By CityTownInfo.com Staff
July 22, 2009
A measure that would effectively remove private lenders from the federal student loan industry and save an estimated $87 billion over ten years was approved by the House of Representatives Education and Labor Committee yesterday.
The legislation, proposed by President Obama several months ago, would do away with student loans issued by private lenders and subsidized by the federal government. Instead, the government would lend directly to students beginning next July.
"We can either keep sending these subsidies to banks and a broken system," explained Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee, who was quoted in The Washington Post, "or we can start sending them directly to students and their families."
The savings created by the Student Aid and Fiscal Responsibility Act of 2009 would be used to fund a $40 billion increase in Pell Grants, $10 billion in community college upgrades and $8 billion designated to aid early childhood education. While many have praised the measure, some banks and colleges have fiercely opposed it.
"The bill would eliminate the consumer choice that has produced lower cost loans, better service, innovation and effective default prevention programs," said Richard Hunt, president of the Consumer Bankers Association, who was quoted in The Wall Street Journal [from an article originally located at http://online.wsj.com/article/BT-CO-20090721-716323.html].
Republicans argued that the bill would very likely contribute to layoffs in the private lending sector, and sought to add an amendment which would have halted the legislation if more than 5,000 workers lost their jobs as a result. Democrats rejected the proposal.
Some Republican legislators also questioned allocating the savings for purposes outside of higher education, such as for preschools. "I just want to be clear," said Rep. Mark Souder of Indiana, who was quoted by Inside Higher Ed. "You're taking what was a higher education section of funding and not using it all for higher education."
The bill passed 30 to 17 and will go to the House of Representatives next. The Senate will take up the issue after the House votes on the measure.