The End of Student Debt As We Know It?

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Well, I know you probably don’t like the lack of posts as much as I hate the lack of time I’ve had to write them recently.  Well, I still have very little time on my hands, but I’m making time to write this; sure, it’ll mean a couple of nights that I’m up later than I would otherwise be, but it’s worth it.  One thing I do know is, is that millions of students across the country, and their parents, can sleep a bit more soundly tonight than even last night.  That is because today, President Obama signed the health care reconciliation bill.  You might be saying to yourself at this point: “health care?  Since it’s already been passed, do we have to hear about it again?”  Don’t worry, I’m not writing just another health care reform post, though there is certainly some of that in the bill that our President signed into law this morning.  You could be forgiven for missing the fact that a major reform to the way Federal college loans are handled was tucked into the reconciliation bill, as it was certainly overshadowed by health care itself.

Of course, since the bill’s overall purpose was to fix the Senate’s health care bill that President Obama signed last week, it is important to at least mention the specific fixes included in the reconciliation legislation.  By now, it should be clear that the number one feature of reconciliation was to take out the controversial “Cornhusker Kickback”.  According to CNN, this special deal that was in the original Senate bill would have exempted Nebraska from paying all new Medicaid costs under the program.  Symbolically, this provision came to represent the kind of backroom deals that are a plague on our government.  Instead, the Federal government will pay for the new Medicaid expansion for all states from 2014 to 2016, but then reduce its contribution to 90% of the costs in 2020.  This is undoubtedly part of the reason that reconciliation raises the price tag of health care reform by $65 billion to $940 billion overall.  However, there are other important things relating to health care in the fixes.

Another feature of the reconciliation bill is a credit to reduce the “doughnut hole”, where Medicare stops paying for prescription drugs between $2,830 and $4,550 for some reason.  Under the reconciliation fixes, seniors who have to face this reality will receive $250 to help offset the cost of their prescriptions.  I would love to see the GOP to try and repeal that, despite all their rhetoric.  As I said in a previous post, this is the kind of thing that touches nearly everyone, if only indirectly.  I have a feeling that this will prove to be one of the more-popular of the immediate effects of reform.  The reconciliation bill also raises the value at which the “Cadillac tax” on health plans kicks in, and delays its implementation to 2018.  According to the CNN article, the tax would now only apply to those plans worth more than $10,200 for individuals and $27,500 for families.  While this is a great fix to the core idea of the “Cadillac tax”, it is still imperfect.  I would have liked to see the tax based on cost of care in geographic areas; after all, that $10,200 will get you much more care here in St. Louis than it would in New York City.  That has been one of the primary concerns with the “Cadillac tax”, and I am not sure it is being adequately addressed.

The reconciliation bill will also increase the fines for companies that do not provide health insurance to workers, and reduces the fine individuals who try to dodge the mandate will have to pay.  Further, it includes a 3.8% Medicare payroll tax on individuals making more than $200,000 and couples making more than $250,000.  Those provisions are relatively minor in the grand scheme of the reconciliation bill, so now on to the student loan reform.

Reconciliation’s Hidden Reform

While the changes to the health care legislation are important, by far the more-interesting part of this legislation are the reforms directed at federal student loans.  These changes will effectively cut out the ‘middleman’, companies like Sallie Mae, from student lending, which should reduce the overall cost of getting a loan over time.  In addition, the savings generated by removing these middlemen will be going toward increasing Pell grants.  Unfortunately for today’s students, the New York Times reports that the increase in Pell grants will be rather slow to come, as the amount is slated to be gradually increased according to inflation.  Hey, it’s better than nothing, even though the total increase is only $425 for the largest grant after seven years, bringing it to $5,975.  Further, there are going to be more grants available after that seven-year period; 820,000 more in fact according to the Times article.  That’s only one part of the new legislation.

As part of the reforms to college loans, the legislation lowers the cap on payments after graduation.  According to that Times article, current law caps a graduate’s payments at 15% of income, and the new law lowers that to 10%.  Most interesting, however, is the forgiveness proposal.  Assuming a graduate meets all of his or her payments on time over the course of 20 years, all remaining debt will be forgiven.  Apparently, this is not much of a change by itself, as current law does that after 25 years.  However, the provision also places a large incentive to go into public service.  If the graduate from the previous example instead goes into fields such as teaching, nursing, or the military, the debt is forgiven after only ten years.

This is one of the greatest ideas in the legislation in my opinion; give the people a large incentive to serve, and they just might.  We as a nation desperately need more qualified people especially in teaching, and this seems like it could be a great way to encourage that.  In fact, why not extend that to promote primary-care physicians as well, or for that matter, just about all areas we face a critical shortage of workers?  Some people may be a bit on edge about government intervention, but this is something we can all get behind.  While it may not be the complete end of student debt (dream on, my fellow students, dream on!), it certainly addresses the problem in a decisive way.

The The End of Student Debt As We Know It? by The New Age of Politics, unless otherwise expressly stated, is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License.

Tags: current events, Education, Federal government of the United States, Health care, Health insurance, loans, Medicaid, policy, Politics, Senate, SLM Corporation, student debt, United States