Since the bank-based loan program began in 1965, commercial banks such as Sallie Mae and Nelnet have received guaranteed federal subsidies to loan money to students, with the government assuming nearly all the risk. Democrats have long denounced the program, saying it fattened the bottom line for banks at the expense of students and taxpayers.
The revamping of student loan programs was included in the final health care package passed by Congress on Thursday. The House approved the bill by a vote of 220-207, hours after the Senate passed it by a vote of 56-43. No Republicans in either chamber voted for the bill.
The legislation, an Obama domestic priority that was overshadowed by the health care issue, has widespread reach. About 8.5 million students are going to college with the help of Pell Grants.
Congressional allies of the student loan industry attacked the overhaul as an over-reaching government takeover that will kill banking jobs. The legislation substitutes an expanded direct-lending program by the government for the bank-based program, directing $36 billion over 10 years to Pell grants, for students from low-income families.
“The Democratic majority decided, well look, while we’re at it, let’s have another Washington takeover,” said Sen. Lamar Alexander (R-Tenn.), a former U.S. education secretary. “Let’s take over the federal student loan program.”
But Sen. Tom Harkin (D-Iowa) praised the bill as a victory for middle-class families. “Now they’ll have the assurance that their kids will be able to afford to go to college and again, when they get out, they won’t be burdened with a huge debt,” he said.
Less than they wanted
Still, the changes do not go as far as Obama and House Democrats wanted. That is because ending fees for private lenders would save less money than they anticipated, according to budget scorekeepers. The bill is now expected to save $61 billion over 10 years.
As a result, the Pell Grant increase is modest and still doesn’t keep up with rising tuition costs. Advocates had sought bigger increases. “The increases in the Pell Grant are better than nothing, but they are still quite anemic,” said analyst Mark Kantrowitz, publisher of the student assistance Web site FinAid.org.
Private lenders still will make student loans that are not backed by the government, and they still will have contracts to service some federal loans. But the change represents a significant loss to what has been a $70 billion business for the industry.
|