Marketplace Scratch Pad

Student loans and health care

Scott Jagow Mar 24, 2010

If you’re wondering why the health care legislation is finally getting through Congress, you might look no further than the part of the bill that overhauls the nation’s student loan business.

Yes, part of the health care package that has nothing to do with health care would end government subsidies to private student lenders. By cutting out the middlemen, the government projects $61 billion in savings over 10 years. That money would go directly to more student loans like Pell grants. It would also go toward reducing the deficit and offsetting expenses of the health care bill.

The overhaul appealed to many Democrats who were on the fence about the health care measures. Consider the comments of New Jersey Democrat Rob Andrews:

“This is a controversial, difficult vote for a lot of people, me included,” he said. “And the more things that you can go home and say are in the bill that are sort of universally popular, yeah, it helps. To say our community colleges are going to benefit, there is going to be more Pell grant scholarships available for more people. Institutions that serve African-Americans, Hispanics, Asian Americans, Native Americans are going to benefit from this. It cuts corporate welfare, which I really think is the present program.”

He continued, “It’s another set of deliverables that people like.”

The government’s takeover of student loan programs means banks and lenders like Sallie Mae will lose. That’s right — it appears the financial industry lobby isn’t going to win this one. But in a story last week on Marketplace, we pointed out that colleges were already going directly to the government:

…some schools are ignoring the student loan debate. They’re starting to cut out the middleman themselves. Students don’t have to get their government loans through the banks. There’s already a direct government loan program. The loans aren’t cheaper for the students, but they’re more convenient. And more schools have started offering them.

Questions: Is this overhaul actually necessary? Will it be better for students to have the government as the major — if not only — choice for loans? (Here’s a Q and A about aspects of the overhaul).

Democrats say this will end a piece of corporate welfare to Sallie Mae and the banks. Republicans see it as another piece of the government extending its power.
Does this deal sit well with you, knowing that health care might’ve died without it?

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