President Obama signed legislation on Tuesday that will revamp the existing federal student loan system, allowing the government to directly provide loans to college students in the US.
The bill will end a $60 billion program that gave federal money to private banks to provide loans for students, effectively cutting out their role as a middleman. According to the nonpartisan Congressional Budget Office, direct lending by the government will save taxpayers about $61 billion over the next ten years.
Making an appearance at a Virginia Community College where Vice President Biden's wife teaches, President Obama cemented a final set of small tweaks to the health care reform bill that was signed into law last week. However, he also used the opportunity to emphasize the education part of the bill, which he called "overlooked."
"In the 21st century, when the success of every American hinges more than ever on the quality of their education, and when America's success as a nation rests more than ever on an educated workforce that is second to none, we can't afford to waste billions of dollars on giveaways to banks," he said.
Of the money saved by the law, $36 billion will go toward Pell grants given to undergraduate students in need of financial aid. The law will increase the grants along with inflation during the next few years from $5,550 to $5,975, according to the White House. Additionally, it will provide 820,000 more grants by 2020.
The Obama administration said that if the bill had not passed, the government would have had to reduce Pell grants to about $2,150 and reduce the number of covered students by 500,000. Pell once covered more than three-fourths of the cost of attending college, but now it only covers about one-third due to skyrocketing costs.
The law will also make it easier for students to pay off loans. In the US, the average student graduates with over $23,000 in debt. Currently, caps prevent college graduates from having to pay more than 15 percent of their income on loans, but in 2014 the cap will be lowered to 10 percent.
Funding will also go toward education initiatives for community colleges, historically black colleges and minority-serving institutions, which had been hit especially hard by the economic downturn.
President Obama called the effort to pass the student loan reform bill a battle against the banks and institutions who "hired a army of lobbyists to protect the status quo." He singled out Sallie Mae, the biggest American student lender which spent more than $3 million on lobbying in just the last year.
In the debates leading up to the law's passage, industry officials against it argued that many jobs would be lost. Fannie Mae has said it may have to let go one-third of its 8,500 workers nationwide.
Republicans criticized the legislation, with many calling it an unwanted government takeover of the program. Sen. Lamar Alexander (R-Tennessee), whose state is home to several large student lenders, said in a statement Tuesday that this "Washington takeover" would overcharge students to help pay for the new health care law, lose 31,000 private sector jobs and provide inadequate service for students.
"The Obama Administration's motto is turning out to be: 'If we can find it in the Yellow Pages, the government ought to try to do it,'" he said.
In an interview, Education Secretary Arne Duncan said that eliminating the private banks' role as a middleman merely ended a "sweet deal" for the banks, and that since 100 percent of tasks such as loan servicing would still be the private sector's responsibility there would still be a "huge opportunity" for jobs.
"Good actors will get more business, bad actors will lose business," he said.
In his closing comments at Tuesday's signing, President Obama highlighted how the US also needs to help more students enter college and successfully earn their degree education-wise. However, he concluded, what has been accomplished over the past year represents "enormous progress."
"For a long time, our student loan system has worked for banks and financial institutions. Today, we're finally making our student loan system work for students and our families," he said.