Moving forward on student loan reform

MOVING FORWARD ON STUDENT LOAN REFORM…. It should be a no-brainer. The student-loan industry is getting government subsidies to provide a service the government can perform for less. The Obama administration has asked Congress to remove the middleman, streamline the process, save taxpayers a lot money, and help more young people get college degrees.

Yesterday, we started seeing some meaningful progress on the issue.

A bill that cleared a House committee Tuesday would largely remove private lenders from the federal student loan industry, generating an estimated $87 billion savings over 10 years to fund more government grants and loans.

The Student Aid and Fiscal Responsibility Act of 2009 would eliminate an entire category of student loans issued by private lenders and subsidized by the federal government, vastly expanding direct lending by the government starting next July. Democrats would use the savings to fund a $40 billion increase in federal Pell Grant scholarships over 10 years, $10 billion in community college upgrades and $8 billion in pre-kindergarten changes, among other uses.

Republicans opposed to the legislation say it amounts to a federal takeover of student lending.

Look, the government already controls the entire lending process — it helps students directly and it subsidizes private companies to direct funds to students. All Obama and his allies want to do is make the process more efficient and cost-effective. And all Republican critics of the idea want to do is keep the middleman in place to maintain the ideological facade of a “private” system.

Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee, said yesterday, “We can either keep sending these subsidies to banks and a broken system, or we can start sending them directly to students and their families.”

That this is even the subject of controversy is frustrating. Why would GOP lawmakers tout cost savings, improved efficiency, and streamlined government programs, and then vote against reform like this? Is the industry really generating that many campaign contributions, or is this just a reflexive opposition to whatever the Obama administration supports?

The NYT had a good op-ed on this today: “The consolidated program proposed in the bill would in no way expand government. The loans would be handled through colleges. They would be serviced and collected by private companies and nonprofits that are already lining up to get the work. By forcing the companies to compete, and to undergo periodic re-evaluations, Congress could get a good deal for taxpayers and better service for borrowers.”

During yesterday’s committee vote, two Republicans broke ranks and voted with the Democratic majority. At this point, I’ll take that as a sign of progress.