SALT LAKE CITY — Utah's college students seeking federal loans may not realize it, but they were included in the sweeping health care overhaul bill passed by the House on Sunday. In a tucked-away provision that received little attention, a "reconciliation bill" will put the federal government in charge of all student loans. Private lenders, the middlemen servicing federal loans, will be cut out of the equation.
Proponents of the measure say it will make college more affordable and save the federal government $61 billion over the next 10 years. It will also pump $36 million into Pell grants, which help low-income students go to school.
Critics of the measure say that by monopolizing the student-loan industry, the government is giving students fewer lenders to choose from. And while that won't affect the amount students pay, it could impact the quality of service students get when they begin repaying their loans.
"It truly is a one-size-fits-all approach" when all students have different needs, said Dave Feitz, executive director of the Utah Higher Education Assistance Authority.
Reform of the student-loan industry has been in the works for years. Although the money for federal loans comes from taxpayers, private banks have been acting as the middleman, collecting government subsidies to originate loans while also collecting interest on money owed. The new plan is designed to recoup money sent to banks to process the loans.
The private student-loan industry has estimated the bill, which still has to be approved by the Senate, could result in the loss of 35,000 jobs.
Local colleges and universities will also have to scramble to come into compliance with the law, which is set to take effect July 1. Colleges will now be required to originate the loans, which they have not done in the past. UHEAA's Fietz said that will create an additional workload for financial-aid departments, which may require the hiring of additional employees.
"There is going to be a dramatic change in the way student loans are administered," he said, adding that the bill takes service from a local level and puts it at the federal level, which could increase processing time. Private lenders currently out-do the feds, loaning more than double what the government has put out this year.
"These are pretty substantial changes that have the potential to affect students," said John Curl, director of financial aid at the University of Utah.
Mark Pruitt, a biology major at Brigham Young University, said he's planning on borrowing up to $240,000 for medical school in the coming years and he'll be seeking federal lenders anyway, because they are "more secure."
"Loans are a necessary evil," said Natalia Martinez, a Utah Valley University student who has attended school with the help of grants and student loans. She said that without options to help finance her education, "I would have done far less in school."
"Loans helped me to not have to worry about money in college," Martinez said. She plans to pay off her loans as quickly as possible after graduation this spring, however, some of the money to finance her education came from federal Pell grants, which she doesn't have to pay back.
The popular Pell grant program, which is highly selective and limited, is struggling due to record numbers of Americans going back to school this year. In fact, this year the federal government underestimated by 765,000 the number of students who went back to school and earned low enough incomes to qualify for Pell grants, resulting in a $19 billion budget gap. The savings from this new legislation will help pay off the current Pell-grant shortfall.
Martinez, originally from New Jersey, said private lenders charge too much in fees and interest, which the federal government keeps low. With Utah's comparatively low tuition, she said it is entirely possible to attend school on Pell grants alone.50 comments on this story
If the measure, which was changed in the House vote Sunday, doesn't pass the Senate later this week, Pell grants could be slashed by half — some recipients even losing the government award altogether.
The House-approved legislation aims to increase individual Pell awards over the next 10 years to $5,900, whereas maximum awards are at $5,300 per student now.
With the increased amounts of federal money available, Curl said there may be more students who will be eligible for Pell grants than there has been in the past. "And those who are eligible will get more than they have in the past," he said.
Contributing: Sara Lenz, Emily James