Friday, April 23, 2010

Making College More Affordable: Freeing up $68 billion in Federal Spending

The Health Care and Education Reconciliation Act

“Student Loans that Put Students First: The education related initiatives funded by the Health Care and Education Reconciliation Act are fully paid for by ending the government subsidies currently given to financial institutions that make guaranteed federal student loans. Starting July 1, all new federal student loans will be direct loans, delivered and collected by private companies under performance-based contracts with the Department of Education. According to the non-partisan Congressional Budget Office, ending these wasteful subsidies will free up nearly $68 billion for college affordability and deficit reduction over the next 11 years.”

The student loan reform that was passed with the health care bill effectively cuts out banks as the “middle-men” who were getting all of the benefit of subsidies through the Federal Family Educational Loan program, while leaving all of the risk with the federal government. The goal behind student loan reform is that turning those federal loans from banks into direct loans from the federal government, the program will save $68 billion. This money will then be redistributed into other federal higher education assistance programs. Additionally, the decrease in expenditures for higher education student loans will assist in reducing the federal deficit.

President Obama’s broader agenda for higher education includes:

  • Expanding income based repayment options for borrowers with unmanageable debt.
  • Increased investments in America’s community colleges, Historically Black Colleges and Universities, Hispanic-Serving Institutions, Tribal Colleges and Universities and other Minority Serving Institutions.
  • Simplifying the federal student aid application (FAFSA) to make it easier to apply for financial aid for college.
  • Tripling the largest college tax credit, now known as the American Opportunity Tax Credit. -

Higher education enrollment has increased during the current economic recession, and the higher demand for federal student aid has taken a toll on current programs. The money saved through the Health Care and Education Reconciliation Act will infuse the programs mentioned above with much needed funding that will improve our position nationally while making higher education accessible and affordable for low and mid-income families and individuals, as well as minority populations that have been at an educational disadvantage due to lack of opportunity.

It is anticipated that this act will help curb the phenomenon and effects of “brain drain,” at state, local, and federal levels by committing funds to the often overlooked community college system. Community colleges are often much more accessible to a greater population of people than a four-year college or university. In addition to the geographic accessibility, community colleges offer greater accessibility through more flexible course scheduling structures, especially for non-traditional students, and often at a lower cost. This use of the money saved through the student loan reform is expected to help train the workforce for entrance into a global economy, while preparing people for positions in their local and regional economy.

Education is believed to have a phenomenal return on investment, not only for individuals but for the nation and taxpayers. Investing in higher education through a robust and rehabilitated federal student loan program as well as infusing selected types of institutions that serve low to mid-income Americans, will prepare today’s workforce and that in the future. A less blatantly promoted objective and benefit of this plan appears to be increasing the population of well educated and employable Americans, which ultimately increases the tax base of income earning American taxpayers.

Applicable Links:

Committee on Education & Labor

Star Tribune: New era for student loans begins

NYT: Deal Gives New Life to Overhaul of Student Loans

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