At long last, the student loan overhaul is in the spotlight
This article first appeared in the St. Louis Beacon, March 30, 2010 - Health-care reform has so dominated the political conversation of late that it would have been easy to look past another industry-shaking aspect of legislation that passed Congress last week and has major implications for young people.
President Barack Obama on Tuesday visited a community college in suburban Washington to mark his signing of the final piece of the health-care law that includes an overhaul of the federal student loan program.
The upshot is that the legislation institutes a direct-lending program and forces commercial banks out of the lucrative student loan market. The companies have long received guaranteed federal subsidies to lend to students, and the government assumed the lion’s share of the risk. Democrats who pushed this piece of the sweeping legislation said that banks have gotten rich at the expense of taxpayers.
Savings coming from the student loan overhaul will be redirected to a range of education initiatives that the Obama administration has pushed in the last year. On Tuesday, Obama used his appearance to lay out the landmark education provisions. Here’s a quick overview:
- Savings of $61 billion over 10 years will be used to help expand the Pell Grant program for college students in financial need. The maximum Pell Grant will rise along with inflation, from the current maximum of $5,550 in the coming school year to an expected $5,975 by 2017. Hundreds of thousands of additional grants will be given out because of increases to the Pell Grant program.
- The law also makes it easier for students to repay outstanding loans after they graduate. Starting in 2014, students who borrow money for school will be able to cap their loan repayments at 10 percent of their income (beyond basic living requirements) instead of the current 15 percent. If they stay up on payments, remaining debt will be forgiven after 20 years, rather than the current 25, or after 10 years if they are in a public-service field.
- Community colleges are slated to get $2 billion over four years to fund career training programs that were part of last year’s economic stimulus bill but were never funded.
While supporters have lauded the student-loan overhaul as a key part of expanding access to college (particularly the Pell Grant increase), some critics of the law say it didn’t go far enough in helping students afford college. In particular, a provision that would have reduced interest rates of students’ loan payments didn’t make the final cut, in part because savings generated by the loan overhaul were less than originally projected.
Also left out of the legislation were proposed new accountability demands on colleges and higher ed groups that will be getting funding for graduation initiatives and other programs.
Some oppponents of the bill have called it an unnecessary government takeover. Student lenders like Sallie Mae have fought the legislation and will likely be cutting jobs, though the private companies still have contracts with the government to service direct student loans.
Meanwhile, colleges that haven't already done so are scrambling to switch over from private lenders to the U.S. Education Department as the provider of federal student loans.