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Federal

Miller Proposes Major Student Loan Overhaul

By Alyson Klein — July 14, 2009 2 min read
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Remember those bombshell higher education proposals unveiled as part of President Obama’s very first budget earlier this year? Well, tomorrow, one of them will take a step closer to becoming reality.

Rep. George Miller, D-Calif., the chairman of the House Education and Labor Committee, is set to introduce a bill that would scrap the Federal Family Education Loan Program, in which the government subsidizes private lenders to make federal loans. Instead, starting in July of next year, all loans would originate with the direct-lending program, in which students borrow right from the U.S. Treasury. The change would save about $87 billion over 10 years.

A chunk of those savings, about $10 billion, would be invested in the area of early childhood. No word on yet on just what that would look like, although one of these bills could serve as a model. And Obama had some interesting early childhood proposals in his fiscal year 2010 budget request.

Another portion of the savings would be used to pay for the major community college proposal Obama introduced earlier this week. And $10 billion would be used to help reduce the deficit.

A huge chunk of the projected savings, about $40 billion, would go to Pell Grants, which help low-income students pay for college. The measure wouldn’t go as far as making the Pell Grant program mandatory, meaning beyond the whims of the appropriations process. Obama had proposed that in his budget, but apparently, that wasn’t fiscally feasible. But the measure would index Pell Grants to the Consumer Price Index, plus 1 percent, as Obama had proposed. Pell Grants would go from $5,550 in 2010 to $6,900 in 2019 under the bill.

The measure is sure to face significant opposition from some student lenders and members of Congress, who worry about expanding the federal government’s role in originating loans. And some college officials have also said it might be tough to switch to the direct-loan program in such a short time frame. (For more background, read this story.)

Still, the bill would preserve a role for the private sector. It would establish a competitive bidding process that would permit the Education Department to choose lenders to service loans, based on the quality of their service to borrowers. Non-profit lenders would still have a role in servicing student loans, too.

More details, including on the early childhood piece, are likely to be available tomorrow, when the bill officially drops. So stay tuned!

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