Along with health care reform, Congress also passed legislation Sunday night to revamp student loans. The bill could save billions by cutting out banks and lending money directly to needy students.
It's a risky move that could revive — or sink — two of the administration's top priorities.
Free marketers argue that the Obama-inspired legislation will eliminate jobs, crush private banks that currently offer a big chunk of student loans, and also kill loan competition for students. Student advocates say the bill is nowhere near generous enough to keep pace with the increasing college tuition.
The author of the legislation, Congressman George Miller, D-Calif., who chairs the House Committee on Education and Labor, outlined what he thinks are the most pressing reasons for reform.
“One, the expense of the system, and two, the fact is that we can take that money, what was about $8 billion a year in subsidies, and we can recycle that on behalf of families and students,” he told KPCC's Patt Morrison during an interview today.
Rep. Miller pointed out that this is not the first time the government has federalized loans. “We've already done that to some extent — Republicans did it in 2005, we did it again in 2007 and of course in this direct lending bill, we finish that task.” In fact, he added, “George W. Bush identified in three of his eight budgets, that these were wasteful subsidies and we had a bipartisan effort to try and change it then.”
“It was accelerated because of the meltdown in the credit markets where credit was not available for continued student lending, so we started direct lending essentially from the treasury — we gave the money to lenders, they loaned it, and then they gave it right back. And that didn’t seem to make much sense.”
The Congressional Budget Office estimates this restructuring will save the federal government $61 billion over ten years.
“The much lower cost is being used to the benefit of students and families with the increase in Pell grants, with the contributions to expanding the capacity of community colleges, to making loan repayments income-based — they are now 15 percent of your adjusted gross [and will drop] to 10 percent in a couple years,” Miller added.
A KPCC listener, Tim in the Mid-Wilshire district, called with a question about his son, who will need a student loan. How will legislation change the process for Tim?
“2,300 universities have switched over to the direct lending program,” Miller said, “The acceptance of that has been great among the universities… he’ll go to the loan officer at the university or make direct application for a student loan and it will be essentially a seamless process.”
Patt also spoke with Tim Connell, president of the Georgia Student Finance Commission and a representative of America’s Student Loan Providers (ASLP), the lending industry's trade group. ASLP has raised concerns over the number of lending industry jobs that this bill eliminates and also that the federal government is not equipped to take on the work done by the loan industry.
“The area of greatest concern is that there are no real specific provisions in the legislation that has passed that would enable us to continue to provide the services we have for quite a number of years,” Connell said.
“We have 12 staff people who visit high schools throughout the state of Georgia. Last year we visited some 650 of those high schools, many of them two, three or four times. What makes that so important and what the Department of Education cannot do to replace that, is that at those high schools, when we're visiting, we're talking with parents, we're talking with students, we're helping students to fill out their federal applications.
"We're talking to parents about the possibility of their children going on and achieving a post-secondary education, and without a source of revenue to continue to provide those services, those kinds of services will no longer be available to the students.”
Congressman John Garamendi (D-10th District), who is a former Lt. Governor of California and a former UC Regent, voted for the legislation in the House this Sunday and said there is still an option in the bill for the government to outsource business to contractors such as Connell, for whatever they are unable to take on in the next several months.
Garamendi also added to the caller Tim’s query, “When his son graduates, he will have a much better repayment situation… in three years the repayment will go from a minimum of 15 percent of his annual income to 10 percent, so he’ll be able to spread that out and if he chooses to go into public service jobs, he would be able to pay off his loan by doing the public service-type jobs.”
To hear the full interview, visit the Patt Morrison page.
NPR contributed to this story.