Education Secretary: Loans An Investment In Students

Education Secretary Arne Duncan says the new law that takes out the middleman and brings the federal government in to the student loan business is an investment in students. Earlier Tuesday, President Obama signed into law the last of the legislation for the health care overhaul, including how the federal government issues student loans.

Copyright © 2010 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

MICHELE NORRIS, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

Today, President Obama signed into law the final piece of the health care legislation Congress approved earlier this month. And while health care received the bulk of the attention, the legislation also includes a major change in the way students get loans for college. The banks are out, and the federal government is in.

Banks and other private-sector lenders will no longer receive a federal subsidy for making government-guaranteed college loans. The government will now handle all that business through a direct lending program.

At the bill signing today, President Obama said the change is good news for students and for taxpayers.

President BARACK OBAMA: We'll save American taxpayers $68 billion in the coming years, $68 billion. That's real money, real savings that we'll reinvest to help improve the quality of higher education and make it more affordable.

NORRIS: Earlier today, I spoke with Education Secretary Arne Duncan about the changes to the loan system. He said when it comes to the terms and repayment schedules, students won't see anything different.

Secretary ARNE DUNCAN (Department of Education): What this simply does is rather than subsidizing banks, we're going to invest in students. This is great for students. This is great for the country. It's one of these sort of miraculous, once-in-a-lifetime opportunities, and we could put $60 billion minimum there behind students simply by removing subsidies to banks and not going back to taxpayers for another dime.

NORRIS: Now you're suggesting this a great opportunity, but it seems like the normal rules of supply and demand wouldn't apply here. I'm wondering why it's prudent to have a single lender providing all the guaranteed loans in the country.

Sec. DUNCAN: Well, we already bore the risk on it. So the game isn't really who's initiating the loan. The game is in servicing the loan, and the servicing of the loans will all be done by the private sector. So it's not our sweet spot, not our core competency. Good actors will get more business, bad actors will get less business.

So those folks who do a good job of customer service and keeping default rates low and building good relationships with universities have a chance to grow their business. And we have more and more folks going back to get an associate's degree at a two-year community college or a degree at a four-year institution. This is a growing market, and at the end of the day, we have to invest in our students.

NORRIS: This sounds like it doesn't mean that private banks are completely out of the student loan business.

Sec. DUNCAN: No, again, all the servicing of loans will be done by the private sector, all of that.

NORRIS: For students who already have guaranteed student loans, the changes will place in 2014, and at that point, students can cap their payments at a rate that's equal to 10 percent of their discretionary income. That's slightly lower than the cap right now. How do you prevent banks from trying to use that gap between now and when this new law will take effect to try to maximize their profits?

Sec. DUNCAN: Yeah, I don't think they can do that, and what this really means, let me take a minute to explain to listeners that historically, there is always phenomenal talent, folks who graduated from college who wanted to go into the public sector, but because they had $60, $80, $100,000 worth of loans, they simply couldn't follow their heart, couldn't follow their passion. And so we lost a huge amount of that talent.

Now, across the board, loan repayments will be indexed to 10 percent of income. So it helps remove that barrier. But the thing I'm most excited about this: If you choose to go into the public sector, if you choose to become a teacher obviously I'm very biased there or work for the government or run a legal clinic in an impoverished community or help run a health care clinic if you're coming out of law school or medical school, after 10 years, any debt you have, any remaining debt, will be absolutely forgiven, will be erased.

So this is a monumental breakthrough. It's a huge chance for this next generation of, you know, hardworking, committed folks to come into public sector, come into education and make a difference and not have to take other jobs just because they pay more money.

NORRIS: You know, some members of the Democratic Party even are a little worried about the jobs aspect here, that by eliminating the middle party, that you might also be eliminating jobs. Any truth to those concerns?

Sec. DUNCAN: We think, again, there's going to be a growing market. We know there's going to be a growing market in the servicing of these loans. There's a huge opportunity there for the private sector to play, and we do have some money in the transition to help if there's any potential job loss.

So we're very cognizant of that, but ultimately, there's going to be a tremendous opportunity for good actors in the private sector to grow their businesses based upon their ability to service these loans well.

NORRIS: Secretary Duncan, thank you very much for making time for us.

Sec. DUNCAN: Thanks for the opportunity.

NORRIS: That was Education Secretary Arne Duncan.

Copyright © 2010 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Obama Signs Health Care, Student Loan Measure

President Obama signed into law final changes to the health care overhaul on Tuesday, calling the last legislative hurdle an "important milestone" in the road toward affordable coverage for all Americans.

But the president, who spoke at a Northern Virginia Community College campus before signing the changes, took the opportunity to highlight lesser-known student loan provisions in the new law that he said would make higher education more affordable to moderate and lower-income students.

"For a long time, our student loan system has worked for banks and financial institutions," Obama told students assembled at the Alexandria, Va., campus. "Today, we're finally making our student loan system work for students and all of our families."

The new law strips banks of their ability to issue federal student loans in favor of direct government lending. The president said the move would save the government $68 billion over 10 years. Some $40 billion in new money for Pell Grants would be also be used to dramatically increase the number of grants made and increase their individual value, the president said.

The legislation signed Tuesday was the second of two steps Democrats needed to approve the overall health care package. The new law makes a series of fixes to the one Obama approved last week, while also removing some unpopular provisions.

"It represents a major step forward," Obama told the crowd.

The legislation has a wide reach. About half of undergraduates receive federal student aid and about 8.5 million students are going to college with the help of Pell Grants. It also caps student loan repayment at 10 percent of a graduate's income when the law takes effect in 2014.

The signing of the bill concludes a bitter yearlong struggle with congressional Republicans and some inside Obama's own party who worked to halt the planned health care overhaul and block the changes to the college student loan program.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.