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Recent federal student loan legislation a win for simplification, higher education accessibility

BY DI EDITORIAL BOARD | MARCH 30, 2010 7:30 AM

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The recent changes to the student-lending market are refreshing and much needed, even if their most substantive effects won’t be felt here at the University of Iowa.

Legislation affixed to the recently passed health-care reform bill will greatly reduce the role of private lenders in the student-loan market. Under the measure, the federal government will cease to provide subsidies to private lenders — money that was meant to make the private sector’s loans to students more profitable and more secure — and instead, funnel the money directly to students through the Federal Direct Loan Program. At the UI, there won’t be much of a direct effect, because the university has been enrolled in the Federal Direct Lending program for years.

Many detractors have framed the legislation as a “government takeover” of the industry. It is certainly true that the legislation will substantially increase the government’s role in the student-loan market. But lending institutions have been playing the role of unnecessary middleman for years, siphoning off billions of dollars in the form of subsidies and default insurance.

This money — an estimated $61 billion over 10 years, according to the nonpartisan Congressional Budget Office — will now be put directly toward government-originated loans, including a massive injection for the struggling Pell Grant program.

Mark Warner, the director of Student Financial Aid at the UI, told the Editorial Board that he sees no downsides to the legislation. He said that since the school enrolled in the Federal Direct Loan Program in the 1995-96 school year, “students and their families have received excellent service [through the federal government].”

The legislation is especially important at a time when college attendance has become nearly mandatory, just as tuition has risen astronomically.

A full 55 percent of Americans feel that a college degree is essential to success in the working world, according to a study released in February from the nonpartisan group Public Agenda and the Department of Public Policy and Higher Education. That figure is up 24 percent from a similar poll conducted 10 years ago.

Additionally, 65 percent of respondents said that education costs are rising at a rate higher than other things. This points to a disturbing trend: Demand is increasing, but prices are increasing even faster. This legislation will hopefully slow the troubling trend of debt-plagued students.

In addition, the switch is a practice in frugality that works to clean up a system that has relied on wasteful spending and numerous levels of bureaucracy. By removing the private lending institutions, the Obama administration and backers of the measure have made it clear their dedication to streamlining education funding and making college degrees more available and affordable.

Warner said that in the years prior to the UI’s participation in the Federal Direct Lending program, students and their families had to go through numerous steps with all of the parties involved in the process. For the Office of Financial Aid, he said, the amount of paperwork from various institutions and guarantors was stifling.

The measure will be a win for students at schools who were relying on private institutions, Warner said, because it will be easier to apply, receive the funds, and pay them back.

“Simplification in the financial-aid world is always a goal,” he said.

The added simplicity, along with increased money for direct loans and grants, makes this legislation a positive move for college students and their families.


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