pay for college.

So what’s going to happen when more borrowers use the FDLP? That’s right – tuition’s going sky-high.

The Congressional Democrats are simply playing games with the numbers. They’re attempting to make you pay the administrative costs of their program. They don’t want to pay the administrative costs of the burdensome program they’ve created, and colleges and universities don’t want to pay that either, so guess who gets stuck with it. You.

For FFELP loans, the government does pay for its own administrative costs. Don’t believe the Congressional Democrats when they claim that these subsidies are profit for the student loan lenders. They’re not. The subsidies pay the administrative costs of the program – the same costs that the Congressional Democrats want to dump in your lap.

Don’t fall for this baloney. The government can’t design a program with no administrative costs, and the government doesn’t want to pay anyone to administer the program. The costs are real and someone’s going to pay them. For FFELP loans, the government pays for them. Under the Kennedy Plan, you’ll be paying these costs by yourself.

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