Education Piggy Bank Goes on Diet

Buried in the ruckus of the long-awaited health care bill is a second portion more directly pertinent for all students still embroiled in the world of higher education and being rocked by rising tuition and fees. In addition to overhauling the state of health care in the United States, the new law signed by President Obama has cut out private banks from the federal student loan process.

Called “one of the most significant investments in higher education since the G.I. Bill,” the Heath Care and Education Reconciliation Act of 2010 is finally diverting money toward something college students can cheer about. President Obama touts more than $60 billion in savings over the next 10 years due to the new law, which in theory would be used to boost Pell grants for students and other education efforts.

Taking the loss is the private banking industry. Significant losses both in revenue and jobs are inevitable for what is at present a $70 billion business for banks. Sallie Mae, the largest student lender, has complained about the government taking over too many tasks that should be left for the “yellow pages.”

As debilitating as that may be for the specific niche market of private sector banks handling government student loans, the benefits for education ultimately represent a bigger gain for the public. The additional funding for higher education enables more students to access higher education, which ultimately does more good for society in the long run than lost jobs in a certain area right now.

Also, it is not as if private banks can no longer deal with student loans at all. The government is strengthening its grip on the reins, but it is by no means monopolizing things. Banks can still conduct their own private loans, while the government maintains sole control over public government-funded loans. This is how it should have been in the first place. The only thing shifting is the extra padding that private banking was able to put in its pocket. Every middleman is involved for profitable reasons, and now the government no longer has to subsidize part of the federal pot of money for their business models.

Some other benefits for education include increased funding for community colleges, a general increase in the number of students receiving aid and restrictions on the amount of interest that students will have to pay when their loans are up – all positive things to help ease the burden off students’ backs. The $2 billion reinvested toward community colleges almost seems aimed toward the population losing their jobs, as it will strengthen career training programs to workers and trade adjustment aid after dislocation from their industries.

In addition, workers in low-paying jobs will get the added boon of lesser payments. The previous 15 percent on monthly payment for loans has been reduced to 10 percent under the new legislation.

Ultimately, what seems like the government expanding its power or control is actually just a refining and purifying of the power structure. It is not as if money was being taken out of the peoples’ hands and put into the government’s. The funding has always been with the government — it will now just be used more efficiently.

More importantly, this represents an important step away from the government merely appeasing the lobbyists and desires of corporations. Even if the education re-structuring does not work out in the long run in the idealized way that it is supposed to, Obama shows his willingness to go against the corporate money.

Funding for higher education has long been deprived in California. Whether the health care part of the bill was the optimal plan or not, the elimination of private banks as middlemen for government loans was a step in the right direction for education.

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