Student Loan Reform Bill Finally Ready to Move

Democratic Congressional leaders introduced budget reconciliation legislation today that would eliminate the Federal Family Education Loan (FFEL) program and shift to 100 percent direct lending. Under the measure, the bulk of the savings from making this switch would be used to boost spending on Pell Grants.

Because of changing budget realities (CBO’s reduced Direct Loan savings estimate and the sky-rocketing costs of the Pell Grant program), lawmakers were forced to dramatically narrow the bill’s scope. But we are not complaining as this important legislation nearly died last week at the hands of a small group of Senate Democrats, who have close ties to student loan companies in their home states. Kudos to the bill’s sponsors — Sen. Tom Harkin of Iowa and Rep.George Miller of California — for succeeding in bring the measure back from the dead.

The legislation is far from perfect. We are still not happy that the bill includes a set-aside for non-profit student loan agencies to service federal student loans — although we do concede that the measure would be extremely unlikely to pass without it.  Even more troubling is a provision in the bill that would allow the Bank of North Dakota to continue making federal student loans. Sen. Kent Conrad (D-ND), the chairman of the Senate Budget Committee, fought to get this provision in, but he is now apparently having second thoughts. The newspaper The Hill  is reporting that Conrad has asked Democratic leaders to remove the provision because of the ridicule he and other North Dakota Democrats are receiving over it.

In the end, though, these provisions are a small price to pay for the monumental changes that the legislation promises to bring to the federal student loan program — changes that, if enacted, will be of great benefit to students and taxpayers alike.

Senate Democratic leaders still have a heavy lift ahead of them in the days ahead. But we are just happy this day has finally come.

The legislation is available here: http://docs.house.gov/rules/hr4872/111_hr4872_amndsub.pdf

For a more detailed description of the bill’s contents, check out the latest from our sister blog Ed Money Watch: http://edmoney.newamerica.net/blogposts/2010/whats_going_on_with_safra-29408