Student Loan Reform
Cited: ABC News
Many critics of President Obama’s health care reform bill started yelling, “government takeover exclamation.” But Republicans only focused on the main event and not on another part of the legislation that more precisely fits their sentiment. The president may have secured a victory on health care, but the House bill actually took him closer to delivering the promised reform the college student-loan system.
If a final piece of legislation before the Senate is approved, millions of students will get their federal loans directly from the Department of Education. In other words, the federal government would sweep aside private competitors in the biggest change to the federal student-loan program since its creation in 1965. It’s a legitimate government takeover.
So where’s all that outrage now? The thing is, the government already runs much of the student-loan industry. For decades under the Federal Family Education Loan (FFEL) program, the government has handed out subsidies to large banks and companies like Sallie Mae that lend money to student borrowers and collect it from them. In addition, the federal government has been obligated to cover up to 97% of any defaulted loan, effectively eliminating risk for lenders. Figuring that money could be saved by cutting out the middleman, Congress created the Direct Loan program–in which money goes from the Education Department to students–in 1993. The programs have been in competition with each other since then.
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Until now. Gone will be the subsidies, and gone will be the FFEL program. As of July 1, all new student loans will go through the Direct Loan program. The savings–an estimated $61 billion over 10 years–will be used to shore up and increase the need-based Pell Grant program by $36 billion and invest in community colleges. While the Administration has reason enough to crow about the proposed measures, it has had to scale back some of its bigger plans. An earlier version of the bill would have invested an additional $20 billion and offered even more substantial financial-aid increases. As it stands, $13.5 billion will be used to stem Pell Grant shortfalls resulting from the increased number of students forced back to college by the ailing economy. And a plan to raise the maximum Pell amount to almost $7,000 per year by 2020 has been replaced with one that maxes out at about $6,000.
With his first major piece of education legislation out of the way, Obama will likely move on to K-12 matters later this year as he attempts to rework the unpopular No Child Left Behind law. But before then, members of Congress (and America’s students) are going on spring break.
“Education. Health care. Two of the most important pillars of a strong America grew stronger this week. These achievements don’t represent the end of our challenges; nor do they signify the end of the work that faces our country. But what they do represent is real and major reform,” Obama said.
The student lending overhaul ends the current program that subsidizes banks and other financial institutions, allowing students instead to borrow directly from the federal 
government. The bill, which first passed the House in September, also would greatly expand the Pell grant program for low-income students. The reforms also aim to revitalize community colleges and increase support for minority-serving institutions and historically-black colleges.
“Year after year, we’ve seen billions of taxpayer dollars handed out as subsidies to the bankers and middlemen who handle federal student loans when that money should have gone to advancing the dreams of our students and working families,” Obama said. “But this time, we said, would be different. We said we’d stand up to the special interests, and stand up for the interests of students and families. That’s what happened this week. And I commend all the senators and representatives who did the right thing.”
The legislation would save an estimated $61 billion over 10 years. Universities that participate in federal lending have just a few months, until July 1, to switch their financial aid systems to the new “direct lending” program. Starting in 2014, the legislation will also cap a graduates’ annual student loan repayment at 10% of their income.
Republican opponents of the legislation have denounced it as yet another “government takeover,” and the banks, not surprisingly, have lobbied hard against this switch.
A community college in Northern Virginia had the privilege of being chosen by the President as a place he will sign the fixed reconciliation bill into law that will highlight the education reforms
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My Take: I am always a day late and a dollar short. It always seems that I always miss the good stuff in life. I would’ve loved only had to pay 10% of my income on my student loans! Well, at least the younger crowd will get a better education. They might actually be able to afford childcare as they go to school. So many young ladies going to college find it difficult to find licensed daycare that is affordable.
At least the extra money may help schools purchase dry erase boards and desks. I understand that many colleges now use display cases in their classrooms that help educate students. They might also be able to inspire more sponsors to purchase column padding for the schools to advertise on. One thing I know many community colleges need is bleacher enclosures to protect them. It’s not fun when you get a splinter in your rear end.
Seriously, it is a good thing that more young people will get an education they deserve and not be financially strapped when they finally graduate. Most parents today, cannot afford to help their kids with tuition, especially with the economic crisis in full bloom.
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