Obama's Student Loan Win Bittersweet

Washington Matters

Obama's Student Loan Win Bittersweet

The president got the overhaul he wanted but not the funding boost he sought.

Almost overlooked in the commotion over health care legislation was enactment of a plan to end federal subsidies to private lenders for student loans. The measure, which means the federal government will now directly lend to colleges and their students, was included in one of the two health care bills passed by Congress. The shotgun marriage allowed Democrats to claim more savings and avoid any efforts to block the student loan bill, but it came with a price for the administration.

In the end, President Obama got the massive shift of the student loan origination program from private lenders to the Department of Education. But increases in Pell Grants are smaller and start later, money for community colleges and college access grants was significantly slashed, and expansion of the need- based Perkins Loan program was cut out entirely. Only about $42 billion will be provided over 10 years for education initiatives, about half the $80 billion that Obama wanted.

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Still, the bill will preserve Pell Grants, which otherwise would have been cut dramatically. And now for the first time, their levels will rise with inflation, although increases in college costs will rise much faster.

The change will mean the loss of private sector banking jobs, although Sallie Mae, the leading provider of student loans, will likely win contracts to service the Education Department loans.


Like health care, the higher education fight isn’t quite over. Some Democrats who think the proposals don’t go far enough vow to introduce legislation to push for more changes. But the debate’s largely been settled. The administration, which will point to another victory come election time, will turn its attention to other education battles. Next up: A rewrite of No Child Left Behind.