By William Brown
College aid legislation accompanied President Obama’s landmark health-care reform bill — the first major student loan overhaul in four decades.
The bill makes the federal government the primary lender for student aid. It cuts banks from the student loan process by removing their traditional middleman role.
Under the current system, students obtain government-backed loans from private lenders. The federal government has paid banks billions of dollars in subsidies to protect against default.
Taxpayers will save $68 billion over the next 11 years, according to the Congressional Budget Office. The bill will use the savings to increase Pell Grants for students in financial need and provide more than $4.5 billion to community colleges and historically black colleges.
Half of all undergraduates receive federal student aid and 8.5 million college students qualify for Pell Grants.
The bill will also relax repayment terms for students with loans.
“To make sure our students don’t go broke just because they chose to go to college, we’re making it easier for graduates to afford their student loan payments,” Obama said.
“The average student ends up with more than $23,000 in debt,” he added. “When this change takes effect in 2014, we’ll cap a graduate’s annual student loan repayments at 10 percent of his or her income.”
Private lenders conducted an extensive lobbying effort against the bill, arguing it would cost thousands of jobs and put the program in government hands. The change represents a $70 billion loss in loans for the banking industry.
Obama said in his weekly Internet and radio address that the legislation will help him achieve a major goal: “By the end of this decade, we will once again have the highest proportion of college graduates in the world.”