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Posted at 11:55 AM ET, 03/22/2010

Obama's student loan reform -- a no-brainer

By Valerie Strauss

It doesn’t make sense on the face of it that the major health-care bill that the House passed today also marked a major step forward in the reform of student loans, but Washington is sometimes funny that way.

The massive health-care reform legislation -- which the House approved last night -- also would end an expensive program by which the federal government paid banks and other private lenders to provide federally backed loans to students who chose this route. In this program, if students defaulted on their loans, the banks got paid by the government anyway.

President Obama instead pushed for the Education Department, which already provides student assistance, to grant all federally backed loans. To get rid of the middlemen, in other words.

The result: Billions of dollars in subsidies to private lenders saved, more than $60 billion over the next decade. It’s the biggest change in the government’s efforts to help students pay for college since they began decades ago.

It’s hard to logically argue against the reform, but a lot of legislators and folks in the loan industry did anyway.

The debate over whether to do this got heated; industry leaders said jobs would be lost.

The debate got silly; some opponents argued that taking this step would “nationalize” the student loan program, conveniently forgetting that the government already pays for it so, by definition, it already IS a government program.

Then there was Sen. Lamar Alexander (R-Tenn.), a former secretary of the Department of Education who, in arguing against the reform, said that under the new program, “getting your student loan will become about as enjoyable as going to the Department of Motor Vehicles.”

As if obtaining a student loan had been a riot and a half before this. (The New America Foundation’s Higher Ed Watch blog had some fun with this.

The student loan reform was in the health-care bill for complicated reasons. They include House rules spelling out when the chamber can vote on specific legislation, as well as cost-saving requirements for legislation that the health-care bill could not achieve without help from student loan reform. And there is this: Student loan reform might not have passed the Senate as a separate bill.

In any case, this is good news for young people who need help paying for college. The savings in the reform will be used for Pell grants, which help kids from low-income families pay for college.

That’s a no-brainer. The Obama administration deserves a round of applause.

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By Valerie Strauss  | March 22, 2010; 11:55 AM ET
Categories:  College Costs  | Tags:  college costs, student loan reform  
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I consider myself a liberal Democrat and I am glad that health care reform is going to happen. However, my husband works for a small, privately owned Student Loan company and many people will lose their jobs from his company and he may too. His opinion on this subject is that the government can't run the student loan industry efficiently and provide the same kind of customer service that his company can. They also say that they are in favor of helping small businesses but they are contracting with two of the biggest student loan companies to "help" them run this business, while putting small student loan companies out of business. Nothing is simple in politics and while I believe in helping others, I feel very bad for my husband and his co-workers.

Posted by: Tblackdogs | March 22, 2010 12:27 PM | Report abuse

Allready, $10 Billion of the "savings" is being redirected to pay for health care reform. That is as of today - what happens when the deficit grows and we are looking for more money to reduce the debt - yes, they will pull more money away from students.

Students will pay in the long run - poor service, higher defaults, etc...

Posted by: edvisors | March 22, 2010 3:07 PM | Report abuse

Valerie, bias is when you put a microscope on one side of a debate and give the other, your side, a free ride. For example, while you think it was "silly" to call this "nationalizing," it's just as silly to argue that the bill gets rid of the middlemen.

Who do you think has operated the Direct Loan program since 1994? Civil servants?! No, middlemen, AKA, government contractors.

That "get rid of the middle man" is an insidious applause line.

Then there's the "the bill will make college more affordable for the middle class." Oh, reeeaalllyyy. Like who?

Then there's the "the bill takes $87 billion in subsidies away from lenders and gives it to students." That isn't even remotely true.

But you didn't know that did you. Frankly, you could care less.

Posted by: HonestAbe200 | March 22, 2010 7:04 PM | Report abuse

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