Gearing up for a Fight: Student Loan Reform
One of the most daunting tasks for a family, regardless of its income, is putting children through college. In recent years, as tuition and the number of college students has increased, the amount of private scholarships and federal aid available has grown too slowly to keep up, leaving low and middle-class income families to the wolves. However, there is hope for low and middle-income families struggling to put their children through college: new student loan reforms.
A few weeks ago, President Barack Obama had a chance to meet with families fighting to stay afloat while paying for college. Obama discussed the hardships and challenges of putting one or more children through college, especially in an economic crisis like this. As a result, Obama started an expansive overhaul of student loan programs. What does that mean? Obama is working to make student loans and scholarships easier to access and more effective in helping students get through college. However, there is a downfall; the power of the purse lies with Congress, not the presidency, and unfortunately not everyone in the country is on board with the proposal.
The new loan reforms are a student’s dream. With the new proposal, the size of Pell Grants will not be determined by the budget of a particular year, thus securing the effectiveness of the loans through economically unstable times. Furthermore, and more importantly to students, the administration wants to increase the amount of loans available to the extent that the amount of aid available in the country will more than double from what it is currently.
This means more opportunities for families to receive larger federal aid grants for students. Not surprisingly, the opposition comes in when figuring out how to pay for these loans. It would be surprising if there were strong opposition to this proposal because the amount of taxpayer dollars needed to launch such a reform is minimal.
One of the most controversial aspects of the proposal is the issue of where the money for the loan reforms actually comes from—not because it comes from taxpayers, but because it comes at the cost of banks. The Obama administration wants to get rid of federally guaranteed loans under the Family Education Loan Program, which enables students to receive loans from the banks at rates set by Congress. The problem is that the program could be incredibly more efficient with the middle-man, the banks, cut out.
In fact, Congress loses billions of taxpayer dollars a year from subsidizing banks that make student loans. The Congressional Budget Office estimates that this new student loan proposal will save $50 to $100 billion over the new decade. Even more promising for students is that the money saved by eliminating the banks and other companies from federal aid will pay for up to an estimated 95 percent of the Pell Grant reforms.
This is exactly what education departments across the country need: an increased amount of federal aid and a low taxpayer burden. Yet, needless to say, despite the incredible advantage it will give students, the banks aren’t ready and willing to step out of the deal quietly.
The banks have mobilized an army of lobbyists and other political players to do everything in their power to stop this proposal in its tracks. They claim that it increases the role of the government substantially and interferes with a free market. Coming from an institution that just received billions of dollars in federal bailouts, arguments against the increasing role of government should fall on deaf ears. The banks can’t have their cake and eat it too.
Obama put it best: “This is not about growing the size of government or relying on the free market … It’s about whether we want to give tens of billions of tax dollars to special interests or whether we want to make college more affordable.”
Now we can just hope Congress listens and does the right thing for college students and their families.
Neil Thakor is a first-year political science major. He can be reached at email@example.com.