When Congress passed the health care bill, with it came a momentous education reform. Signed into law by President Barack Obama, its intention was to help relieve the ever-rising burden imposed by soaring college fees and tuition rates.
This reform was funded by ending a government subsidy to big banks in the business of student loans. Money for poor people to attend college was expanded. Money was also saved by ending these government subsidies.
Under the previous system, the government ensured that student lenders would always make money; if students defaulted on their loans, the government would pay the money to the student lenders. In a CBS 60 minutes report, think tank expert Michael Dannenberg characterized this as:
a socialist-like system," he says. "It's not as if this private entity is assuming any risks. No, no, no. The law makes sure that this so-called private entity has virtually no risk."
Unfortunately for students, this lucrative government-funded industry did relatively little to benefit them.
Several months ago I wrote about the Student Aid and Fiscal Responsibility Act, a bill which aims to make college more affordable.
The bill does this through several mechanisms. Firstly, it expands federal Pell Grants, which are government grants to low-income college students. These individuals would not be able to attend college without such types of aid (although an average Pell Grant these days would cover barely more than one-tenth the cost of attending a place like Harvard). The bill also sets Pell Grants to rise year after year, in line with inflation. President Barack Obama perhaps best explains the significance of this reform:
...we are also changing the way the value of a Pell Grant is determined. Today, that value is set by Congress on an annual basis, making it vulnerable to Washington politics. What we are doing is pegging Pell Grants to a fixed rate above inflation so that these grants don't cover less and less as families' costs go up and up. And this will help prevent a projected shortfall in Pell Grant funding in a few years that could rob many of our poorest students of their dream of attending college. It will help ensure that Pell Grants are a source of funding that students can count on each and every year.
Unfortunately, if the bill does not pass, this year's Pell Grants will be cut by more than half. In a bad recession and with ever-rising college tuition prices, this would severely impact a large number of Americans. Many individuals seeking to better their lives through college would be deeply hurt. Some might be forced to drop out. Others might have to add on yet more crushing student debt, forced to take exorbitant loans from private lenders.
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