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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.