Both houses of Congress passed the Health Care and Education Reconciliation Act of 2010 on Thursday. The final bill came with certain provisions that should prove positive for all students.
The bill included reform to the student loan market that will put more money into the hands of schools and students. As states and families across the country tighten their budgets, the bill will provide added benefits for all universities and students who have or will have loans to repay.
The main change is that student loans will no longer benefit private banks, which previously were able to make profits off low risk loans — low risk because students tend to pay back the money they use to get an education.
Instead, the government will cut private banks out of the federal student loan process, using their money in a direct deal with students.
This idea seems to be extremely logical; what does not is the “takeover” label that Republicans have attached to it.
The government doesn’t need to have a middleman in the student loan process. There is no reason for the government to direct federal money to a private bank, pay them to lend it, guarantee the loan and then take responsibility of that loan’s repayment.
The bill basically cuts out the middlemen — private banks. This predictably outraged some Republicans, who claimed the government was asserting too much control in the matter.
Nick Anderson of the Washington Post reported that Steve Wymer, spokesman for Republican senators on the Health, Education, Labor and Pensions Committee, voiced his displeasure with the bill and feared that its passage created an unfair advantage for the government.
“We want students to have as many lending options as possible, to make the federal government, the Department of Education, a monopoly bank is not the best thing for students,” Wymer said.
It is important to recognize that the government is not the only option when it comes to student loans, and that this will clearly not be a monopoly.
Private and corporate banks will still be able to lend money to students, but the money has to come from the bank’s own capital and not from the federal government.
Banks would not normally have high demand in lending to students, however, because those loans are relatively low risk. As such, they are lower interest loans, which earn less profit for banks.
The Congressional Budget Office released figures showing that the loan overhaul will save U.S. taxpayers $61 billion over the next decade.
In a New York Times article, David Herszenhorn and Tamar Lewin reported that the legislation will also funnel most of that saved taxpayer money back into the higher education system.
“Roughly $40 billion of the savings will be redirected to higher education,” Herszenhorn and Lewin said. “Education programs will get an additional $10 billion from the health care package.”
The federal loan overhaul added many other benefits for students and taxpayers, which surely contributed to the health care bill’s passage despite unanimous opposition from the Republican Party.
The loan reform will do much to help students by expanding the money available for federal Pell grants. Under the bill, the maximum level of money awarded for Pell grants will be directly tied to inflation.
The bill will also help students who have already graduated pay back their loans, as well as future graduates.
College graduates who are already paying on loans will have them forgiven after 20 years as opposed the 25 years that used to be mandated. Students who take out loans after 2014 will see the level of their incomes directed toward student loans decrease to 10 percent from 15 percent.
Overall, the bill will help not only people who are currently working hard to pay off student loans but future college graduates as well. It’s a significant step for all who are part of the higher education system and a great value to American taxpayers.
Andrew Taylor is an economics senior and may be reached at [email protected]
