A few days ago the House of Representatives passed the Student Aid and Fiscal Responsibility Act, a meaningful reform of the way student loans are dealt with.
In my mind, this bill constitutes one of the Obama administration’s most important accomplishments.
To understand why, provided hereafter is an explanation of what the bill does. In recent years, the cost for college has increased tremendously, to the point where total expenses exceed per capita American income. Therefore the federal government encourages banks to loan money to students. These loans are guaranteed and subsidized by the government.
Unfortunately, private banks are not in the business to help students. Many private student loans can be compared to sub-prime mortgages; they charge exorbitant interest rates, add numerous fees (e.g. the origination fee), and often take advantage of vulnerable, low-information customers. Moreover, under Republican banking reforms, student debt cannot be wiped away through bankruptcy.
Federal loans are different. Because the government is not out to make a profit, government loans (e.g. Stafford loans, Ford Direct student loans) generally carry lower interest rates and no fees.
This bill proposes to end subsidies to private student loans; instead, the government will loan money to students directly. One only needs to read the above to realize the import of this.
There’s more good stuff. The law expands Pell Grant aid and links the scholarhship to a rate slightly higher than inflation, “so that these grants don’t cover less and less as families’ costs go up and up.” Previously, “that value [was] set by Congress on an annual basis, making it vulnerable to Washington politics.” Money is provided to community colleges, early childhood programs, and historically black universities. The FAFSA (Free Application for Federal Student Aid), which took me a week to fill out, is simplified.
It was disappointing to see that only six Republicans voted for the bill. On the one hand, their opposition is somewhat understandable. The reform expands the role of the federal government, which goes against Republican philosophy.
On the other hand, there is so little objectionable about education reform that the degree of Republican opposition still remains puzzling. Who does this bill hurt? Banks. I am sure many Americans would not be terribly sorry to see a law do that. And the vast majority of expert opinion agrees that the reform is necessary and helpful.
A final note. To date, the media has provided very little coverage of this bill. When the House approved a climate change law, it landed on the front page of the New York Times. Passage of this bill was news enough for half of Page 15.
This reflects a failure of the administration’s media operation. If more Americans knew about Obama’s education reform, I am convinced that his approval ratings would be higher. Progress on other priorities (e.g. climate change) would probably be easier-done. Obama should talk more about this bill.