Editorial: Switching to direct loans

Unfortunately, while SAFRA did pass in the House, it has yet to come before the Senate. Given the recent loss of a filibuster-proof Democratic majority in the Senate, SAFRA’s prospects for ultimate adoption have become markedly shakier. The Editorial Board believes that SAFRA would improve the federal student loan program, and we hope that it will eventually be enacted.

The chief argument in favor of SAFRA is straightforward. The Congressional Budget Office has estimated that the transition from the FFELP to the Direct Loan program would save the government more than $80 billion over the next 10 years — savings that would enable the increase in funding for Pell Grants also enacted by SAFRA. Especially in the current economic climate, funds for student aid should be used in as efficient a manner as possible. The redistribution of funds from FFELP to Direct Loans and Pell Grants clearly accomplishes this.

Furthermore, the transition from subsidizing private lenders to direct government lending will insulate the financial-aid system from unpredictable swings in the national economy. When loans are provided to students by private lenders through the FFELP, economic troubles can worsen the rates on loans available to students and reduce the ability of these loans to make college affordable. It is precisely during such economic downturns that students most need financial aid and that lenders’ tightening of their belts is most harmful. Because the Direct Loan program lends money straight from the government, it would be able to continue providing low-interest rates on loans even in an economic recession.

Opponents of SAFRA have protested that the bill would unduly expand government bureaucracy and assign to the federal government functions best performed by private banks. But given the size of the administrative apparatus currently in place to run federal student loan programs and given the degree of control the government currently exerts over the process, it is unlikely that the changes proposed by SAFRA would lead to a net increase in government bureaucracy.

Admittedly, the switch to the Direct Loan program would have little impact on Princeton, given the University’s no-loan financial-aid policy. But SAFRA would increase funding for the Pell Grant program, whose recipients make up 10 percent of our student body. Even more importantly, the bill would greatly benefit students across the country who are forced to take out loans to fund their education. We hope that in the coming weeks, the Senate will overcome the gridlock of the current political climate and pass SAFRA.