President Obama signed legislation that will dramatically change the federal student loan program.
The new law will eliminate fees paid to private banks to act as intermediaries in providing loans to college students and use much of the nearly $68 billion in savings over 11 years to expand Pell grants and make it easier for students to repay outstanding loans after graduating. The law also invests $2 billion in community colleges over the next four years to provide education and career training programs to workers eligible for trade adjustment aid after dislocation in their industries.
The law will increase Pell grants along with inflation in the next few years, which should raise the maximum grant to $5,975 from $5,550 by 2017, according to the White House, and it will also provide 820,000 more grants by 2020.
Eliminating the middle man (the banks) means more help will be available, which will ease the financial burden of families who want to send their kids to college. It also means that repayment terms are a little kinder:
Students who borrow money starting in July 2014 will be allowed to cap repayments at 10 percent of income above a basic living allowance, instead of 15 percent. Moreover, if they keep up payments, their balances will be forgiven after 20 years instead of 25 years — or after 10 years if they are in public service, like teaching, nursing or serving in the military.
A disability rights activist sent me a link to Disability Scoop:
When health insurance reform was signed into law just last week, Democratic lawmakers said that coverage of children with pre-existing conditions would be one of the most immediate effects. But within days, insurers argued a detailed reading of the new legislation allowed them to continue cutting-off kids with conditions like Down syndrome and cerebral palsy in certain circumstances until 2014.
The good news is - that insurance companies quickly thought the better of that. From The NY Times (same day):
“Health plans recognize the significant hardship that a family faces when they are unable to obtain coverage for a child with a pre-existing condition,” said Karen M. Ignagni, president of America’s Health Insurance Plans, a trade group. Accordingly, she said, “we await and will fully comply with” the rules.
Ms. Ignagni made the commitment in a letter to Kathleen Sebelius, the secretary of health and human services, who had said she feared that some insurers might exploit a possible ambiguity in the new health care law to deny coverage to some sick children.
Apparently it didn’t take any time at all for the insurance companies to realize that refusing to cover kids with Down Syndrome wasn’t a good PR move.
Tags: education, health care reform, health insurance reform, student loans
We’ve written before about the Student Aid and Fiscal Responsibility Act, an excellent bill that would simultaneously save the government billions of dollars and increasing the financial aid available to students. I’m going to repeat that: This bill saves money and helps students graduate from college with less debt. Who could possibly object to that?
The financial industry, of course.
See, the bill saves money by cutting out the big lenders that currently act as middle men between the government and the students. The government subsidizes and guarantees the loans, and the lenders impose fees and high interest—even though, because the loans are guaranteed, they don’t face much risk. The big private lenders see that as their money. They don’t get that they’re supposed to be providing a service and helping kids afford to go to college. They’re only interested in how big a cut they can squeeze out of the student loan business.
So the lenders are waging a major lobbying effort against saving the government money and helping kids go to college:
“We haven’t left any stone unturned — we’ll meet with anyone who will meet us,” Mr. Remondi said in an interview. “We’re trying to identify at least 12 senators who would be helpful in this process.”
At the same time, Sallie Mae and other lenders have staged a series of town-hall-style meetings at their job centers around the country to help mobilize opposition to the White House plan and collect thousands of signatures for a petition drive in support of their own plan.
As Robert Borosage writes:
This is not a hard choice.
But money talks in the Senate bigtime. And Democratic lobbyists — like former Clinton official Jamie Gorelick — have no shame. Gorelick hilariously says the White House is reluctant to make Senators make a vote that “is very unpopular” in their states. This gives new meaning to the phrase “no brainer.”
Let your senators know you want student loan reform now.
Tags: education, SAFRA, student loans
Major legislation to make college more affordable and reform the federal student loan program passed the U.S. House of Representatives on September 17. The Student Aid and Fiscal Responsibility Act (SAFRA) incorporates both cost savings and historic investments in streamlining federal college aid and expanding access to low-interest loans. The largely party-line vote in the House was 253 to 171. The Senate’s Health, Education, Labor and Pensions committee, led by Sen. Tom Harkin (D-IA), a high-profile supporter of the plan, will take up the measure next.
