Education Funding

Student-Lending System Made Over in Health Law

By Alyson Klein — March 26, 2010 3 min read
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The health-care-overhaul bill that received final approval from Congress last week also makes major changes to the federal student-lending program, helping to shore up access to Pell Grants.

But proposed substantial new spending on early-childhood education was jettisoned, after Democrats found that the estimated savings from the planned student-loan overhaul would be too meager to pay for several new education priorities.

The student-loan revamp effectively eliminates the Federal Family Education Loan Program, which provides subsidies to student lenders. Instead, all loans would originate through the Direct Loan program, in which students borrow from the U.S. Treasury. The bill uses the savings in part to help shore up the Pell Grant program, which helps low-income students pay for college.

Pell Grants face a big shortfall because more students than expected have taken advantage of the aid in recent years, in part to bolster their skills in the tight job market.

Lawmakers originally had hoped to use a portion of the savings from the change—estimated by the Congressional Budget Office last year at $87 billion over 10 years—to help cover the cost of new funding for early-childhood education, school facilities, and community colleges.But, in part because of the expanded need for Pell Grants and in part because more schools joined the Direct Loan program over the past year, the CBO’s savings estimate is now much lower; one recent estimate was about $67 billion.

Early-education advocates are now rethinking their legislative strategy.

“Early childhood is drastically underfunded, and in light of this recession new funding is more important than ever,” said Helen Blank, the director of leadership and public policy at the Washington-based National Women’s Law Center.

But Ms. Blank acknowledged that the funding was wrapped up in a very complex debate that involved health care and the student-loan overhaul, and that early-education advocates now will have to regroup and figure out what to do next.

Community College Help

The original version of the college-lending legislation, as passed by the House of Representative last fall, would also have included a $10 billion boost for community colleges through a new program called the American Graduation Initiative.

And the House version of the bill would have provided about $4 billion over two years to districts to help with school modernization, renovation, and repair.

The current loan bill does include $2 billion to help community colleges beef up their education and training programs. And it would provide $750 million for a new College Access Challenge Grant program, which would help states and colleges bolster financial literacy and improve college completion.

The broader health-care law, called the Patient Protection and Affordable Care Act,places an excise tax on “high cost” health-insurance plans—an issue of major interest to the national teachers’ unions.

The tax will apply to plans that cost more than $10,200 for an individual or $27,500 for a family. Those thresholds, which will be indexed to inflation, are higher than those in a previous version of the bill passed by the Senate late last year.

Under the original Senate bill, the excise tax would have gone into effect in 2015. But the new provision pushes that deadline back to 2018, to give employers, employees, and plans more time to adjust.

In addition, there will be a mechanism that makes adjustments to the thresholds based on the age and the gender of the group-insurance pool. That’s a particularly important change for the teachers’ unions, because their membership is predominantly female and also includes a large percentage of middle-aged workers—demographic factors that can make insurance more costly.

“We’re completely supportive of the bill, and we think those changes were good changes for the good of working people,” said Bill Raabe, the director of collective bargaining and member advocacy for the 3.2 million-member National Education Association.

The health-care package also includes more than $250 million over five years to reinstate an abstinence-based sex education program recently terminated by the federal government with support from the Obama administration.

At the same time, the legislation also provides $375 million over the same period for a comprehensive sex education program called Personal Responsibility Education.

Staff Writer Stephen Sawchuk and Assistant Editor Erik W. Robelen contributed to this story.
A version of this article appeared in the March 31, 2010 edition of Education Week as Health-Care Law Also Makes Over Student Lending

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