JONATHAN CHAIT MARCH 19, 2010
If health care reform weren't such an enormous deal, people would be paying more attention to the sweeping student loan reform that's being attached to it and could pass on the same vote. It's a pretty simple issue, though opponents do their best to muck it up. The old student loan program was based on federal guarantees -- banks or other lenders would lend money to students, and the federal government would pay back the lender whether or not the student repaid the loan. It was free money from the government, and the product was naturally prone to corruption.
In 1993, Bill Clinton tried to replace the program by cutting out the middleman and having the government loan the money straight to students, at less cost to the taxpayer and freeing up more money for student loans or scholarships. Naturally, the lenders fought back with a lot of hokum about how the free market was at stake if they lost their government-guaranteed income stream. Clinton wound up compromising, with about half of student loans going through the cheap federal direct loan program, and half through the private lenders. Stephen Waldman wrote a good book about it.
Obama has the same goal Clinton had. He's attaching it to the budget reconciliation bill that's being used to alter the health care legislation. Thus a big vote has gotten even bigger:
Republicans have criticized the move as an unnecessary government takeover of a successful program, but Obama officials have argued that the change would simply remove the middlemen from transactions that allowed lenders to pocket billions of dollars in profit at taxpayer expense.
Federal interest rates would remain essentially unchanged, though the measure proposes repayment relief for some borrowers. Nonpartisan congressional budget analysts estimate the savings at $61 billion over the next decade, most of which would go to the popular but oversubscribed Pell Grant program for the burgeoning number of students from low- and moderate-income families.
"We are choosing to spend scarce education resources on students and families, and not on subsidies to big banks," said Sen. Tom Harkin (Iowa). He and Rep. George Miller (Calif.) led the Democratic negotiators on education. The measure, Education Secretary Arne Duncan said, is an "extraordinary opportunity to help middle-class and working-class students around the country."
The opponents are the usual coalition of every Republican, who will accept any putatively "pro-market" rationale, however specious, from an interested business lobby, along with a handful of Democrats whose states are home to said lobby's operations:
Six Senate Democrats signed a March 9 letter expressing concern that pending student loan reform "could put jobs at risk" and urging consideration of "potential alternative legislative proposals" that would deliver equivalent savings. They were Bill Nelson (Fla.), Ben Nelson (Neb.), Blanche Lincoln (Ark.), Thomas R. Carper (Del.) and Mark R. Warner and James Webb, both of Virginia, home to Sallie Mae. Ben Nelson, whose state is home to the major lender Nelnet, has expressed strong doubt about the overhaul. Aides to some of others indicated that the letter was not necessarily a sign of opposition to the emerging legislation.
But the fact that this is a straight majority vote means the usual coalition of every Republican plus a couple Democratic shills won't be enough to stop it. This would be a major advance for the cause of good government reform.