House Votes to End Subsidies to Student Loan Firms

By Nick Anderson
Washington Post Staff Writer
Friday, September 18, 2009

The Democratic-led House approved a bill Thursday that would overhaul college lending and spend tens of billions of dollars on student grants, community colleges, school construction and early childhood education.

The bill would end a program that subsidizes private lenders that provide federally guaranteed student loans. The government itself would make all such federal loans as of July 1, effectively cutting out banks and other lenders as middlemen. That would be a major shift because direct government lending in the last academic year accounted for about a quarter of federal loan volume.

Democrats have long sought to end the subsidized lending, and Republicans have fought to keep it. Democrats now have the upper hand because subsidies have become a ripe target in a time of public skepticism toward bankers. They say students would benefit from direct lending because the government offers a more reliable source of capital for loans at the same rates and terms as the guaranteed loan program.

Thursday's 253 to 171 vote, largely along party lines, moves the bill to the Senate. There, it faces more obstacles even though Democrats control the chamber, because senators sympathetic to the lending industry wield significant influence.

But the Obama administration is pushing hard for passage, in large part because the lending overhaul would free up an estimated $80 billion over 10 years for its education agenda.

Half that amount, or $40 billion, would flow to Pell grants under the House bill. Those are the main federal college scholarships for low- and moderate-income students. The maximum award would rise from $5,350 per student to $5,550 next year and eventually to $6,900 in 2019.The bill would index the grants to inflation starting in 2011.

Other spending provisions span a range of causes, from preschool to community college.

Republicans belittled the bill as a free-spending grab bag. "We can invest in students without crippling them with runaway entitlement spending," said Rep. Brett Guthrie (R-Ky.). He said the Republican alternative -- to keep the current lending system while studying reforms for a later date -- would avoid "a massive infliction of debt on future generations."

But Democrats easily defeated that proposal. "There's a huge difference between these two approaches on what to do," said Rep. Robert E. Andrews (D-N.J.). He rattled off goals the bill aims to accomplish: helping a returning veteran get a Pell grant in addition to GI benefits; easing the burden on community colleges, many of which are overwhelmed with new students; renovating schools where "they're taking classes in broom closets" and investing in reading and math programs for 4- and 5-year-olds.

Among other spending, the bill would provide:

-- $8 billion to help states improve a hodgepodge of early education programs from birth to kindergarten. The measure envisions a state grant competition akin to the new federal Race to the Top fund that is pushing states to reform public schools. In this case, the goal would be to raise the quality of child-care and preschool programs that often provide highly uneven educational results.

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