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The House passed, 253-171, a bill this afternoon that cuts away a massive subsidy to the student lending industry, saving some $90 billion over the next 10 years, much of which will be directed towards stabilizing Pell Grants and lowering student loan interest rates. It is a key victory for the Obama administration, which long supported the idea, and no doubt hopes it won't get lost in the news shuffle. Says House Education and Labor Committee Chair George Miller, who wrote the bill:
No student in America should have to mortgage their future to get a good education. This legislation provides students and families with the single largest investment in federal student aid ever and makes landmark investments to improve education for students of all ages – and all without costing taxpayers a dime. Today the House made a clear choice to stop funneling vital taxpayer dollars through board rooms and start sending them directly to dorm rooms. This vote was a historic triumph for America’s students, families and taxpayers – and will ensure that their interests never again take a backseat to lenders and big banks.In essence, the legislation simply cuts out the middleman. Right now, the government provides loan guarantees and fees to lenders, who in turn provide loans to students. This group of lenders has been the source of a number of different corruption scandals in recent years. What the new bill does is put all lending under the umbrella of the Federal Direct Lending program, which will make loans directly to students, saving money on administrative costs and profits for private companies. Next up, of course, is the Senate, where good legislation goes to die. However, like health care, this bill can be passed under reconciliation rules (i.e., it can't be filibustered) and because the mechanisms within the legislation are relatively simple, it promises to be a relatively smooth passage. However, the usual crew of senators allied to the lending industry will be doing what they can to dilute or kill the legislation.
-- Tim Fernholz
