Obama Signs Student Loan Overhaul Legislation

March 30, 2010— -- President Obama today signed into law the final piece of the health care puzzle, which mandates sweeping changes in the way the nation provides health care and makes the federal government the primary distributor of student loans.

"That's two major victories in one week that will improve the lives of our people for generations to come," Obama said.

To highlight the education reforms in the Health Care and Education Reconciliation Act of 2010, Obama signed it at the Northern Virginia Community College in Alexandria, Va., and focused on the largely overshadowed student loan reforms.

The student lending overhaul ends the current program that subsidizes banks and other financial institutions for issuing loans, instead allowing students to borrow directly from the federal government. Interest rates for some borrowers will also be lowered.

Now, instead of having banks use government money to loan tuition, the government will lend the funds directly. Starting July 1, all new federal student loans will be delivered and collected by private companies under performance-based contracts with the Department of Education, according to officials.

"By cutting out the middleman, we'll save American taxpayers $68 billion in the coming years," the president said. "That's real money -- real savings that we'll reinvest to help improve the quality of higher education and make it more affordable."

The law will also put a cap on annual loan payments for college graduates -- never exceeding 10 percent of their income. It will also increase the number of Pell Grants offered to low-income students. The changes are meant to revitalize community colleges and increase support for institutions that serve minorities and historically black colleges.

"Today, we mark an important milestone on the road to health insurance reform and higher education reform," Obama said.

"With the bill I signed last week, we finally undertook meaningful reform of our health care system. With this bill, and other steps we've pursued over the last year, we are finally undertaking meaningful reform in our higher education system," the president said.

The president was introduced by Vice President Biden's wife Jill, an adjunct professor at the college. Obama announced that he has asked the second lady to host a White House summit on community colleges this fall.

Health Care for Seniors

The health care bill closes what's called the "doughnut hole" for seniors who use the Medicare prescription drug benefit.

Currently recipients pay 25 percent of their drug costs up to $2,830, and then they must pay the full amount up to $3,610 – which leaves a $780 coverage gap they have to pay.

But starting today, seniors who hit that coverage gap will get $250, and next year drug companies will discount drugs in the gap by 50 percent as federal subsidies start kicking in.

"We're going to offer $250 to seniors who fall in the Medicare coverage gap known as the doughnut hole to help them pay for prescriptions, and that's a first step towards closing that gap completely," Obama said.

In 2013, the government will start paying 2.5 percent of the costs, but that will steadily increase to 25 percent.

Pre-Existing Conditions

There has been some confusion about the health care law and children with pre-existing conditions. The president has said starting this year no kids can be denied insurance because of a pre-existing condition.

But the bill does not actually say that, according to some health care experts.

The law as written actually does not require insurance companies to offer insurance to children or anyone else until 2014 -- so technically, companies can still deny coverage to anyone, including children, for 4 more years.

To resolve the issue the Obama administration is issuing guidelines requiring insurance companies to offer insurance to all children regardless of pre-existing conditions, and the insurance industry says they will abide by those regulations.

Overhauling Student Loans: How it Will Affect You

The reconciliation act includes more than $2 billion over a four-year period for community colleges, which are the largest part of the nation's higher education system, enrolling more than six million students.

The president signed the health care bill last week but the final piece -- a second reconciliation bill that included an overhaul of the student aid system -- had to be voted on in the Senate and then in the House again. Members of the House passed that reconciliation bill late Thursday to clear the way for final passage.

"We are going to bring everybody together to share innovative ideas about how we can help students earn degrees and credentials, and to forge private sector partnerships so we can better prepare America's workforce and America's workers to succeed in the 21st century," Obama said.

The new law will affect millions of students around the country. Currently, about half of all undergraduates receive federal student aid and about 8.5 million students receive Pell Grants.

Critics of the legislation have denounced it as yet another government takeover.

"We have the government running banks, insurance companies, car companies, health care and now the student loan business," Senate Minority Leader Mitch McConnell, R-Ky., said in a statement. "Americans are looking for jobs and economic growth, not for the government to expand its tentacles even further into their lives and the economy. And they're certainly not celebrating this partisan reconciliation bill which hikes taxes even higher in the middle of a recession, and cuts Medicare even deeper for our seniors."

Meanwhile, banks and other industry groups say they will suffer heavy job losses as a result of the law. Sallie Mae, the largest private lender of student loans, has said it may have to cut more than 2,000 jobs.

Republican lawmakers, none of whom voted for the health care bill in Congress, argue that the law should be repealed and that they need to start over on health care overhaul.

"We need to repeal Obamacare and start fresh with solutions that will lower premiums," House Minority Leader John Boehner, R-Ohio, wrote in an op-ed on AOL News. "We need to repeal this jobs-killing government takeover of health care and enact real reforms that will lower health care costs and help small businesses get back to creating jobs."

The reconciliation act invests more than $40 billion in Pell Grants to ensure that all eligible students receive an award and that these awards are increased in future years to help keep pace with the rising cost of college, White House officials say. These investments, coupled with the funding provided in the Recovery Act and the president's first two budgets, will more than double the total amount of funding available for Pell Grants since Obama took office. By the 2020-2021 academic school year, more than 820,000 additional Pell Grant awards are expected to be made as a result of this new law.

The law covers the expected funding shortfall and much of the recent growth in Pell Grant costs, putting the program on more secure footing for years to come, according to officials.

Historically black colleges and universities and so-called Minority Serving-Institutions (MSIs) account for nearly one-third of all degree-granting institutions and enroll nearly 60 percent of the nation's 4.7 million minority undergraduates. The bill provides $2.55 billion in mandatory funding to these institutions.

As part of the expanded income-based repayment plan, new borrowers who assume loans after July 1, 2014, will be able to cap their student loan repayments at 10 percent of their discretionary income and, if they keep up with their payments over time, will have the balance forgiven after 20 years. Public service workers such as teachers, nurses, and those in military service will see any remaining debt forgiven after just 10 years.

Officials estimate that the legislation would save $61 billion over 10 years. Universities that participate in federal lending have just a few months, until July 1, to switch their financial aid systems to the new "direct lending" program.

Health Care Hurdles

The president acknowledged today that the health insurance bill won't fix every problem "in one fell swoop," but it "represents some of the toughest insurance reforms in history."

The president highlighted four areas where immediate progress can be made -- increasing the size of tax credits to help middle-class families and small businesses pay for their health insurance, offering $250 to older Americans who fall in the Medicare coverage gap known as the "doughnut hole" to help them pay for prescriptions, making new investments into community health centers, and strengthening efforts to combat waste and fraud in the system.

While health care overhaul may now be law, the White House is still hoping to get the message out and convey to Americans how it will impact their lives positively.

Americans are divided about the health care law and what it will mean for them. In a USA Today/Gallup poll released Monday, 50 percent said they thought the new law will increase their costs, while the same percentage called the passage of the bill "a bad thing."

In an interview with NBC News today, Obama called the health care package passed into law a "critical first step" but said that more changes need to be implemented to address costs down the line.

"I think it is a critical first step in making a health care system that works for all Americans. It's not going to be the only thing. We're still going to have adjustments that have to be made to further reduce costs," he told NBC's Matt Lauer.

Asked about not having one Republican vote for the bill, the president said that he believes "the Republican party made a calculated decision, a political decision, that they would not support whatever we did."

The president said that any objective observer would conclude that the bill is a "middle of the road, centrist approach."