Health Care Reform Includes Student Loan Overhaul

On Tuesday, March 30, President Obama signed the Health Care and Education Reconciliation of 2010 into law. Though the bill was primarily intended to fix the Senate’s Christmas Eve health care bill to meet the demands of the U.S. House, it also includes a massive overhaul of the way student loans are serviced.

The bill was passed by the U.S. House, and supported by Rep. John Hall, whose 19th district includes Putnam County, on the same Sunday evening the health care reform bill was passed, by a vote of 220- 211. It was passed by the Senate on March 25 though a process called budget reconciliation, a move that avoided the Republican threat to filibuster in order to prevent a vote. The act had bipartisan opposition.

The new legislation modifies the current student loan system where, for the past 35 years, the federal government has guaranteed and subsidized student loans offered by private firms. Under the new law, most of those seeking loans will apply directly to the federal Department of Education.

It is widely seen that the inclusion of the student loan overhaul, in addition to be a long-sought legislative goal, was included to offset the costs of the health care reform—a necessary tactic in order to get the House’s changes through the Senate using budget reconciliation. The Democratic leadership in the Senate did not think they could withstand the filibuster threat to the House’s health care bill— a threat made possible by the election of Scott Brown to fill late Senator Ted Kennedy’s Massachusetts seat.

The Congressional Budget Office (a non-partisan outfit that determines the cost of legislation) has said this bill will decrease the federal deficit by $138 billion, though a former CBO director has contended that the overhaul will increase the deficit by $562 billion.

Because the reform will take work away from private sector loan services, the overhaul includes $25 million for “payments to loan servicers for retaining jobs at locations in the United States where such services were operating under part B on January 1, 2010.”

Currently, about 14 percent of student loans are entirely private—with no federal backing—and the firms that provide such loans fear that the federal competition will kill their business.

Universities seem to be happy with the overhaul. With monthly minimum loan repayments reduced from 15 to 10 percent, students and their families do not feel the true pain of $50,000- a-year tuition tabs. More monies in student loans encourage universities to maintain or increase tuition rates.

Other reforms in the bill could continue to inflate tuition costs. The size of Pell grants will be increased a maximum of $5,975 in 2017.

There is also appropriated $13.5 billion to account for the increase of the number of Americans who need financial aid for college. Proponents of the overhaul expects that by eliminating redundant corporate back offices, an additional $36 billion of Pell grants will be issued over the following 10 years

Some universities will also receive a quick infusion of cash. Congress appropriated $50 million to give to institutions of higher education for “technical assistance in establishing and administering” loan programs in fiscal year 2010. The bill also includes several billion in funding for historically black colleges and universities and other minority institutions, and for community colleges

The government has used the loan process to achieve other social goals apart from increasing the number of university students. Under President George W. Bush, a program was introduced to offer loan forgiveness after 10 years for those who worked for the government or for certain nonprofits.

This has been praised by some as a way to encourage careers in public service, and criticized by others as a disincentive to private enterprise. Recent studies have shown that the average federal employee, when benefits are considered, has a better compensation package than the average private sector employee—suggesting that private sector employees might be more in need of loan forgiveness.

Critics allege that the massive bureaucracy at the Department of Education will be less able to service and manage student loans than the private banks that have done so in the past. Some worry that obtaining a college loan will become akin to making a visit to the local DMV. By eliminating the profit motive and intra-bank competition, while administering the loans with publicsector employees, the “loan officer” has few incentives to offer timely, accurate, or even knowledgeable service.

In some ways, health care reform could parallel student loan reform to which it has been attached. In the 1960s, the federal government began backing student loans, and over time, control has increased, up to this year, when the pretense of private enterprise will be shed and the government will simply engage in direct lending. After having showered the health-care industry with subsidies, and bolstered its profitability with the individual mandate to buy insurance, the government could eventually seek to take out the profit-making middlemen of health care, and institute a singlepayer system.

But the student loan overhaul related to health-care more directly in its ability to change the budget-scoring of the massive health reform. By lumping the two reforms together and counting the student loan industries current profits as “savings,” Congress was able to say that the health care reform would come in under $1 trillion, with the prospect of providing additional savings in the future.

But if the history of student loan reform is repeated in the health care industry, the cost of medical treatment, like college tuition, will continue to rise as individuals use government subsidies to bid up prices.

Joe Lindsley Jr. contributed to this article.