House approves huge changes to student loan program

By Daniel de Vise
Washington Post Staff Writer
Monday, March 22, 2010

Legislation hailed by supporters as the most significant change to college student lending in a generation passed the House on Sunday night.

The student aid initiative, which House Democrats attached to their final amendments to the health-care bill, would overhaul the student loan industry, eliminating a $60 billion program that supports private student loans with federal subsidies and replacing it with government lending to students. The House amendments will now go to the Senate.

By ending the subsidies and effectively eliminating the middleman, the student loan bill would generate $61 billion in savings over 10 years, according to the nonpartisan Congressional Budget Office.

Most of those savings, $36 billion, would go to Pell grants, funding an era of steady and predictable increases in the massive but underfunded federal aid program for needy students. Smaller portions would go toward reducing the deficit and to various Democratic priorities, including community colleges, historically black colleges and universities, and caps on loan payments.

The bill's greatest impact would fall on the more than 6 million students who rely on Pell grants to finance their education. Pell, launched in 1973, once covered more than two-thirds of total costs at a public university. It now covers about one-third.

The student aid measure was initially framed as a boost to the Pell program. Now it is seen as its salvation. Democratic leaders say that without a massive infusion of cash, the maximum grant could be scaled back by more than half to $2,150 and at least 500,000 students could be dropped from the program.

"So if this legislation did not pass, you would see catastrophic cuts to the Pell grant program, effectively slamming the door shut for hundreds of thousands of students, if not millions, who rely on the Pell grant program to go to school," said Rich Williams, higher education associate for U.S. PIRG, the federation of state Public Interest Research Groups.

Late Sunday, Arne Duncan, the U.S. education secretary, said, "Tonight's vote in the House is a big victory for America's students."

Democratic leaders and student advocates hailed the aid package as simple, smart reform: Under the current Federal Family Education Loan program, the government effectively assumes the risk for loans issued by private lenders, who then pocket the subsidies.

"You're taking billions of dollars in wasteful subsidies to student lenders and banks, and you're recycling that money on behalf of families and students to help pay for their college education," said Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee.

House Republicans and lending industry lobbyists oppose the measure, calling it an unnecessary government takeover and envisioning a bumbling bureaucracy replacing efficient private-sector loan operations.

"Instead of making student loans more affordable or preserving choice, competition and innovation in the loan program, Democrats are taking money from struggling students' pockets to help pay for a government takeover of health care," said Rep. Brett Guthrie (Ky.), senior Republican on the House subcommittee that oversees higher education.

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