Obama health bill would reshape student loans

Along with buying a home and setting aside cash for retirement, paying for higher education is one of the most daunting American expenses.

WASHINGTON, March 19, 2010 (AFP) - US President Barack Obama's historic health care legislation, set to face a make-or-break vote on Sunday, would also reshape the way Americans pay for famously pricey college educations.

Along with buying a home and setting aside cash for retirement, paying for higher education is one of the most daunting expenses Americans can face, especially if they attend a private institution rather than a state school.

The bill would cut government funding for private student loans, expand direct government lending, and use billions of dollars in predicted savings to give out grants to poor students -- and to defray some of the health plan's costs, which could win over wavering lawmakers.

Supporters of the new plan, chiefly Obama's Democratic allies, say their aim is to cut out the middle man -- private banks that reaped interest on student loans while the government assumed nearly all of the default risk.

Opponents, chiefly the president's Republican critics, say the system works fine as it is and the proposed changes will cost jobs in the private lending industry that has benefited from government backing for nearly five decades.

The independent Congressional Budget Office said Thursday that the measure, attached to Obama's landmark health care overhaul, would save roughly 61 billion dollars over ten years.

Private banks could still offer student loans -- but without the government guarantee that kept interest rates low.

Federally backed loans are the single most popular way for US students meet the cost of higher education, which they can also defray through grants from governments or individual schools or guaranteed employment on campus.

The most expensive four-year private college in the United States is Sarah Lawrence College in New York state, with a total annual cost in 2009-2010 of 55,788 dollars for tuition, fees, room and board, according to the Chronicle of Higher Education.