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Obama’s Student Loan Reform Plan Passed The House Committee On 30-17 Vote

The House Committee has approved the plan of President Barack Obama to eliminate the subsidized loans for students by companies that are led by Sallie Mae. George Miller, representative of the legislation from Democrat which includes President Obama’s plan passed House Education and Labor Committee on 30-17 vote.

Education Department has been responsible for running competing systems of college loans for 16 years, but now, Miller and Obama seem to end this. The Federal Family Education Loan Program is meant for subsidizing and guaranteeing loans given out by the private lenders for the pass 43 years. Another program which was created in the year 1993 facilitates the government to give out loans to the students directly.

The plan of Obama and Miller aims at eliminating the guarantee programs and switching all the new federal student loans to direct lending. The plan will be executed from July 2010. Like Obama’s plan, Miller’s proposal will also force the companies to compete among themselves for tasks of loan-servicing like collecting on loan defaults and processing payments. According to the estimates of the Non-partisan office of Congressional Budget, the plan of Obama will save around $87 billion in the period of 10 years. Out of these savings, the legislation from Miller will direct $40 billion for Pell Grant and $10 billion for early-childhood educational grants. $10 billion will also be used to help in reducing the deficit.

As a consequence of the bill, the wasteful tax payer subsidies will be ended. As per the legislation, its administration proposals will simplify the application procedure of college aid and new grants will be created for early-childhood education and community colleges.

Sallie Mae from SLM Corp of Virginia is the largest student loans provider in US. Last year, Sallie Mae earned $24.2 billion out of student loans, out of which 74% were federally guaranteed. Sallie Mae recently faced a fall by 2.9% in the New York Stock Exchange Composite trading after its shares profited 6.9% since the beginning of this year.

Most of the Republicans including Brett Guthrie, a representative from Kentucky, opposed the legislation of Miller, arguing that it will create a monopoly of the government over college loans. As an alternative, Guthrie proposed another bill which will allow the companies to offer federal loan to students which will be sold to the federal government. This measure was rejected by the committee in 30-16 vote.

Executive Director of America’s Student Loan Providers, Kevin Bruns, said that the legislation passed by the committee will eliminate competition, consumer choice and default prevention programs that private lenders offer. America’s Student Loan Providers is a group from Washington which represents over 80 money lending companies including Student Loan Corp, Nelnet and Sallie Mae.