Health reform isn’t the only important measure awaiting Senate action. That chamber also has before it legislation that would finally knock private lenders out of the lucrative college loan business.
The sooner that happens, the better. Eliminating the current middleman system would let the federal government make more loans directly. Instead of subsidies going to banks, more aid would go to needy students.
The transition would be relatively easy, since the federal government already puts up most of the money that private lenders use to make student loans; pays the lenders subsidies; and then guarantees the loans.
For their part, lenders reap billions in loan fees with no risk. Some have stooped to unscrupulous practices to lure students to borrow from them. New York Attorney General Andrew Cuomo uncovered instances of loan companies bribing financial-aid officers who advised students about where to borrow for school.
The bill that was passed by the House in September would provide about $80 billion over 10 years for President Obama’s education initiatives. About $40 billion would go to the federal Pell grants program, which provides scholarships for low- and moderate-income students.
The maximum Pell grant in the late 1970s covered more than two-thirds of tuition and fees for a public four-year university, but covered only about a third of that amount in the last school year. Under the House bill, a Pell grant would rise from $5,350 per student to $5,550 next year and eventually to $6,900 in 2019. The bill would index the grants to inflation starting in 2011.
That increase is needed. Two-thirds of college students borrow to pay for college. Many accumulate massive debt that takes them years and years to pay off.
The banking industry — hoping to keep its cash cow — is expected to mount an intense lobbying campaign to keep the measure from passing in the Senate. For-profit student-loan companies are claiming thousands of jobs will be lost if the government takes over.
The Student Aid and Fiscal Responsibility Act would fulfill a campaign promise by Obama to overhaul the costly student-loan system. Besides increasing Pell grants, the money saved from getting rid of middleman lenders would provide new funding for community colleges and early-childhood learning programs.
Community colleges would get as much as $12 billion to help prepare a more skilled workforce. At a time when many two-year colleges have seen their funding slashed, the additional funding would provide for job training and capital projects on campuses.
Nationally, community colleges enroll more than six million students. Many, including those in the Philadelphia region, have seen tremendous enrollment growth during the recession and also need additional funding.
Obama’s education plan would also pour about $8 billion into early childhood programs, which in recent years have taken a backseat on the public-education agenda. America’s historically black colleges and universities would also get $2.5 billion.
Add it all up, and the sum says it’s time to end a college-loan system that’s more about putting coins into bankers’ pockets than making higher learning accessible.