New Programs, More Spending in Student Aid ‘Deficit Reduction’ Bill


On the same day the Federal Reserve Chairman was warning Congress about Federal spending and deficits, the Education and Labor Committee reported legislation that:

  • Nationalizes all Federal student loans.
  • Creates ten new entitlement programs.
  • Expands Washington’s role in education.
  • Distorts the budget reconciliation process to create new entitlement spending that will add to the already unsustainable budget commitments of the Federal Government.
  • Increases the deficit by $39 billion, when the long-term costs of its new entitlement programs are taken into account.

As reported on 21 July 2009, the Student Aid and Financial Responsibility Act (H.R. 3221) results in a net increase of $5.7 billion in spending, when its full costs are taken into account. The official estimate by the Congressional Budget Office [CBO] shows the bill yields net mandatory savings of $7.8 billion. But the measure also requires $13.5 billion in additional discretionary spending to administer the new government-run direct lending program, thereby resulting in the $5.7-billion net spending increase.1 But the real costs of the legislation are likely to be even higher, because the measure assumes its new entitlements will sunset at various dates. If these sunsets do not occur, CBO estimates the bill will increase the deficit by $39 billion.

The Education and Labor Committee has reported two versions of the bill. One is a stand-alone measure that could be brought to the floor at any time. The second has been reported to the Budget Committee, because the legislation is called for by reconciliation instructions in the fiscal year 2010 budget resolution (S. Con. Res. 13).

Read the full report here.