Major reforms to the student loan system included in healthcare overhaul legislation passed Sunday night would save more than $60 billion over 10 years, through 2020, according to the most recent Congressional Budget Office estimate.
The Center for Budget and Policy Priorities released a report that said most of the savings would go toward protecting and expanding Pell Grants to help low- and moderate-income students afford college. "While critics have branded the proposed changes in student loans a “government takeover” and claimed it would cost jobs, both claims are inaccurate," the report said.
Instead of paying subsidies to banks that provide most of the student loans the Education Department would provide all such loans directly.
The federal government provides subsidized loans through two programs: the Federal Family Education Loan (FFEL) program, which subsidizes banks and other financial institutions to make the loans, and the William D. Ford Federal Direct Loan (DL) program, which makes the loans directly to families. "The loans made through the two programs are essentially identical for borrowers since the loan limits, maximum fee amounts, and maximum interest rates are all set in statute," according to the report.
"The Office of Management and Budget under Presidents George Bush and Barack Obama, the Government Accountability Office, and CBO have all concluded that the direct loan program is more efficient from the taxpayer perspective because it provides essentially the same loans at lower taxpayer cost."