Democrats in Congress markedly improved the way the federal government administers student loans in the health care reform reconciliation bill that passed last week without a single Republican vote. The sweeping changes finally shut down a scandalous government giveaway of billions of dollars to Sallie Mae, Citigroup, Bank of America and other commercial banks. That money now will go to help college students with more financial aid and other education programs — where it should have been spent all along.
The Federal Family Education Loan program was a good-government effort that had morphed into a cash-cow for banks. So it was not surprising that the bankers' lobby worked fiercely to defeat reforms. Since the loan program began in 1965, commercial banks have been given fat subsidies to lend federally guaranteed money to students. The interest-bearing loans were virtually risk-free to the banks, making their cut little more than a form of corporate welfare. Republicans squealed in full Tea Party dudgeon that the move was another "Washington takeover." But this has always been a federal program. Now, finally, the nation's bankers won't be skimming off a nice piece for themselves.
With the changes, students will get their loans through their school's financial aid office in a form of direct lending by the government, cutting out the commercial banks as middlemen. Taxpayers will save about $61 billion over 10 years, according to the nonpartisan Congressional Budget Office.
A big chunk of that money, about $40 billion, is to be used for higher education, including tying Pell grants to inflation, which will help low-income college students keep up with rising tuition costs.
Another element of the legislation will be relief for college graduates with substantial loans to repay. It lowers the caps on the percentage of income they have to devote to loan repayment from 15 percent currently to 10 percent for loans taken after July 2014. Loan forgiveness will come sooner too, after 20 years of keeping current with payments rather than 25 years.
Had the Democrats not been able to attach this financial aid restructuring to the reconciliation bill —- which only needed to pass by a simple majority in the Senate — the changes would not have gotten through Congress. When a billion-dollar corporate welfare boondoggle can't be retired without special parliamentary maneuvering, that is further evidence that something is wrong in Washington.