The central feature of the bill addresses the unwarranted federal subsidies and incentives that have been paid for decades to private lenders and banks as the issuers of loans on behalf of the federal loan program. The Congressional Budget office estimated that as much as $87 billion of such payments to the private lenders could be saved in the next ten years simply by redirecting those funds into the direct federal loan program and other significant education investments beginning in 2010.
That’s exactly what the SAFRA legislation does.
The bill adopts a large chunk of President Obama’s higher education plan, making college more accessible an
affordable while directing aid to students, schools and colleges rather than private financial firms.
“No student in America should have to mortgage their future to get a good education. This legislation provides students and families with the single largest investment in federal student aid ever and makes landmark investments to improve education for students of all ages – and all without costing taxpayers a dime,” said U.S. Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee and the author of the bill. “Today the House made a clear choice to stop funneling vital taxpayer dollars through board rooms and start sending them directly to dorm rooms. This vote was a historic triumph for America’s students, families and taxpayers – and will ensure that their interests never again take a backseat to lenders and big banks.”
The legislation would take the estimated savings of $87 billion over ten years and invest it in students, their families and their educations by:
- Investing $40 billion to increase the maximum annual Pell Grant scholarship to $5,550 in 2010 and to $6,900 by 2019. Starting in 2010, the scholarship will be linked to match rising costs-of-living by indexing it to the Consumer Price Index plus 1 percentage point;
- Investing $3 billion to bolster college access and completion support programs for students;
- Strengthening the Perkins Loan program, a campus-based program that provides low-cost federal loans to students;
- Keeping interest rates low on need-based – or subsidized – federal student loans by making the interest rates on these loans variable beginning in 2012. These interest rates are currently set to jump from 3.4 percent to 6.8 percent in 2012;
- Making it easier for families to apply for financial aid by simplifying the FAFSA form;
- Providing loan forgiveness for members of the military who are called up to duty in the middle of the academic year.
- Investing $2.55 billion in Historically Black Colleges and Universities and Minority-Serving Institutions to provide students with the support they need to stay in school and graduate; and
- Investing $10 billion to build a world-class community college system that prepares students and workers for the jobs of the future – and jobs in high demand by local employers – by incentivizing community colleges to partner with businesses, job training and adult education programs.
In addition, the Student Aid and Fiscal Responsibility Act will direct $10 billion of these savings back to the U.S. Treasury to help cut entitlement spending.
It will invest over $4 billion for school modernization, renovation and repair projects — restoring one-fourth of the renovation funds cut by Senate “centrists” in the final version of the stimulus bill. This investment will help improve elementary and secondary school buildings across the country and help the nation transition to a clean energy economy.
And it will also invest $1 billion per year over eight years to help ensure that the next generation of children can enter kindergarten with the skills they need to succeed in school.
In his statement on the House floor before the final vote, chairman Miller said:
This simple change will save $87 billion over ten years.
And, as part of our efforts to invest in a brighter future for our children, we will direct $10 billion of these savings to reduce entitlement spending.
The choice before us is clear. We can either keep sending these subsidies to banks – or we can start sending them directly to students.
No child in America should have to mortgage their future to pursue their dreams.
Often in the past good legislation passes the House and then languishes on the shelf in the Senate. Apparently that’s not going to happen this time. Alyson Klein at the Politics K-12 blog for EdWeek reports:
Sen. Tom Harkin, D-Iowa, the brand-new chairman of the Senate Health, Education, Labor, and Pensions Committee, put out a statement just moments after the bill’s passage, congratulating the House and saying that he plans to introduce “similar” legislation. A Senate Democratic aide told me Harkin’s bill, which will likely get committee consideration in the coming weeks….
UPDATE: President Obama today congratulated the House of Representatives for passing SAFRA, and urged the Senate to take up the legislation soon. In a speech at Hudson Valley Community College in Troy, NY, President Obama said:
“Ending this unwarranted subsidy for big banks is a no-brainer for folks everywhere,” Mr. Obama said, before lashing out against his favorite target of late. “Everywhere except Washington, that is. In fact, we’re already seeing the special interests rallying to save this giveaway.”
He said he looked forward to winning the fight to pass the plan in the Senate and signing this historic legislation for America’s students.
Tags: college, education, SAFRA, student loans
I’m a single mom. And I’ve got lots on my mind, yeah, like many of you.
I seem to always be worrying about the future. You know like:
How do I make the mortgage this month?
