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March 23, 2010

Health Care Bill Affects Student Loans

The recently passed health care reform bill contains several items that have little to do with health care reform. One major provision takes private lenders and banks out of the student loan equation and makes the federal government the main player in extending loans to college-bound students.

For decades, private lenders have provided most of the nation’s student loans, with a guarantee by the federal government. But aggressive marketing and questionable loans drained valuable funds away from education programs, President Obama argued. However, private lenders argue that direct government lending will cost many loan workers their jobs and will give students fewer loan choices.

The Congressional Budget Office estimates that making the federal government the main student loan provider will save $61 billion over the next decade. Thirty-six billion of that would go to the popular Pell Grant program. More than $4 billion in savings would go to institutions that serve minorities and the rest, close to $20 billion, would be used for non-education purposes, offsetting health care reform expenses and reducing the federal deficit.

Quotes

“I think the main beneficiaries of the change are students from low-income families who are going to receive larger Pell Grants under this piece of pending legislation.” – Jason Delisle, federal education budget project director, New America Foundation

“The direct loan program is not a new program. It started in 1993. And, frankly, students and schools and parents have voted for the last 17 years, and they have chosen the private sector 75 percent of the time.” – Renee Mang, senior vice president, Sallie Mae “To make college more affordable, this bill will finally end the unwarranted taxpayer subsidies that go to banks for student loans. Instead, let’s take that money and give families a $10,000 tax credit for four years of college and increase Pell Grants.” – President Barack Obama, 2010 State of the Union Address

Warm Up Questions

1. What is a student loan? How does the lending process work, in general? 2. What kinds of institutions provide loans? 3. What does it mean to default on a loan?

Discussion Questions

1. What are the pros and cons of having the federal government as the only lender for student loans?

2. What are Pell Grants? How are they different from loans, and how do they help college students? 3. Why are private lenders unhappy with this legislation? 4. Do you plan to go to college? If so, do you know how you / your family will fund your education? If not, is the expense of college a major factor in your decision?

Additional Resources

Video Transcript

The Case for a College Education

College Costs Rising at Unprecedented Rate

Students Interested in the Military Cite Rising College Costs, Tough Economy

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