Today, the President signed the Health Care and Education Reconciliation Act, which will end wasteful government subsidies to private student lenders and invest the savings in making college more affordable. Over the last few months, the Middle Class Task Force has traveled the country extolling the benefits of this policy, which is a cornerstone of the President’s domestic agenda.
Right now, the government spends billions of dollars a year subsidizing financial institutions that make guaranteed federal student loans. According to the Congressional Budget Office, the legislation signed by the President today will generate nearly $68 billion in savings over the next 11 years by finally putting an end to these subsidies.
We are pleased to report that part of the savings will be used to expand the Income Based Repayment program for federal student loans. This expansion was one of the key Middle Class Task Force policy recommendations in the FY 11 Budget and the President signed it into law just two months after we first proposed it. Borrowers who choose the Income Based Repayment program will have their monthly payments capped at 10 percent of the income they have left over after covering basic needs, and any remaining debt will be forgiven after 20 years. Public service workers – like teachers, nurses and members of our armed forces – will have their remaining debt forgiven after 10 years.
These changes will not be implemented immediately, but they still represent as major step forward for borrowers with unmanageable debt burdens. In the meantime, borrowers will continue to benefit from the existing structure of the Income Based Repayment program, which was launched last summer. You can learn more about the program here.
This expansion is just one of several critical investments provided for in the Health Care and Education Reconciliation Act. We will also invest more than $40 billion to ensure that all eligible students receive Pell Grants and that these awards keep up with college costs. The legislation provides new funding for community colleges to develop online courses, build partnerships with local employers, and take other steps to help students get the skills and credentials they need to succeed. And the legislation provides additional support to Historically Black Colleges and Universities and Minority Serving Institutions.
We will make all these investments while actually reducing the deficit. It’s a win for taxpayers and it is another important victory for America’s middle class families.
Brian Levine is the Deputy Domestic Policy Advisor to the Vice President