WASHINGTON — Students and their families should find the student loan process simpler, and lower-income students should find more financial help, under the sweeping changes tucked into the health-care legislation that Congress passed this week.
The measure, aimed at taking banks and other private lenders out of the lucrative federal subsidized student-loan market, also would lessen the burden for some graduates as they pay back their loans.
Currently, certain students with low incomes and large loan balances don't have to pay more than 15 percent of their incomes each month on the loans. The new law will lower that to 10 percent.
The changes, which are projected to save the government $61 billion over 10 years, also will forgive the loans after 20 years of repayment, down from 25 currently.
Until now, there have been two federal loan programs. Under one, the government makes loans directly to students, a program that now will be expanded. The other is the Federal Family Education Loan Program. Under it, banks and lenders make loans that the federal government guarantees or insures. It will end July 1.
The new law still will permit private lending institutions to make private loans, but the federal government won't subsidize them.
"This is a big deal. We've known for decades that subsidies are unnecessary and expensive, and special interest lobbying has kept these provisions on the books," said Pedro de la Torre, advocacy senior associate at the Center for American Progress, a liberal research group.
Richard Hunt, the president of the Consumer Bankers Association, said in a letter to Congress, however, that the bill would have "major negative consequences for American higher education."
Sallie Mae, a major student loan provider, warned that it would be forced to reduce its national work force, now about 8,600 people, by 2,500.
"The student loan provisions buried in the health care legislation intentionally eliminate private sector jobs and student services at a time when our country can least afford to lose them," Sallie Mae spokeswoman Martha Holler said. "Reform did not have to be an either-or proposition; Congress could have achieved its reform and savings goals in a way that helped both students and workers, but instead chose not to."
Budget rules adopted last year allowed the loan provisions to be included in the health care package, and Sen. Tom Harkin, D-Iowa, defended the changes.
Why continue to give "a subsidy to the big banks in this country?" he asked. "We take that money and give it to students in Pell grants."
The bill expands the grants, which go to lower-income students. It provides $13.5 billion for help to pay for projected shortfalls in the program for the next two fiscal years, and increases the maximum award to $5,550 next year and nearly $6,000 by 2017. The current level is $5,350.
The bill also takes money saved from the middleman subsidies and directs it to a series of other education-related programs. Historically black colleges and universities, Hispanic-serving institutions and tribal colleges would get a $2.55 billion.
Another $2 billion would be spent over four years for community college programs that help unemployed people, while $750 million would go to a program that helps increase the number of low-income students prepared to enter college.
A total of $10 billion from the money that's saved would be used to reduce the federal budget deficit.
ON THE WEB
National Association of Student Financial Aid Administrators fact sheet
Consumer Bankers Association fact sheet
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