A huge political fight is shaping up over President Obama’s plan to reform the student aid program. Specifically, the dispute is over Senate action on a bill passed last September by the House of Representatives.
Essentially, the Student Aid and Fiscal Responsibility Act would put private lenders out of the business of making student loans and make the federal government the lender for all loans.
Constantly mounting college costs are a terrible burden for families that keep hearing that their children won’t get a good job without a degree. (In these hard times, a degree may not help much.) College loan debts are a burden for many years on the borrowers, often until their own kids are preparing for college.
Big money is involved. In Maine, federally guaranteed loans at the end of 2008 totaled $232 million. It’s no wonder that banks and Sallie Mae, the nation’s biggest student loan provider, have mounted a furious lobbying campaign.
FAME, the Finance Authority of Maine, originated $15 million in student loans last year — down from as high as $60 million in earlier years — and counsels students and their families in a statewide network. FAME is actively opposing the bill, contending that it probably will harm Maine students and their families by limiting choice and depriving them of current counseling programs. It says federal counseling would go to out-of-state contract companies with automated phone service instead of personal consultation.
Not so, reports an investigation by the Huffington Post. It lists Maine as one of the states where the House bill gives a counseling monopoly to nonprofits — in Maine, FAME — with an unspecified federal contract payment.
Maine’s 1st District Rep. Chellie Pingree, a Democrat, worked with FAME to make sure that it would continue to have an important role in the student aid business. Rep. Mike Michaud, the Democrat of Maine’s 2nd District, also voted for the bill.
A Republican filibuster is expected. So with the Democrats now lacking the 60 votes to override it, much depends on moderate Republicans including Maine’s Susan Collins and Olympia Snowe. Sen. Collins expressed reservations. She said that she “would want to make sure that any changes to the student loan system do not ultimately reduce choices and make it more difficult for students to obtain loans.” Sen. Snowe said she was reviewing the bill. She added that every individual should have the opportunity to pursue a higher education and that “We should also pursue policies that will help students attend college, not dissuade them for financial reasons.”
Democrats are considering a “budgetary reconciliation” maneuver that would require only 51 votes for passage.
In a flood of contradictory information, advocates argue that the bill would reduce interest rates and divert savings to education programs and debt reduction. Opponents say it would restrict choice and probably raise interest rates.
Underlying the dispute is the question of whether federal lending will be better or worse than private lending. A similar question long ago roiled the creation of Medicare, now popular with both parties and with the general public.
In the circumstances and with private credit markets still stagnant, this bill is probably the best bet.