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Congress Struggles To Pass Student Loan Reform

January 29, 2010 - by Eric Naing

Opponents of wasteful government spending might want to turn their eyes to the Student Aid and Fiscal Responsibility Act (H.R.3221). This bill promises to end government subsidies to the student loan industry saving billions.

As Donny explained earlier, the government currently provides subsidies to student loan companies like Sallie May and then guarantees up to 97 percent of the loan repayment. Under the Student Aid and Fiscal Responsibility Act, the government would cut those companies out of the equation and provide loans directly to students saving an estimated $80 billion over 10 years. Non-federal loans would not be affected.

About $40 billion of that would then go toward funding Pell grants for low-income students. Some the rest would be funnelled to community colleges and early-childhood programs.

House Democrats and a handful of Republicans passed the bill last September, but since then, little action has been taken.

In his State of the Union address, President Obama called on the Senate to pass the bill:

I urge the Senate to follow the House and pass a bill that will revitalize our community colleges, which are a career pathway to the children of so many working families. To make college more affordable, this bill will finally end the unwarranted taxpayer-subsidies that go to banks for student loans. Instead, let’s take that money and give families a $10,000 tax credit for four years of college and increase Pell Grants. And let’s tell another one million students that when they graduate, they will be required to pay only ten percent of their income on student loans, and all of their debt will be forgiven after twenty years – and forgiven after ten years if they choose a career in public service. Because in the United States of America, no one should go broke because they chose to go to college.

But as the Washington Post reports today, progress on it appears to have stalled.

Opposition to the plan is coming from several fronts, but large student loan companies are leading the charge. Sallie Mae and Nelnet see this bill as a threat to their industry and say that it will result in the loss of thousands of jobs. Their opposition is hardly surprising. This is a huge industry that generates billions of dollars and, thanks to the government, has little risk.

Senate Republicans such as Sen. Lamar Alexander [R, TN] say the bill is a threat to the free market and amounts to “another Washington takeover, this time of 15 million student loans.”

Across the aisle, a few powerful Senate Democrats such as Sen. Ben Nelson [D, NE] and Sen. Kent Conrad [D, ND] also have voiced opposition to the bill. Note, however, that many of the Senate Democrats opposing the bill come from states that house key companies in the student loan industry. Nelnet, for example, is based in Sen. Conrad’s North Dakota.

Senate Democrats hope to move forward by passing the bill through the infamous reconciliation process, thus circumventing the semi-default 60 votes needed to clear the Senate. But they need to act soon as the bill takes effect by July 1.

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