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Why there is a Student Loan Reform?

Posted by Sara M. Varese

On March 30, 2010, Obama combined two major reforms into one, calling it the Health Care and Education Reconciliation Act.   The health care issue is one that we have discussed before; the focus of this post is to explore the reasons for the student loan reform, which is the ‘Education’ part of the “Health Care and Education Reconciliation Act.”

A Little Background on Student LoansPayday Advance Lender

In the most recent years, student loans were offered by many private lenders whose funds came from the federal government.  In essence, private lenders became student loan brokers between the government and students.  Because of this arrangement, student loans became expensive due to this middlemen arrangement.

What is the Student Loan Reform?

Starting July 01, 2010, all student loans will be granted directly from the federal government, disallowing private lenders to lend to students.

What is the purpose of the student loan reform?

The purpose of the student loan reform is to make education more affordable, allowing more people to obtain the higher education needed to compete in an increasingly global economy. Cutting out the middlemen (private lenders) could mean a potentially $60 Billion dollars of savings in the next ten years, with $36 billion being used towards Pell Grants.

The Arguments

Many (mainly from private lenders) have argued that jobs will be lost in the private lending industry if private lenders are barred from providing student loans and that student lending will become nationalized.  However, the other side of the argument is that although it is true that some jobs will be lost in the private lending sector, more jobs will be created on the government side. In addition, no matter how you cut the cheese, students loans are  nationalized since the money does originate from the government.

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