President Obama’s Bold Plan To Fix Student Loans

Six Democrats Side With Banks, Ask For ‘Alternative’ To Landmark Student Lending Reform

One of the greatest hardships facing America’s college students is student debt; the average student in the class of 2008 graduated with $23,000 of debt, “a figure 25 percent higher than what their older brothers and sisters owed when they graduated from college in 2004.”

To tackle this student debt crisis, last year the House of Representatives passed the Student Aid and Fiscal Responsibility Act (SAFRA), which expands and improves successful student aid programs like the Pell Grant and the Perkins Loan program, and eliminates billions of dollars in subsidies to wasteful private lenders by arranging loans directly with students instead of through bank middlemen.

via Think Progress » Home Page.

Anyone who knows me should know that I’ve been disappointed by many of the actions of President Obama and Democrats in Congress. In a variety of issue areas, I’ve disagreed with their decisions, and I think they have yet to campaign for the big changes we need.

But on the issue of student loans — the subject of a post I made yesterday on Think Progress and our Progress Report team’s report — President Obama has proposed bold reforms that would revolutionize the way the federal government handles student lending and deliver much needed relief to millions of students while saving billions of dollars for taxpayers. Obama’s plan is most definitely change I can believe in.

See, one of the major student lending programs the government currently operates is called the Federal Family Education Loan. Founded in 1965, the program has helped millions of students get through college, and that’s a good thing. But there’s a problem. The way the program is currently set up, the government makes loan through private lender middlemen, whose profit-motives make it so that the loans are much more expensive than they should be — skyrocketing the debt that students have to pay back. And by law, taxpayers are “required…to reimburse the banks for 97 percent of the losses” when students are unable to repay their debts — essentially acting as a “lucrative form of corporate welfare.”

The fact is, there is no reason for those bank industry middlemen to be there. They add no value to the loans, they just make them more expensive for students because they have to make a profit — heck, mega lender Sallie Mae was the 2nd most profitable company in the world in 2005. It’s the exact same argument progressives have made for years for a single payer health care system. Think of eliminating the private industry lender middlemen as single payer for student lending.

The House of Representatives, under Obama’s leadership, passed the Student Aid and Fiscal Responsibility Act (SAFRA), which expands and improves successful student aid programs like the Pell Grant and the Perkins Loan program, and eliminates billions of dollars in subsidies to wasteful private lenders by a whopping a 253-171 vote.

Unfortunately, the Senate has yet to pass SAFRA. And after a huge lobbying effort targeting certain senators has kept the Democrats from aligning the votes they need to break a filibuster. But there’s hope. Rumor has it that the Democratic leadership is planning to use the reconciliation process to tie SAFRA to the health care bill and pass one in a single reconciliation bill. Doing so would only require a simple majority vote. This isn’t without precedent, the same process was used to pass the College Cost Reduction Act of 2007.

On this one, President Obama and congressional Democrats are right on the money. It’s up for the Senate to act and for the federal government to start working for students. If we want our young people to be involved in the political process and be our future leaders, it’s time to put their futures ahead of the profits of wasteful banks.