Deficit-Reduction Panel Proposes Ending In-School Interest Subsidy on Federal Student Loans

November 10, 2010

The chairmen of a fiscal commission appointed by President Obama are calling for ending the in-school interest subsidy on student loans as part of an effort to reduce the federal deficit by $4-trillion by 2020.

The proposal, which would save the government $43-billion over 10 years, is one of a dozen "options" for reducing mandatory spending contained in a draft report released on Wednesday. The report also recommends $200-billion in "illustrative" cuts to discretionary spending, including $16-billion from ending Congressional earmarks, the pet projects that lawmakers insert in spending bills.

Neither proposal is new, and both are certain to be controversial. Many lawmakers have called for wiping out earmarks, and Republicans proposed requiring students to pay interest on their loans while still in college as early as 1994, as part of their "Contract With America." In the end, the Republicans' plan failed and President Clinton was able to claim credit for saving student aid.

This time around, the proposals might not even make it into the deficit panel's final report. The bipartisan commission is scheduled to release that report by December 1, but many experts are skeptical that its 18 members, who include 12 current members of Congress, will be able to reach consensus on recommendations. For a proposal to be included in the report, 14 of the 18 members must support it.

Today's report, which proposes a broad range of spending cuts and tax increases, represents an agreement between the panel's two chairmen, Erskine B. Bowles, a Democrat who is a former White House chief of staff in the Clinton administration, and Alan K. Simpson, a Republican and former U.S. senator from Wyoming. If all the report's proposals were enacted, they would reduce the deficit to 2.2 percent of gross domestic product by 2015.