When President Obama put pen to paper on the final version of his health care overhaul bill Tuesday, he simultaneously changed the course of our nation's student loan program.
Along with the adjustments that Congress made to the health care aspects of the new law was a revamping of the way student loans are administered; specifically, the US government will now be the issuing the loans through the Education Department.
"For almost two decades, we’ve been trying to fix a sweetheart deal in federal law that essentially gave billions of dollars to banks to act as unnecessary middlemen in administering student loans," the President told a crowd at Northern Virginia Community College's Alexandria campus Tuesday.
"So those are billions of dollars that could have been spent helping more of our students attend and complete college; that could have been spent advancing the dreams of our children; that could have been spent easing the burden of tuition on middle-class families. Instead, that money was spent padding student lenders’ profits."
But taking the loans out of the control of the free market is a bad idea, says Senate Republican Leader Mitch McConnell of Kentucky. In a statement, the leader laments that too many institutions are already riddled with government fingerprints, “We have the government running banks, insurance companies, car companies, health care and now the student loan business."
Starting July 1st, the government will issue student loans which will bypass the banks that have traditionally provided them, thus eliminating bank subsidies. The loans, however, will be delivered and collected by private companies under performance-based contracts with the government.
By doing this, some in the private sector, and even the President's own party, have said that equals eliminating jobs.
Student loan staple Sallie Mae has weighed in on the issue, saying the company's position isn't so much that it is flat-out opposed to having the government run the student loans, as it is interested in tweaking the reform towards saving private sector jobs; a political soft spot for President Obama.
"Sallie Mae is not lobbying for subsidies or to prevent student loan reform," the company said back in February. "We have supported the Administration’s call for student loan reform since day one." The reform the company was pushing aimed to keep the integrity of a private-sector based loan program, but it would operate within a government framework.
Though even Sallie Mae couldn't resist calling the Obama plan a "government takeover."
The White House says having the government run the show will shave off billions that could go to more worthy causes, "By cutting out the middleman, we’ll save American taxpayers $68 billion in the coming years," the President boasted.
"Sixty-eight billion. That’s real money, real savings that we’ll reinvest to help improve the quality of higher education and make it more affordable."
But Leader McConnell says the side effect is yet more job loss, "Americans are looking for jobs and economic growth, not for the government to expand its tentacles even further into their lives and the economy.”
While at NOVA, the President also laid out the new provision's less controversial expansion of Pell Grants, its support of historically black and minority institutions, and caps on student loan repayments.
According to the White House, "New borrowers who assume loans after July 1, 2014, will be able to cap their student loan repayments at 10 percent of their discretionary income and, if they keep up with their payments over time, will have the balance forgiven after 20 years."
Vice President Joe Biden's wife, Dr. Jill Biden, is a teacher at NOVA and introduced the President. Mr. Obama announced that he has asked Dr. Biden to host a White House summit on community colleges this fall "to share innovative ideas about how we can help students earn degrees and credentials, and to forge private sector partnerships so we can better prepare America’s workforce and America’s workers to succeed in the 21st century."