Somewhat overshadowed by all the attention on the health care reform bill was the student loan overhaul that was added into the reconciliation package:
Ending one of the fiercest lobbying fights in Washington, Congress voted Thursday to force commercial banks out of the federal student loan market, cutting off billions of dollars in profits in a sweeping restructuring of financial-aid programs and redirecting most of the money to new education initiatives.
It’s been lost in the bank bailout fight, but the U.S. government has been sending money to banks for years to give out student loans.
Since the bank-based loan program began in 1965, commercial banks like Sallie Mae and Nelnet have received guaranteed federal subsidies to lend money to students, with the government assuming nearly all the risk. Democrats have long denounced the program, saying it fattened the bottom line for banks at the expense of students and taxpayers.
The overhaul cuts out the middleman and makes the federal government the direct lender. This change will save us money and help more people who want to go to college.
The Congressional Budget Office said the direct-lending approach would save taxpayers about $61 billion over 10 years. Roughly $40 billion of the savings will be redirected to higher education. Education programs will get an additional $10 billion from the health care package.
The bill includes some landmark changes, like automatic increases, tied to inflation, in the maximum Pell grant award. But for individual students, the increase in the maximum Pell grant — to $5,900 in 2019-20 from $5,550 for the 2010-11 school year — is minuscule, compared with the steep, inexorable rise in tuition for public and private colleges alike.
One of the biggest student loan servicers, Sallie Mae, has a branch in Delaware. Mike Castle was against the student loan overhaul, citing Delaware jobs as one of his reasons.
Rep. Mike Castle, R-Del., who voted against both the House health care reform and student loan bills, said he will oppose the new legislation, describing the ending of subsidies as “government-controlled student lending” and saying “the change would also eliminate hundreds of jobs for Delawareans, and tens of thousands of jobs across the country, in the middle of a harsh economy.”
The next time you hear Mike Castle whining about “government spending,” “bank bailouts” or “wasted money” just remember that Castle supported giving government money to a private entity to pad their bottom line.
Both Ted Kaufman and Tom Carper voted for the student loan overhaul, despite Sallie Mae’s presence in the state.