Win-Win: Obama’s Student Loan Reform Decreases Student Loan Premiums and Works towards Health Reform Passage

Student loan legislation is being twinned with the health care reform legislation proposed by the House for reconciliation.  The language contained in the House “fix it” bill would stop federal subsidies to private lenders like Sallie Mae and would instead originate all federal student loans in the Department of Education.  Such reform is estimated to save taxpayers $67 billion over ten years according to the Congressional Budget Office.  The savings would be used to fund more need-based Pell grants, which are provided to low-income students to promote access to higher education.  In the past year alone, applications for Pell grants have skyrocketed due to the fact that many people are returning to school given the difficult economy.

Because only one reconciliation bill may be passed per year, the student loan reform legislation has been included in the health care reform bill.  President Obama wants to include the loan language in the bill because of its estimated savings as well as the benefits it will offer need-based students, and he finds the inclusion a “no brainer.”  The Democrats will need at least 51 votes in the Senate to pass the bill, however, and several members from their own party, including Ben Nelson of Nebraska and Blanche Lincoln of Arkansas, have already voiced concerns about the negative impact these changes will have on the loan companies and their employees.

The House Education and Labor Committee has already tried to discredit the claims of those who want to keep the loans with private lending companies. Rachel Racusen, communications director for the Committee was quoted as saying:

Lenders’ claims about job losses have already been debunked as another scare tactic to save their sweetheart deal.  While this legislation will trim the profits of banks, it will not lead to enormous jobs losses.

Democrats in favor of the bill add that the private lending companies will still be utilized for other loan services.  Some point to the alliances created in the Senate between loan companies and Senators.

Dissenters of the loan reform are missing the bigger picture concern: the benefits reaped by society through the intellectual development and financial security for America’s students.  Senator Patty Murray of Washington said:

My own personal perception is, when we have thousands of kids on the street marching because they can’t get into our universities and don’t have the capability of pay for college, this is the best time for us to act.

Betting on Health Care Reform

At least investors think health care reform will be happening some time soon.  The Wall Street Journal reported that managed care stocks fell after Obama asked Congress to take an up or down vote Wednesday afternoon.  It might be wishful thinking (or dreadful, depending on which way you look at it) for the investors who are moving their investments from managed care plans.  With Congress members still treating health care reform as a game of cat and mouse, whether a vote will happen and whether the vote will be for reform is yet to be determined.

Take for instance Nathan Deal, a Republican from Georgia, who is purposely postponing his resignation from the House until a vote on health care happens so that he can get his nay vote in.  Then, there is the promise from Senate Republican leader Mitch McConnell to repeal health care reform before it has even been passed.  And despite Wall St. estimations to the contrary,  with the complications of reconciliation, the prospect of getting a bill that actually creates a mass exodus out of managed care seems at least somewhat iffy.

Interestingly, as the Washington Post revealed on Wednesday, private insurance companies, such as the infamous WellPoint, will be the primary beneficiaries of a failed health care reform attempt.  As Ezra Klien stated:

The argument is simple: Wellpoint’s business model is uncommonly concentrated in the individual and small-group markets. Those are the exact markets that health-care reform will drastically change. Those are the markets where people get rejected for preexisting conditions, where insurers spend 30 cents of every premium dollar on administration and where rate hikes are volatile and constant. Health-care reform wants to change all of that, and if it does, Wellpoint’s business model will be changed, too.

It would seem, then, that health care reform would not be difficult to carry through in considering who stands to win and who stands to lose if reform is not passed.  One of the major barriers is the Republicans’ animosity towards using reconciliation to pass a final health care bill, an idea they consider foreign to the democratic process.  However, as NPR just reported this past week, reconciliation is not “unprecedented,” and in fact, it has been used many times in the course of our country’s history to pass similar bills.  COBRA, Children’s Health Insurance Program (CHIP), and changes to Medicare have all happened through reconciliation.  Moreover, between 1981 and 2008, 16 out of 21 reconciliation bills were Republican initiatives.

Without a final vote on health care soon, many worry that the momentum will be lost.  Many members of Congress, steadfast in their platform promises, are not helping the process move any quicker.  In the meantime, insurance companies continue to prosper; Americans continue to pay the price.