Columnist Gail Collins in today's New York Times sums up the reforms this way:
Let us stop here and recall how the current loan system works:In wonkier terms, students now can borrow money from private lenders through the Federal Family Education Loan Program, which provides subsidies and guarantees to banks and other lenders. Students or their families can also borrow directly from the U.S. government's Federal Direct Loan Program. The bill would fold all lending into the Direct Loan program, leaving the private sector with a much-reduced servicing role.
1) Federal government provides private banks with capital.
2) Federal government pays private banks a subsidy to lend that capital to students.
3) Federal government guarantees said loans so the banks don't have any risk.
And now, the proposed reform:
1) The federal government makes the loans.
Rep. George Miller (D, CA), the chief sponsor of the bill, says that ending the subsidies and guarantees will save some $87 billion over the next decade. The bill allocates about $40 billion of that amount for increasing Pell Grant scholarships annually from $5,350 today to $6,900 in 2019.
The bill also expands the Perkins Loan program to more campuses -- in the Perkins Loan program, students borrow from the institution, not from the government -- and simplifies the Free Application for Federal Student Aid (FAFSA) form. The current FAFSA form is so complex that companies have sprung up to help individuals and families complete it.
The bill has other provisions: It keeps interest rates low on need-based student loans. Those rates were expected to double from 3.4% today to 6.8% in 2012. The bill forgives loans to reservists or National Guard members called up to active duty in the middle of their academic years. And it funds programs that broaden access to post-secondary institutions and encourage students to complete their degrees.
Rep. John Kline (R-MN), the ranking member of the House Education and Labor Committee, called the bill a government takeover of the current private system of student lending that most institutions favor.
The bill, which has the backing of the Obama Administration, now goes to the Senate. Sen. Tom Harkin (D, IA), who chairs the Senate Health, Education, Labor, and Pensions Committee, said in a statement that the committee plans to soon write similar legislation.