Thursday, March 25, 2010

Student loan program revamped

Overall this is a good thing [place constraints on dubious vocational schools and banks], but what I question is why it was added to the health care bill. Just understand that if default happens [the student], the government will cover themselves and will no doubt have the powers to attach liens on real property, garnish wages, make attachments on bank accounts, appropriate a certain percentage on tax refunds and social security. They may even use waterboarding.

"Revamping of Student Loans Approved by Senate"


David M. Herszenhorn and Tamar Lewin

March 25th, 2010

The New York Times

Ending one of the fiercest lobbying fights in Washington, the Senate voted Thursday to force private commercial banks out of the federal student loan business, cutting off billions in risk-free profits in a sweeping restructuring of financial-aid programs that was included in — if overshadowed by — the health care package. The House was expected to concur later Thursday.

For 45 years, commercial banks like Sallie Mae and Nelnet have made loans under the bank-based loan program, receiving guaranteed federal subsidies to loan money to students, with the government assuming nearly all the risk.

Democrats have long denounced the program as a form of corporate welfare that fattened the bottom line for banks at the expense of students and taxpayers.

“There is no service that is being provided by the banks any more,” said Representative George Miller, Democrat of California and chairman of the education and labor committee. “The lenders ran out of services to provide to justify their costs.”

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, which are aimed at students from low-income families.

Overall, the Congressional Budget Office said, the new lending approach will save taxpayers approximately $61 billion over 10 years. Roughly $40 billion of the savings will be redirected to higher-education. In addition, education programs will get an additional $10 billion from the health-care reform package.

But allies of the student-loan industry attacked the overhaul as a government takeover of the federal student loan business.

“The Democratic majority decided, well look, while we’re at it, let’s have another Washington takeover,” said Senator Lamar Alexander, Republican of Tennessee and a former federal education secretary. “Let’s take over the federal student loan program.”

The student-loan legislation, a centerpiece of President Obama’s education agenda since he took office, was approved by the Senate Thursday afternoon, by a vote of 56 to 43, with Republicans unanimously opposed. The House, which already approved the legislation on Sunday, was expected to give it final approval later Thursday. .

Even as the Democrats’ decision to attach the student-loan overhaul to the healthcare package virtually ensured its passage, the banks fought fiercely up to the last minute, prompting some lawmakers like Senator Ben Nelson, Democrat of Nebraska, to cast their vote against the overall bill.

And while Democrats and the White House hailed the legislation as the most far-reaching overhaul of federal financial aid programs in a generation, the final bill is far less ambitious than the administration’s original proposal.

For individual students, the increase in the maximum Pell grant — to $5,900 in 2019-20 from $5,550 for the 2010-11 school year — is minuscule, compared with the steep, inexorable rise in tuition for public and private colleges alike.

The administration also scrapped $8 billion in proposed spending on early-childhood education. And it mostly erased a $12 billion “American Graduation Initiative,” which was announced with fanfare in the fall as an effort to bolster the workforce by doubling the nation’s college-completion rate.

Community colleges, slated to receive $10 billion under the administration’s original plan, will instead get just $2 billion for job training.

“I’m disappointed,” said Eduardo Padron, the president of Miami Dade College, one of the nation’s largest community colleges. “For the first time, we had a president who understood the importance of community colleges, and we were validated and recognized for our role in opening the doors of higher education. The fact that we will not be able to fund that to the extent we wanted is very sad.”

The private banks had lobbied fiercely against the overhaul, arguing that it would eliminate jobs, even though the government will hire many of the same banks on a contract basis to service the loans and perform other back-office administration.

But while supporters praised the shift to direct lending as a major achievement, the weak economy and the protracted legislative process conspired to gut much of the administration’s ambitious education package.

The original proposal stood to save $87 billion over 10 years. But as the Senate delayed in taking up the legislation, colleges and universities began shifting to the direct lending program, realizing the savings to the Treasury up front and cutting the amount of money available for future spending. At the same time, an increase in the number of Americans enrolling in college and seeking financial aid, as a result of the recession, raised the projected costs of the enhanced Pell grant program.

In addition, to comply with the complex budget reconciliation rules, some of the savings from the education changes had to be redirected to pay for parts of the health care legislation.

The bill includes some landmark changes, such as automatic increases, tied to inflation, in the maximum Pell grant award.

But for individual students and their families, the student-loan legislation will not have a profound impact.

There will be some changes; they will have to take out their loans from the college’s financial aid offices, instead of using a private bank. And they will see very small increases in the amount of the maximum Pell grant they can receive.

But because college costs are rising so quickly, the maximum Pell grant — $5,550 for the next academic year — now covers only about a third of the typical cost of attending a public university, compared to three-quarters in the 1970s, when the Pell program began.

"Pork" added to Health Care bill

Trade schools...a pit of problems


Timothy said...

and what do we get from the Department of Education? our money back minus exorbitant wages, their benefits and a pension that is draining our governments resources. anytime the government is involved whether education, energy or corn subsidies we lose overall.

Mercury said...

Think about this Tim.

Can you imagine a true scholar who wants to study Renaissance English literature and teach and some person from Brazil who wishes to do research in computational physics...for whom would the government favor in offering a loan.

Timothy said...

the community organizer....and does not have to pay back the loan either....brilliant!!!