House Bill Lets Students Bypass Private Lenders

The House is expected to vote on a bill Thursday that would let students borrow directly from the U-S Treasury — instead of from private lenders subsidized by the government. House Democrats say this would save millions in the long run. But the bill has opponents in the loan industry — and obstacles in the Senate.

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As Congress works on health care, it's also taking on another overhaul effort. It's the $92 billion student loan market. The House is expected to vote on a bill today that would allow students to borrow directly from the U.S. Treasury instead from private lenders subsidized by the government. House Democrats say this would save billions in the long run, but the bill has opponents in the loan industry and obstacles in the Senate.

NPR's Audie Cornish reports.

AUDIE CORNISH: For the last 35 years, the government has been subsidizing private banks and lenders so that they'll make loans to students. That's meant guaranteeing lenders up to 97 percent of the loans that aren't paid back while the companies keep the profits.

Representative TIMOTHY BISHOP (Democrat, New York): This is a really, really good deal for private lenders. It is a deal that costs the American taxpayer approximately eight to nine billion dollars a year that we don't need to spend in that fashion.

CORNISH: That's House Democrat Timothy Bishop of New York. Bishop sits on the education and labor committee that produced the legislation. The bill proposes shutting down the Federal Family Education Loan Program fronted by private lenders as soon as next year. Instead, students would borrow directly from the U.S. Treasury.

House Democrats say this will insolate students from swings in the private lending market and keep their interest rates low. Speaker Nancy Pelosi touted the bill as a win-win at a press conference on the steps of the Capitol earlier this week.

Representative NANCY PELOSI (Democrat, California; Speaker of the House): This means that many more students can enter college, that they will graduate with less debt, that the federal loan initiatives that they and their families depend upon are strengthened for decades to come and that taxpayers will save money.

CORNISH: But just how much isn't clear. There have been conflicting reports that put the number between 40 and 87 billion dollars over the next 10 years. And it's important because Democrats already have designs on where they want to spend it.

Under the bill, the Perkins Loan Program would be expanded to more students. And Pell Grant awards for low income borrowers would increase. School construction projects around the country would get a $4 billion boost. Community colleges could expect $10 billion for renovations and adult retraining programs. Additional money is slotted for other programs. It's a list that makes Republicans, like North Carolina's Virginia Foxx, wary.

Representative VIRGINIA FOXX (Republican, North Carolina): The bill creates nine new programs and increases the federal government takeover of early education, higher education, school construction, and more. It is an insidious intrusion into education at all levels by the federal government.

CORNISH: The health care debate has turned phrases like government takeover and public option into slurs on Capitol Hill, and industry lobbyists are seizing on the sentiment in the debate over students loans.

Mr. JEFF NOORDHOEK (Nelnet): Even last week, if you listened to the president address Congress, he made a very strong point that a fundamental part of his plan is that there's a public option and a private option to make the whole system better.

CORNISH: That's Jeff Noordhoek, the head of the student loan company Nelnet.

Mr. NOORDHOEK: What they're doing is eliminating the private option. And that, I think, should be frightening for people, that we're all forced to go to the federal government to borrow to go to school.

CORNISH: Moreover, loan providers like Nelnet have customer service reps, loan collection workers, and other kinds of employees spread throughout the country. The industry estimates some 35,000 jobs could be lost as a result. Democrat Ben Nelson represents Nelnet's home state of Nebraska.

Senator BEN NELSON (Democrat, Nebraska): And I'm very concerned about the thousand jobs in Nebraska that this represents and I just can't imagine why we need to have another thousand jobs in Washington and one thousand less jobs in Nebraska.

CORNISH: Other Senators are facing complaints from universities back home who worry that a federal bureaucracy can't handle the strain of all eight million student loans by next summer. And some senators have their own ideas on where to spend the savings, and they look very different from the House list.

Audie Cornish, NPR News, the Capitol.

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