Struggling to come up with the cash for college? The Obama administration wants to cut out the middle man from federal student loan programs and give students the chance to borrow directly from the federal government, specifically the U.S. Treasury. That's the thrust of a bill that was approved by the House today.
For the past 35 years, the federal government has subsidized loans made by private banks to students through the Federal Family Education Loan program, guaranteeing loans up to 97 percent and allowing lenders to reap the profits. The Student Aid and Fiscal Responsibility Act -- touted as the largest investment in higher education ever -- shuts down that program, replacing it with a direct loan program run by the Education Department.
"Today the House made a clear choice to stop funneling vital taxpayer dollars through board rooms and start sending them directly to dorm rooms, "Rep. George Miller, D-Calif., Chairman of the House Education and Labor Committee, said in a statement. "This vote was a historic triumph for America's students, families and taxpayers -- and will ensure that their interests never again take a backseat to lenders and big banks."
But how much will the bill actually save taxpayers? While proponents claim the switch to the direct loan program will save $87 billion over the next 10 years, the Congressional Budget Office has put out a conflicting report that puts the number as low as $47 billion.
The Democrats backing the legislation plan to use those savings to fund several reform initiatives included in the bill, such as investing $40 billion to increase Pell Grant scholarships, strengthening the Perkins loan program, increasing investments in community colleges and streamlining the federal student aid application form.
Conservative critics, however, say the bill is further evidence that the Obama administration is ushering in an unprecedented level of big government.
"Democrats have had their sights set on a government takeover of student lending for more than a decade, and they're capitalizing on the economic downturn to make it happen," Rep. John Kline, R-Minn., and the ranking Republican on the House Education Committee, said in a statement.
Republicans also note that private sector jobs would be lost as banks would be forced to cut their employees.
"We have unemployment that's at 9.7 percent. I'm sure it's going to go over 10 percent. More than 30,000 private sector jobs are directly affected by what you're going to do… I don't understand at a time of economic difficulty you want to do something that's going to put more people out of work," Rep. Dan Burton, R-Ind., explained yesterday.
Minnesota Republican Congresswoman Michele Bachmann went further today in a blog post on Townhall.com saying, "another month, and another attempt by the Obama Administration to take over a successful portion of the private sector. Banks, cars, and now student loans. I'm beginning to see a trend here...If nothing else, this bill tells us one thing -- if the government can't succeed on its own merits, they'll eliminate the competition. That should concern us all."
But it's worth pointing out, proponents of the legislation say, that students are facing more and more challenges in this economic climate, trying to secure loans they can afford. And earlier in the week, the Education Department cited the downturn in the economy for rising student loan default rates.