There were many things that attracted a lot of attention in the recent health care reform legislation, some real and much that wasn't.
One of the aspects in the bill that didn't gather a lot of publicity, except in its incorrect characterizations, was a little nugget about reforming the federal student loan program.
Before getting into what changed, it would be helpful to understand the way it used to be before the reform passed.
The way the process worked was that the federal government would provide billions of dollars in subsidies to private lenders who specialize in student loans (like Sallie Mae, for example). In addition to these subsidies, the federal government would guarantee these loans to guard against losses in the case of default.
Therefore, the lenders would receive billions of dollars from the government with the promise that they lend it to students to help them pay for college and would receive all the interest payments. In addition, there was a guarantee that any bad loans would harm the taxpayers instead of the government.
It was a classic example of privatizing the profits and socializing the losses, and it didn't make any sense.
So then, what changed? The Reader's Digest version is that the government is removing both the guarantee and the subsidies. Instead of the government handing out money and telling lenders to hand it out, the government will now hand out the money for the loans directly.
It's pretty simple in its format, and it shouldn't be the least bit controversial. Yet, deliberate non-truths are being spread about it, such as that it's a major government takeover of another industry and will increase costs and eliminate jobs.
For example, Senator Lamar Alexander (R–Tenn.) sarcastically remarked, "Let's take over the federal student loan program."
Sen. Alexander is a former Secretary of Education and surely knows better. Call me a cynic, but my guess is that he's opposed to it for political reasons, instead of policy reasons.
The idea is to get so many people talking about it that it becomes conventional wisdom by clueless media outlets, who will then run with the story and get uninformed people talking as if it's true. After all, if it was on the news, surely it must have some basis in fact, right?
Therefore, it's helpful to go through and debunk some of the falsehoods running around the topic.
First, it's not a government takeover. It was already a government program run through the Department of Education; just one that funneled money from the taxpayers to private corporations.
The government is already spending the money, except now the money will go straight to student loans instead of private businesses. This cuts down on administrative costs by removing the middleman in the equation. No longer will private lenders be able to skim taxpayer money off the top in the name of profits.
The savings are projected by the House Education and Labor Committee to be about $61 billion over the next decade. Not a grand amount but not nothing either.
Second, the argument that jobs will be eliminated as a result is simply untrue. As a result, lending giant Sallie Mae has already decided to bring 3,400 jobs back into the country from abroad so the company can be eligible for other Department of Education contracts.
There's also been an argument that this will result in higher interest rates for student loans. This isn't true either — student loan interest rates are set by Congress.
One of the provisions passed will lower the maximum interest rate students can be charged on their student loans. In 2014, the rate will be capped at 10 percent.
Is anybody here at Ball State because of funding received from the federal Pell Grant program? If so, you'll soon have more company. Also included was $36 billion to fund the Pell Grant program to help more students be able to afford to go to college.
As I alluded to, this has resulted in far too many people becoming apoplectic at the prospect of "nationalization," but none of it has any merit. Punch lines about government aside, it's simply an act of increasing efficiency in the student loan industry.
Write to Michael at mgkarafin@bsu.edu.
Read More
IPR: Gov. Mike Braun creates task force to evaluate Indiana emergency alert system
By Indiana Public Radio / 7 hours agoAn Indiana task force will evaluate the state’s emergency alert system in the wake of the recent deadly floods in Texas.
Empower, Unwind, and Celebrate: Muncie’s Week of Events
By Ball State Daily / 9 hours agoFrom practical self-defense to peaceful yoga in the park, this week offers something for every pace. Empower yourself at the Women’s Self Defense Workshop, sip and read at Tonne Winery’s cozy Reading Between the Wines, or stock up on essentials and services at the all-ages Back-to-School Fair. Wind down with outdoor movement at Popup Yoga in Morrow’s Meadow, then top it all off with local tunes and craft brews at the Madjax Summer Courtyard Concert featuring Ciara Haskett. Whatever your interest, whatever your price, there is something in Muncie for everyone!
New owners of Mark III Taproom announce purchase of new location
By Trinity Rea / YesterdayThe new owners of Mark III Taproom have announced they’ve purchased a new location for the oldest gay bar in the state.
