Student-lending reform becomes law

close-up of man in black graduation gown holding diploma tied with blue ribbonThis morning President Obama signed into law a huge overhaul of the nation’s student lending industry, eliminating $61 billion in federal subsidies to private lenders. President Obama has promoted the bill as a measure designed to make higher education more affordable and post-graduation debt loads more manageable.  If debt loads were more manageable, fewer recent graduates would need to resort to payday loans.

The constraints involved in borrowing money for higher education have become heated points of contention.  “For a long time, our student loan system has worked for banks and financial institutions,” Obama said. “Today, we’re finally making our student loan system work for students and all of our families.”

Banks take a hit

Under the new student-lending law, the government will make loans directly to students.  Private banks may continue to service and collect student loans, but they will no longer issue them. As a result, banks will lose a multibillion dollar income source. Needless to say, student-loan giant Sallie Mae and other private lenders staunchly oppose the reform.

Opponents fear over-governing and job losses

Opponents contend that the new law amounts to an unwarranted federal takeover of the student loan industry. It will, they say, reduce lending options for students and eliminate thousands of lending-industry jobs at a time when the nation cannot afford further employment losses. Democratic lawmakers have long sought to end bankers’ roles as student-loan middlemen and replace them with a direct federal-lending system. Never an overly partisan issue, however, the reform was proposed by President Bush several times during his tenure.

Proponents say all budget reforms create job losses

Proponents, of course, contend that the new student-lending law will create as many jobs as it eliminates. Moreover, they say, job losses are inherent in almost almost any kind of budget-reform measure. Livelihoods are dependent on all industries and all projects.

Proponents of the new law say that ousting the banks will save taxpayers $68 billion over the next 10 years. A significant portion of the money saved will be used to expand and strengthen federal grant programs for higher education. According to MSNBC (see, the new law will cap annual student-loan repayments at 10 percent of a college graduate’s income, allocate more funds for community colleges, and award $2.55 billion to historically black colleges and universities.