House passes student loan reform law
The law would have the government loan directly to students.
Sep. 18, 2009
A bill aimed at cutting costs by making college loans available to students directly from the government passed in the U.S. House of Representatives on Thursday, the biggest change to the federal student loan program since its creation in 1965.
The bill, known as the Student Aid and Fiscal Responsibility Act of 2009, would do away with the Federal Family Education Loan Program and make the federal government the originator of such student loans instead of private lending companies.
The government subsidizes private lenders, such as Sallie Mae, to provide the loans and guarantees them in case of default. Because the private lenders do not lose money on defaults, they stand to profit from the loans. The bill's supporters say switching to direct lending will save taxpayers $87 billion during the next 10 years.
Melissa Salmanowitz, spokeswoman for Democrats on the House Committee on Education and Labor, said in e-mail the legislation would take steps to make college more affordable for a greater number of students.
"It will help us transform our student aid programs, so that they finally operate in the best interests of students — not banks — and help relieve the burdens of overwhelming debt," she said.
Bob Murray, spokesman for USA Funds, a loan guarantor, said the bill would also put a strain on schools because, if signed by the president, it becomes effective July 1, 2010. Murray said this timeline is too short for schools to transition from the private loan program that has been in place for decades.
"What's concerning is the elimination of a system that has worked well for 40 years and the time on which schools have to complete it," he said.
Student Financial Aid Director James Brooks said MU would not be affected by the direct-lending changes because the school has been giving students direct government loans for several years. The only recent private lending program the school has done was a program for first-year engineering students that ended after this summer.
Brooks said most large schools are in the same situation.
"I think the schools that will have a tough time with the switch will be the smaller schools with homegrown programs," he said.
Republican spokeswoman Alexa Marrero said the bill would decrease the number of choices students have when finding education loans and would at the same time create unnecessary and expensive programs.
"As a whole, this bill is going to take away services from students and at the same time send the government on a massive spending spree," Marrero said.
The lending industry has strenuously fought the bill's passage. Board members of the National Council of Higher Education Loan Programs are holding a legislative conference about the bill this week to determine how to persuade legislators to block the bill.
The bill would also increase the Pell Grant from $4,731 to $5,510 in 2010 and $6,900 in 2019. According to the House committee, 6 million students received Pell Grants for the 2007-2008 school year.
Edie Irons, spokeswoman for the California-based Project on Student Debt, said the Pell Grant increase was long overdue, as college tuition rates have been rising faster than the rate of inflation. She said students who receive Pell Grants are often poorer students, who therefore borrow more than students not attached to the program.
"The biggest way it's going to help students is by increasing the Pell Grant," she said. "Every dollar that a student can get with grant aid is one they don't have to pay back with interest."