Currently, the federal government supports college lending in two major ways. Under the Federal Family Education Loan Program, which dates to the 1960s-era Great Society, it subsidizes banks and other entities that lend students money at favorable rates, and it guarantees lenders against loss if students default. Under the William D. Ford Federal Direct Loan Program, launched in the early 1990s, the government itself is the lender.
Education Department data show that 4,463 postsecondary schools participated in the public-private program in the past academic year, accounting for about $74 billion in loans. The direct lending program had 1,742 participating schools in the same span, with $22 billion in loan volume. If the House bill becomes law, new lending under the government-guaranteed program would end. Essentially, the government would become the sole originator of federal loans.
The core of the bill would transfer about $40 billion in savings to the Pell Grant program, which aids low- and moderate-income students. The maximum yearly award would rise from $5,350 per student to $5,550 next year and eventually to $6,900 in 2019, with the grants indexed to inflation starting in 2011. That would enable Democrats to claim a breakthrough for college affordability at a time of economic worry for many Americans.
"This is a can't-miss opportunity to do the right thing," said Rep. George Miller (D-Calif.), chairman of the Education and Labor Committee and chief architect of the bill. "Let's remember whose voices really matter here. It's time to listen to our students and our families."
But Republicans say the bill could backfire. "It is another government takeover, in this case of a $100 billion loan industry," said Rep. John Kline (Minn.), ranking Republican on the committee. He drew a parallel to the health-care debate, in which an expanded federal role is also at issue. "It's Congress stepping in and choosing the public option instead of the private option, the private-public partnership," Kline said. Two Republicans on the committee support the bill; most are opposed.
Among the provisions Democrats inserted into the bill are $10 billion to help community colleges, $8 billion to help states improve early-learning programs for children from birth to age 5, $4 billion to modernize and renovate public schools, $3 billion to bolster college access and completion, and $2 billion for historically black colleges and universities and other institutions serving minorities.