Student Debt Reform: Obama Makes Progress

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 conducted. In my mind, this bill constitutes one of the Obama administration’s most important accomplishments.

In recent years, the cost of attending 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, helping students is not the primary interest of private banks. Many recipients of private student loans can be compared to victims of sub-prime mortgages: They are charged exorbitant interest rates, subjected to numerous fees, and often taken advantage of as vulnerable customers with little information available to them. Moreover, under Republican banking reforms, student debt cannot be wiped away through bankruptcy.

Federal loans are different. Because the government’s intent is not 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, as the government will now loan money to students directly. One only needs to read the charges above to realize the importance of this.

There’s more good news. The law expands Pell Grant aid and links the scholarship 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 Free Application for Federal Student Aid (FAFSA), 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 understandable. This reform expands the role of the federal government, which Republican philosophy generally opposes.

On the other hand, education reform is seemingly so unobjectionable that the degree of Republican opposition still remains puzzling. Whom does this bill hurt? Only banks, and I am sure many Americans would not be terribly sorry to see new legislation do that. In addition, the vast majority of experts agree that this reform is necessary and helpful.

A final note. Last Friday, a New York Times article outlined the ways in which student lenders are attempting to block the bill. According to the article, “an aggressive lobbying campaign by the nation’s biggest student lenders has now put one of the White House’s signature plans in peril.” This is extremely worrisome, as a failure to stop this lobbying effort from destroying the bill might imperil the best chance to relieve student loan debt for decades to come.

Fortunately, there is still something students like you and I can do, and it takes just two minutes. Just call your senator, briefly voice your support for this reform, and go on with your day. Senators listen to the calls of their constituents. It is high time college became less expensive and more affordable, and a tiny step like this may yield urgent reform.

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