Changes approved under passage of the revised federal student loan program will save taxpayers $61 billion over the next 10 years. The savings will allow larger Pell grants to be made to a significantly higher number of financially strapped recipients, and more affordable repayment terms for every student borrower. Overall, it will open the doors to college to more students, improve the nation’s store of educated workers and their competitiveness, and shave billions off the federal debt at the same time.
It will finance all these improvements, slice more than $10 billion off the federal deficit, and make colleges loans to more students and make repayment schedules more affordable, simply by cutting out the middle-man lenders — for-profit banks — and consolidating student lending again under the direct federal lending program to students and their families.
It’s hard to figure what’s not to like about the bill, but Republicans are complaining anyway. That’s especially true for Tennessee’s Sen. Lamar Alexander, who keeps going around saying the improvements in the bill are wrong-headed.
His criticism is disingenuous. The new law, which Republicans uniformly opposed and stalled for months in the Senate, mainly eliminates a big chunk of corporate welfare that Republicans steered to the banking industry more than 20 years ago, when Mr. Alexander was Secretary of Education.
The change then allowed the government to shift a huge share of direct federal lending to students to the for-profit banking industry under a sweetheart arrangement. That is, it required the government to assume the risks for private lending on student loans, and allowed the banks to make a middle-man profit on those very same loans, by taking a role in the federal student lending program.
Eliminating that federal pork-trough arrangement is a no-brainer. But because Senate Republicans made the bill a target for filibuster after the Democratic-controlled House passed it, the Obama administration was forced to include the measure in the budget reconciliation act that Democrats initiated to avoid a similar filibuster on the health-care reform bill.
Under the new program, Pell grants, which are outright grants that are available to qualified students whose families fall under a certain income limit, will rise from the current $5,350 to $5,975 by 2017. The new savings will also provide an additional $13.5 billion to accommodate a steep rise in Pell grant applicants by students who, because of the recession and tough job market, now give more value to a college education.
Republicans’ criticism of the change focuses not just on the business lost by banks, though that was a “loss” that needed to happen. They also claim the change will result in the loss of some 31,000 jobs. In reality, any job losses will be marginal. Smaller local banks rarely had full-time employees devoted solely to student lending. Such lending tended to come in seasonal waves, and was spread out among so many banks that few retained staff specifically for student lending.
As for bigger lending operations, including Sallie Mae, the federal government will contract with many of the same student lending offices to administer student loans, but will save on the big profit overhead that banks and big lending centers charged. Moreover, the new law calls for all such loan-service contracts to be administered in the United States. That change will eliminate the foreign call-centers operated by many former student lending operations to reduce labor cost and maximize profit.
The argument that Sen. Alexander makes about use of the $10 billion in savings that the Obama administration will use for deficit reduction is also disingenuous. He told this newspaper’s editorial board this week that Republicans would have used that savings to increase student lending.
In fact, the new law will put $50 billion of the $60 billion in savings back into student aid through more loans and an increase in Pell grants, the neediest category of students. Those improvements would not have been available at all under the Republican-organized program. The savings will also allow a lower and longer repayment schedule than is now required for debt repayments once students finish school. That minimum repayment schedule will drop from 15 percent of income to 10 percent, easing and stretching the burden of repayment.
If Democrats had left the program as it was, with for-profit banks consuming a cut of $61 billion in pork-style profits over the next 10 years, the Pell grants would have had to be reduced to $2,150 and the number of student grantees cut by 500,000. Given the vast improvements that will now be possible, it’s ludicrous to argument that the Republican pork-barrel program made better sense for students and American taxpayers.