Student Loan Reforms Move Money from Corporate Hands to Student Pockets

After settling into the Senate Gallery, switching seats five times, and pointing out every single famous Senator we could recognize (and might I say, John McCain is the palest person I have ever seen and John Kerry is the tallest), my roomates and I were lucky enough to hear the debate on the amendments to the Health Care and Education Affordability Reconciliation Act of 2010, known as the reconciliation bill. Although all amendments were voted down without hesitation by the Democrats, we did get to hear some interesting issues brought up by the Senate Republicans: including the student loan provisions that were included in the bill.

Republican Senator Lamar Alexander supports reforming student loans but disapproves of the recently passed provisions, arguing that interest rates will go up.

It may seem like a strange addition to the healthcare legislation, but student loan reform is nonetheless a fantastic victory for college attendees. Estimated to save $61 billion by the Congressional Budget Office, the reform includes increases in Pell Grants, a decrease in the amount of his or her annual income a student must pay back each year (down from 15% to 10%) and a decrease in the number of years after which loans are forgiven (down from 25 to 20). This is all possible because this provision effectively ends the Federal Family and Education Loan program, otherwise known as FFEL.

The FFEL program was originally started in 1965, under budgeting rules that considered any loans the government gave out as a loss. Therefore, according to a Rolling Stone article, insuring private lenders to give federally-backed loans to students made more sense.

Years later, under new budget rules, insuring these private lenders was costing the government money in subsidies to ensure these loan companies took little to no risk. By cutting out the middle man and disposing of FFEL, the government can now put those unneeded subsidies directly into the pockets of the most needy college students.

Republicans, while sympathetic to the needs of college students, did not seem to support this provision. Senator Lamar Alexander, former Secretary of Education under the Bush administration, took particular issue with the interest rates. According to Alexander, even though the bill will increase the amount given in Pell Grants (by $400 a piece), the interest rates will rise, costing students more. However, under the private lending system, interest rates were generally about 1% higher than that of the direct loans.

President Obama signing the healthcare bill into law

It seems that there are many other arguments against these new reforms that just don’t hold up. The opponents of the provision charge, as their main complaints, that this provision limits student choice in loans, leads to job cuts at these lending companies, and gives government too much control. As for choice, I’m not sure how long ago some of these people went to school but when I was applying for loans the choice was made for me – by Boston University, which uses a Direct Loan program. In fact, colleges choose which loan program to use, and the students have no choice other than whether to take them or which school to go to. My guess is most students do not choose their college based on which kind of loans they provide, they just start thinking about refinance student loans later on their career. Also, the private companies have, in some cases even used corrupt tactics to talk schools into promoting their company to students.

Job loss has not been substantiated by these opponents, and although the end of FFEL will see a loss in profits for private lenders such as Sallie Mae and Nelnet, these companies will still be allowed to service the loans. Furthermore, they do serve other markets aside from student loans – housing, for example.Finally, how involved the government should be is a matter of political opinion. However, the government previously ran, monitored, regulated and insured the FFEL program. So increased government involvement will be miniscule, if at all.

In a society where the average student graduates with $23,000 in debt, according to the Project on Student Debt, I say the more money for students, the better.

About Deanna Falcone

Deanna Falcone (CAS '11) is a liberal political columnist for the Quad. She is a political science major and is originally from Danbury, Connecticut.

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