Student Loan Reform Passes in House and Heads to Senate
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Student Loan Reform Passes in House

Government Moves Toward a New Role in Student Lending


A recent vote in the U.S. House of Representatives could change the way that students borrow money for their educations.

The vote was 220-211 in favor of a bill that President Obama and his supporters hope will eliminate the middlemen that come between the government’s loans to students and the borrowers themselves, according to CNNMoney.

According to the article, the vote would "make Washington the one-stop-shop for cheap student loans," and the proposal would increase the funding for need-based scholarships.

The plan would dictate that starting in July of 2010 almost all Stafford loans, which are federally backed student loans, would come directly from the government. According to the Congressional Budget Office, in the first ten years of the plan, this would represent about $500 million in loans to students.

Now that the bill has passed through the House, the Senate will take it up in the near future.

"Tonight’s vote in the House is an important first step towards a big victory for America’s students," said Arne Duncan, the Secretary of Education.

In a prepared remark, Chairman of the House Education and Labor Committee Rep. George Miller said "with this one move, we can make college more affordable, keep jobs in America, prepare young people for our global economy and reduce our deficit by billions."

This school year, private loans that are backed by the federal government are the most popular ways that students have financed their higher education costs. According to the Department of Education, these bank-issued and federally backed student loans have totaled about $67 billion this school year. The government has lent about $30 billion directly this year.

Given the high number of private loans that students have taken out this year, the CNNMoney article claims that "the stakes are high."

Sallie Mae is one lender from the private sector that has a stake in student lending. Sallie Mae sells its own loans as well as providing federally funded loans. According to them, the proposed legislation could lead to the loss of private industry jobs.

"This is bad for Sallie Mae," said policy analyst Teddy Downey, who went on to say that he believed there was no chance that student lenders would stay in that business if the bill went through.

According to CNNMoney, "congressional watchers expect the student loan legislation to pass the Senate."

The bill would save the federal government $61 billion over the first decade. The Pell grant, which is facing record shortfalls, would receive a $36 billion boost.

Savings would come because the bill would end the subsidies that the federal government gives out to banks when they offer the private loans. The federal government would also get to keep the difference between the cost of making a loan the amount that borrowers are charged.

Supporters of the bill claim that if the bill doesn't pass and nothing is done, 8 million students would face major cuts, cited at 60 percent, and more than half a million students could lose their Pell grants in 2011.

The bill is a part of President Barack Obama’s goal of having the most college grads in the world by 2020.

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