A terrible synergy of special interests has jeopardized a key student loan reform that would eliminate billions of dollars in subsidies to private lenders. The legislation would cut out private lenders who currently act as middlemen when the government makes loans to students -- it would expand the Federal Direct Lending program and plow the savings into Pell grants for students.
The problem, though, is that this legislation is opposed by moderate Democrats who have received donations from the industry or represent states where the student lenders are based. (Republican opposition, of course, remains constant across the board.) This wouldn't have been a big deal, since the provision is slated to go through the budget reconciliation process, which allows the bill to pass on a simple majority vote. But now that the passage of health-care reform legislation requires it to go through the same reconciliation process, reform opponents are threatening both bills, forcing leadership to choose between them -- and health care is likely to come out on top. The House, of course, passed both bills last year.
What's next? If the Obama administration and Senate leaders can't corral enough votes for both measures, it's likely that health-care reform will be the top priority, leaving student-loan improvements by the wayside. After that, there is a lender-supported compromise bill that still retains unnecessary subsidies or the possibility of giving the legislation another shot in a few months, an idea floated by Senate Budget Committee Chair Kent Conrad. Reformers worry that delay could kill the bill. That would be a huge loss for both college students and responsible public policy.
“College students are graduating with deep student loan debt and borrowers are increasingly defaulting on their loans. We must make college more affordable and accessible now. In order to lower student loan debt, we need to increase grant aid—money for college that students don't have to repay," Rich Williams of the U.S. Public Interest Research Group, one of many groups organizing support for the legislation, said today. "If student aid reform is cut from the final reconciliation package, then large banks and lenders will prevail over struggling students and their families."
-- Tim Fernholz