Do I have to by generic or can I go for the brand name cereal?
Oh, no, not the Electric bill?
But now, I got this other thing on my mind, college.
My kid is looking at graduating. She attends a very small private school in DC on a scholarship (rock on my most amazing kid for getting a scholarship) and can graduate as early as this winter.
As proud as I am of this amazing kid, I’m like a lot of parents, I’m worried. I’m worried about how to put her through her top choices, and it appears, students are worried about the same thing according to MSNBC:
For many transfers, the financial burden dawned on them after several years. The poor economy and high tuition has already filtered down to high school seniors. A recent survey showed that many don’t want to make the same mistake as their old counterparts — they’re forgoing costly schools now.
I’d love for my daughter to go to her top choices, Stanford or Middlebury, but I can’t see how I’ll be able to afford more than Ohio State, if I can even do that. And this seems to be the real trend, rising costs for college, across the board.
As the economy worsened, less has been given to endowment funds, less to state run schools, even to the county schools. Take Winona State University in Minnesota:
Tuition at WSU has increased 85 percent since 2001, from $3,110 to $5,768 per year.
An 85% increase in 8 years?
How is that even possible? According to the Freakonomics blog,there’s a lot of factors, but they boil it down to staffing.
Support staff! SNIP
This explanation seems satisfying (intellectually, at least, if not emotionally). But it’s probably also important to consider how much money colleges have been putting into student amenities as well. When I visited my undergrad alma mater a few years ago, the chancellor pointed out that three buildings had gone up in the past decade or so that were each larger than any existing building on campus. There was a library, a convocation center (a multipurpose arena), and a huge student gym. The gym, he said, was a top priority because parents and prospective students increasingly think of themselves as customers, shopping for the most amenities for the best price, and the colleges that didn’t come to grips with this would soon see their customers going elsewhere.
I get the support staff increases. With new technologies, you do need new types of staff. When I went to college, we had 3 computer labs on campus and my Apple at each of them always seemed to freeze up everytime I tried to type a freakin’ paper, I hear Macs are much better than my old computer lab days, but, I digress. Today, how many kids still rely on the computer lab? How many professors are reading e-mailed papers or papers saved on google docs?
As we have moved into the age of technology, strains have been placed on our schools from the elementary level to the highest levels of graduate education. But what do we get from all of this? From the technology to the cost to the education?
What do we really get?
Indigestion seems to be the answer for me. Indigestion caused by worry.
As a single working mom, I don’t think I can afford either. Could somebody pass the Tums?
Tags: education, student loans
Gail Collins of the New York Times highlights the inefficient and confusing system we currently have for college loans, in which
the government pays private companies to do the lending. The loans are then guaranteed by the government so the private companies are sheltered from loss. Then the government buys the loans back so the private companies can go out and do it all over again.
The White House believes that if it cuts out the middlemen, and just gives the loans to the students directly, it can save $94 billion over 10 years.
The middlemen, of course, are not happy, and are embarking on one of the campaigns we’re seeing so many of lately. You know, the ones in which, say, health insurance companies try to convince us to ignore the fact that poll after poll shows that people think health care reform is popular and a high priority, and that people are worried about their ability to pay the bills if someone in their family got sick or was hurt, and that more than 60% of people want Medicare to be an option for everyone. Ignore all that and be very afraid!!!!
Then you ask be afraid of what and it turns out they want you to be afraid you’ll have to wait to see a doctor—like most of us don’t already wait for that anyway—or that you won’t get to choose your doctor—like most of us already have insurance that says “oh, sure, see anyone, we’ll pay, no problem.” They want us to be afraid, in other words, of things we already face if we’re lucky enough to have insurance.
It appears that this student loan issue is very much the same. The loan companies want people to be afraid that the website won’t be as nice if it’s a government-run website. Meanwhile, recent graduates are paying as much as 19% interest on loans they got with little financial counseling when they were 18 years old. Clearly they’re sitting around going “you know, it would be nice to have a drastically reduced interest rate, but I don’t think I’m willing to exchange that for a less splashy website.”
Since the government has been looking at reforming all these institutions, it sure has been interesting to watch said institutions try to scare us into continuing to give them lots of our money in exchange for stuff they don’t seem to do very efficiently.
Tags: education, health care, student loans
