Student Loan Reform


It’s a sign of how enormous an achievement the Affordable Care Act is that the passage in last night’s reconciliation fix package of the long-awaiting reform to student lending practices has become a kind of forgotten afterthought. But this is a big deal on its own terms. The basic shape of the issue is that there are two different ways the federal government helps support student loans. One is that it lends money to students, bearing the risk of default but covering default losses through interest payments from the students who don’t default. The other is that it guarantees loans issued by private lenders, taking risk off the hands of the banks while leaving the banks with the profits. Both approaches are more-or-less the same from the perspective of students, but direct lending is more economically efficient for the government, whereas subsidized private lending is more profitable for private lenders.

The specific Democratic proposal was to do away with this unjustifiable subsidy and mostly plow the money into expanded tuition assistance programs. Now as part of putting the overall reconciliation package together, my understanding is that some of the saved money is going to finance Affordable Care Act activities in the early years. In either respect, it’s easy enough to see why Republican members of congress and conservative pundits wouldn’t necessarily be enthusiastic about these ideas—conservatives believe that policymakers should be trying to make life easier for rich people, not for poor students or people suffering from illness. But it’s important to note that in principle this same switch could have been made by rightwingers years ago and the money saved used to reduce taxes or whatever else they like. But it wasn’t, because they were too in hock to the private lenders.

At any rate, there’s a fair amount of straight-up misinformation about this issue being spread by the banks and picked up by the usual suspects on the right. My colleague Katie Andriulli’s “5 Myths About Student Loan Reform” fact sheet for Campus Progress may be of interest.