U.S. House passes student aid and health care reform

By a razor-thin margin last night, the House of Representatives passed historic legislation that sets the stage for a drastic overhaul of the American health care and student loan industries.

The 220 to 211 vote, largely along party lines, approved a massive expansion of health care access and the replacement of the largest federal student loan program with loans direct from the federal government. The legislation now moves to the Senate, where passage is expected to be swift.

"Tonight's vote is not a victory for any one party," President Barack Obama said. "It's a victory for the American people. And it's a victory for common sense."

"This is what change looks like," he added.

Supporters of the bill said it would expand health care and college access to millions of Americans by providing subsidies to lower the cost of health coverage and by supplying $36 billion in additional funds to Pell Grants for low-income students. But Republicans characterized it as a drastic overreach by the federal government that they say would add to an already sky-high deficit, restrict access to medical care and eliminate thousands of jobs in the student loan industry.

Legislation of a similar scope impacting either health care or federal student aid hasn't been passed in four decades.

The results for college students would be immediate. Starting July 1, instead of 1,200 organizations offering federally backed student loans, there would only be one: the Department of Education. And students, who have long struggled to obtain health insurance after graduation, would now be eligible to remain on their parents' policies until age 25.

The two separate programs were pushed together in order to make them eligible for a legislative maneuver called reconciliation, which allows the Senate to bypass filibusters and pass the bill with a simple majority. But the patchwork nature of the new bill comes at a significant cost to financial aid reform.

The amount the bill is expected to save by eliminating the Federal Family Education Loan program, which subsidized private banks that offered loans, has tumbled from $87 billion to $67 billion. That savings was supposed to be used to expand other higher education programs and the smaller sum means many of the proposed expansion will shrink. A planned increase in Pell Grants won't kick in until 2013, and the maximum award won't increase as quickly as originally planned.

Other changes made from the version of reform the House passed last fall include a significant slimming down of funding for community colleges and college access grants. Money to reduce the interest rate on student loans and for early-childhood-education programs was cut entirely.

And $9 billion of the savings was siphoned off to help fund the health care overhaul. Banks and student lenders, who have spent millions lobbying against the proposal, jumped on this point of contention.

"Student loan borrowers are being asked to pay for health care reform," said Kevin Bruns, the executive director of America's Student Loan Providers, which opposes the bill. "Our preference would be to reinvest those savings in higher education."

The loan providers group has been pushing an alternative proposal that would still have the government provide the loans but would allow banks to service them. Bruns said the proposal would eliminate fewer jobs in the loan industry while saving just as much money for taxpayers. He also doubted the education department was prepared to handle a giant influx of customers — within a few years, he said, the department would be servicing $1 trillion in loans.

"It'll be one of the largest banks in the world," Bruns said.

Financial Aid Director Sarah Bauder, who has been outspoken in her opposition to the bill, said the transitioning all student loans to the education department would have a crippling impact on customer service.

"Choice is totally eliminated," she said. "They're basically taking over the industry."

In the current system, Bauder said she is able to quickly contact representatives of different loan companies if a student has a problem. And if the lender fails to deal with the issue, she can remove them from the university's recommended list, directly hurting their balance sheet.

"It's competition ... it keeps you honest," she said. "What incentive do you have to do a better job if you're the only one?"

Bauder also said the savings eliminating FFEL would generate were severely overestimated because they don't consider many of the costs necessary when supplying loans.

"I will put my job on the line for this ... those savings won't be there," she said. Bauder doubted administration and congressional officials who touted the bill's financial restraint would take the same stand.

But Democrats emphasized how the bill would enable students who otherwise couldn't afford college to get a diploma. A report last year estimated 3,300 additional students in Maryland alone would be eligible for Pell Grants if loan reform passed.

"This is the single largest federal investment in student aid since the G.I. Bill," Rep. Timothy Bishop (D-N.Y.), a former college administrator, said in a conference call with reporters last week. "This is a very hopeful time for those who care about helping students."

In Washington, discussion of student loans has taken a back seat to the ongoing deliberation over health care reform, President Obama's top domestic priority. While the ambition of the legislation has shrunk over the course of the year-long debate, the bill would still represent the greatest expansion of health care coverage in the U.S. since President Lyndon Johnson signed Medicare into law.

The bill the House passed is based off the Senate's version of reform, which doesn't include a public option for health insurance or as many cost controls as some policy makers would like. But the bill would add important protections — insurance companies would no longer be able to deny coverage based on pre-existing conditions or drop policies after the holder becomes sick — and is expected to cover 32 million uninsured Americans and decrease premiums for many more. The Congressional Budget Office estimates the bill will cost $938 billion over 10 years, but said new fees and taxes and reductions in other programs included in the legislation will pay for the costs.