Our View: Student aid reform will help needy scholars afford college

Lost in the din over the health care debate is a bill that would make higher education more affordable to people who can’t now afford it.

The Obama administration is backing a bill that would eliminate the middleman in student loans, having the government originate the loans and making colleges service them for their students.

The idea would channel an estimated $40 billion over the next decade into student aid, mostly going to support the Pell Grant program for needy students.

It has drawn fire from banks, who under current law have an overly soft deal. The government guarantees the loans they make, so even if the borrower defaults, the bank gets its money. Interest rates are set by the government, so consumers derive no benefit from competition between lenders in that regard.

Unfortunately, the bill would not do as much to help needy students as the version that passed the House last year. Obama’s bill uses about $19 billion for deficit reduction and to offset costs in the health care reform bill. That means the size of Pell Grants will not increase significantly over the next decade.

Still, the bill will shore up the key program to help people afford college and ends a practice that was good for bankers but did not do much for students. Congress should pass this proposal and get this money into the right hands.

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