House nears OK on dramatic expansion of college student aid
David Lightman, MCT
Issue date: 9/16/09 Section: News
The bill would scrap much of the current student loan system, which critics say is too costly and too complicated.
Currently, the federal government provides loans through two different programs. It lends directly to students, and it administers the guaranteed loan program, in which students get funds from private lenders, with most of the loan guaranteed by the government against default.
Under one such loan, the government pays the interest while the student is in school. The student then begins repaying six months after graduation. If he or she defaults, the government makes the payment.
Until 2006, rates were variable but capped at 8.25 percent; after that they were fixed at 6.8 percent, with bipartisan support. Some rates then were lowered, but they're scheduled to go back up to 6.8 percent in 2012.
The bill would end the guaranteed loan program after next summer; then the government would make all loans directly.
That frightens some members of Congress.
"The U.S. Department of Education would become a behemoth federal bank," Kline said. "Democrats have had their sights set on a government takeover of student lending for more than a decade, and they're capitalizing on the market downturn to make it happen."
He sees parallels to the health care debate. Obama has urged creating a government-run health insurance program, or public option, to compete with the private sector.
"The legislation (on student aid) we're about to bring up ... eliminates the private option and leaves only the public option," Kline said. "It kind of makes you wonder, doesn't it, about the designs on the future of the public option in health care."
The new program would create big savings, the CBO figures. It would save money because of changes in subsidy rates, the CBO said. Some savings could be achieved with lower interest rates; the bill would set a new rate based on the price of 91-day Treasury bills plus 2.5 percentage points. The rate would be adjusted annually.
Currently, the federal government provides loans through two different programs. It lends directly to students, and it administers the guaranteed loan program, in which students get funds from private lenders, with most of the loan guaranteed by the government against default.
Under one such loan, the government pays the interest while the student is in school. The student then begins repaying six months after graduation. If he or she defaults, the government makes the payment.
Until 2006, rates were variable but capped at 8.25 percent; after that they were fixed at 6.8 percent, with bipartisan support. Some rates then were lowered, but they're scheduled to go back up to 6.8 percent in 2012.
The bill would end the guaranteed loan program after next summer; then the government would make all loans directly.
That frightens some members of Congress.
"The U.S. Department of Education would become a behemoth federal bank," Kline said. "Democrats have had their sights set on a government takeover of student lending for more than a decade, and they're capitalizing on the market downturn to make it happen."
He sees parallels to the health care debate. Obama has urged creating a government-run health insurance program, or public option, to compete with the private sector.
"The legislation (on student aid) we're about to bring up ... eliminates the private option and leaves only the public option," Kline said. "It kind of makes you wonder, doesn't it, about the designs on the future of the public option in health care."
The new program would create big savings, the CBO figures. It would save money because of changes in subsidy rates, the CBO said. Some savings could be achieved with lower interest rates; the bill would set a new rate based on the price of 91-day Treasury bills plus 2.5 percentage points. The rate would be adjusted annually.
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