Socializing Student Loans

Obama, Congress looks to nationalize student lending and cut out private lenders

by Published: Feb 24, 2010

A bill presently before the Senate looks to over­haul the col­lege loan and aid pro­grams and end the role pri­vate lenders have in stu­dent loans.

The Student Aid and Fiscal Responsibility Act, which is strongly sup­ported by President Obama and his admin­is­tra­tion, looks to nation­al­ize the stu­dent lend­ing busi­ness and elim­i­nate fed­er­ally sub­si­dized pri­vate loans, essen­tially leav­ing the entire stu­dent loan indus­try in the hands of the government.

The bill was passed with a 253–171 vote in the House of Representatives last fall, but is cur­rently being delayed in the Senate.

The bill looks to end sub­si­dies for pri­vate lend­ing com­pa­nies, increase Pell Grants for stu­dents, and cre­ate grant pro­grams to improve com­mu­nity col­leges and col­lege grad­u­a­tion rates.

President David Eisler said, “I do not believe that [the bill] has an impact on Ferris State University since we are already a direct fed­eral loan lend­ing institution.”

Universities that use the sub­si­dized lend­ing pro­gram, how­ever, will see a greater impact with a switch to com­plete direct lending.

Rob Wirt, direc­tor of finan­cial aid, agrees with Eisler and said, “This leg­is­la­tion will not impact our stu­dents directly since we already par­tic­i­pate in the direct lend­ing program.”

He added, “However, if the cost sav­ings pro­jected from this leg­is­la­tion are used to increase fed­eral grants to needy stu­dents, as has been pro­posed, then future stu­dents could indeed benefit.

The Congressional Budget Office (CBO) projects that by end­ing loan sub­si­dies and hand­ing over lend­ing to the gov­ern­ment, tax­pay­ers could save an esti­mated $87 billion.

As part of his edu­ca­tion reform, Obama argues that tax­pay­ers should be invest­ing money in children’s edu­ca­tion, not pri­vate lend­ing institutions.

However, this new leg­is­la­tion is only another attempt by the Obama Administration and many Congressional Democrats to elim­i­nate a pri­vate indus­try and expand the role of the fed­eral government.

As of now, stu­dent loans are owed at a fixed amount of money where stu­dents pay a fixed amount per month until the note matures.

Under the new plan, how­ever, Obama wishes to put time and income-based lim­its on how much peo­ple would have to pay back.

Loan debts would also be for­given after 20 years if the indi­vid­ual who received the loan works in the pri­vate sec­tor and ten years if they have a gov­ern­ment job.

The CBO also claims that it’s esti­mated that a switch to a national pro­gram would save $87 bil­lion, how­ever, this is actu­ally higher than actual sav­ings would be. After admin­is­tra­tive costs and mar­ket con­di­tions are taken into account, actual sav­ings would be closer to $47 billion.

The bill also plans to increase max­i­mum Pell Grants from $1,400 to $6,900. For stu­dents, how­ever, this would most likely not do much to decrease col­lege costs because they rise at a greater rate than Pell Grants.

Several stu­dent lend­ing com­pa­nies opposed to a nation­al­ized stu­dent loan pro­gram are lob­by­ing the Senate. Citigroup and Sallie Mae, two of the largest stu­dent lend­ing insti­tu­tions, are lead­ing the lob­by­ing campaign.

The ben­e­fits of this bill would be min­i­mal even if the pro­jected results occur. This is sim­ply another attempt by Obama and Congress to nation­al­ize yet another pri­vate industry.

  • Andrew F

    The fact the fed­eral gov­ern­ment backs stu­dent loans in the first place is the rea­son schools can jack the price up. Just like medicare. Just like the mil­i­tary. That’s exactly what will hap­pen if they get a hold of the health care. We have bet­ter and more tech­nol­ogy and the costs keep going up when­ever the Gov. gets its hands on any­thing. If the Gov stopped back­ing loans, do you think Universities would keep the price high? Heck no! — it would drop in a heart­beat and they would start mak­ing depart­ments more account­able for the money allo­cated to them.

    Great arti­cle.