Commentary | Education

More help for students—and more jobs

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The reconciliation legislation now headed to President Obama’s desk includes sweeping reforms to the nation’s college financial aid programs. Specifically, the legislation eliminates a program under which the federal government guarantees loans originated by private lenders, replacing it with an expansion of the program under which the Department of Education makes these loans directly.

The student lending industry has publicly opposed the reconciliation legislation on the grounds that it will cost jobs. But the industry’s jobs estimates are deeply flawed for two reasons. First, as FactCheck.org and others have shown, estimates of the direct job impact are clearly exaggerated: They both overstate the number of U.S. jobs that would be lost and ignore the number of U.S. jobs that would be created as companies “onshore” more workers in order to be eligible to service federal student loans.

Second, and more important, the lending industry neglects the indirect job creation that will result from the changes. According to the Congressional Budget Office, the legislation will reduce bank subsidies by $61 billion between 2010 and 2019. A large share of these savings will then be used to boost financial aid for low- and middle-income borrowers.

For example, the legislation increases funding for Pell Grants by $36 billion over the next 10 years. Pell Grants are scholarships to help low- and moderate-income students pay their college costs. Sixty-two percent of dependent Pell Grant recipients come from families with incomes below $30,000 per year. Pell Grants are therefore extremely well-targeted to individuals who will rely on them to increase their spending (for textbooks, tuition, and other expenses) rather than to increase their savings.

Similar to food stamps and unemployment insurance, this spending creates demand for goods and services in local communities, and this in turn helps to create jobs. The key reason for persistently high unemployment in the United States is the lack of demand for goods and services; spending that spurs demand thus creates jobs.

The job-creating effects of the education provisions of the reconciliation legislation will likely outweigh any job loss that could result from eliminating the middlemen in the student loan programs. These reforms are clearly a win-win-win for American workers, students, and taxpayers.



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