Obama’s Student Loan Reforms Major Boost to Education

In a year when political and economic reporting has focused on ideology, obstruction, recession and unemployment, the administration of Pres. Barack Obama has been hard at work on major reforms that are designed to not only speed recovery but to secure the economy against future threats. One of the most vital areas of policy reform, as noted by Obama himself just yesterday, is the focus on promoting and expanding opportunity in education. The president’s proposal to reform the system for organizing and distributing student loans may be one of the most significant pro-education policy reforms in a generation.

This New York Times report from March details key elements of the pending reforms, though some aspects of the legislation were changed before passage, in September. There is also good information on the Education Department’s website (ed.gov) regarding Stafford Loans and other forms of student aid, including loans specifically for parents who are helping to fund their children’s education. The majority of Democrats in the Senate are, like nearly the entire Democratic caucus in the House, sympathetic to both the aims and the specifics of the president’s proposed financial aid reform.

As the New York Times reported in July: “The administration’s view, shared by a number of Democratic lawmakers, is that the private lenders should no longer be paid by taxpayers to operate a virtually risk-free business in which they essentially use taxpayer dollars to originate loans, with repayment guaranteed, and then resell those loans to the Treasury.” Significant inefficiencies, related to subsidies that were unnecessary and a demand for additional profit, have resulted in the limiting of real funds available to students in need, and so a decrease in overall funding for higher education and a potential threat to the nation’s long-term educational leadership.

The New Republic’s ‘The Plank’ blog reported in October that the effort to overhaul the student loan system is one of the brightest and most far-reaching successes of Obama’s first year. In November, 50 organizations banded together to pressure the Senate to move the legislation forward. Real changes are not expected to take effect until the summer of 2010, in time for the 2010-2011 academic year.

The ramping up of education funding is both a boon to short-term investment in educational opportunity and educational and research institutions and a long-term investment in the dynamism and versatility of the American economy. As Obama explained in his speech honoring excellence in math and science education:

Our future is on the line.  The nation that out-educates us today is going to out-compete us tomorrow.  To continue to cede our leadership in education is to cede our position in the world.  That’s not acceptable to me and I know it’s not acceptable to any of you.  And that’s why my administration has set a clear goal:  to move from the middle to the top of the pack in science and math education over the next decade.

To reach this goal, we’ve paid particular attention to how we can better prepare and support, reward and retain, good teachers.  So the Recovery Act included the largest investment in education by the federal government in history while preventing more than 300,000 teachers and school workers from being fired because of state budget shortfalls.  The Department of Education will be announcing an additional $10* million in grants for innovative programs to train new teachers, whether a young person embarking on his or her first career, or a scientist or engineer starting his or her second.

The Obama administration has taken note of the long-running advice of economists and educators that investment in education is a matter of national security, over the long-term. Economic prosperity is the most effective way to secure not only political stability and quality of life, but also to develop the infrastructure and leverage to establish real defenses against threats from abroad.

Technology can be invented and improved through a global fabric of innovation, but being the hotbed of discovery, research and invention, allows for the channeling of such knowledge into technologies and services that help secure the nation and its allies and provide for a higher and more sustainable quality of life.

The reforms are already moving forward, with a new program designed to make it easier for people to repay loans, at rates corresponding to their income levels. As NJToday reported in December:

[T]he Obama Administration recently launched a new, more lenient repayment program called income-based repayment (IBR) for many types of federally guaranteed student loans. IBR may be especially beneficial for low-income people, the unemployed and those who work at low-paying, “public service” jobs in education, the government or non-profit organizations.

Under IBR, required monthly payments are capped at an affordable level relative to your adjusted gross income, family size and state of residence. For example, if you earn less than 150 percent of the government’s poverty level for your family size, you would pay zero. As your income increases, so will your monthly payment – up to no more than 15 percent of income that exceeds that same 150 percent of poverty level.

The IBR program would also forgive any outstanding student loan debt after 25 years of consistent repayment at the established rates. This reform is not only expected to open subsidized loans to more people, it is designed to allow borrowers to choose the profession and the position most appropriate to their interests and their talents, optimizing the broader societal benefit of the investment in their education.

The broader reforms, included in the Student Aid and Fiscal Responsibility Act (SAFRA), would relieve the commercial pressure on borrowers, allowing more people to take advantage of federal financial aid, improve their technological and scientific knowledge, and prepare for more complex information-based professions that will be part of the 21st-century innovation economy.