Though the controversial health care bill overshadowed it, Sunday’s vote by the U.S. House of Representatives also approved major changes to the student loan process that will affect millions of college students.
The federal government is cutting out the middleman — private lenders — to issue loans directly to students and save billions in the process. The bill, which was attached to the health care legislation, is expected to be fast-tracked through the Senate.
The changes will help students, but the final version of the bill suffered some significant cuts compared to the original, especially in funding for Pell Grants.
These compromises were intended to win more bipartisan support, but tacking it onto health care made the changes insignificant. Democrats should not have weakened the student loan bill so drastically for the sake of appeasement. Not a single Republican in the House voted for the combined bills anyway.
Still, the changes are better than nothing.
Under the old system, banks issued low-interest loans to college students. The federal government would subsidize loans to keep rates low and reimburse students if they default on their loans. Banks were almost guaranteed to make money, thanks to government support.
Under the bill, the U.S. will originate all loans, which will save the government an estimated $61 billion over 10 years, according to the nonpartisan Congressional Budget Office. These savings will go to other education areas, and a portion will pay down the national deficit.
A direct federal loan program already exists. It was originated under President George H.W. Bush and handles about half of all federal student loans today, according to Newsweek.
Direct lending will simply be expanded and private banks will still be employed to service loans, which should alleviate the job loss opponents are warning about.
While students will benefit from direct loans, the popular Pell Grants suffered significantly under the unnecessary changes.
Inflation increases every year, so Pell Grants should also increase yearly, if only to maintain the same value. President Barack Obama’s original plan called for Pell Grants to increase at the rate of inflation plus 1 percent, which would raise the maximum annual award from $5,500 to an estimated $6,900 over the next decade.
The reduced bill will keep the maximum amount fixed at current levels for the first two years, and the maximum will only go up about $350 over the next 10 years. The bill was supposed to expand Pell Grants, but with rapidly increasing tuition rates, the grants will decrease in value.
More students are applying and qualifying for grants because of the recession. The student loan bill will help students, but Democrats should have put education ahead of reconciliation attempts.