More About That Government Take Over of Federal Student Loans
by mcjoan
Sat Mar 27, 2010 at 01:16:03 PM PDT
So, you might be asking yourself, what does the latest government takeover of a federal program mean for me? (Seriously, have you read that quote from Lamar Alexander? “The Democratic majority decided, well look, while we’re at it, let’s have another Washington takeover. Let’s take over the federal student loan program.” Seriously, he was Secretary of Education and he doesn't know what the word "federal" means? But I digress.)
If you're already paying student loans, probably not a lot. But if you're either soon needing to get loans, or to send your kids to college, it's good news. The government takeover of the federal student loan program is brilliant in it's simplicity. Thus far loan programs have been both direct loans, and federally-guaranteed loans from private lenders. The federally-guaranteed program means that the feds (us, the taxpayers) guaranteed loans made by private lenders, so the taxpayer has all the risk, and the bank makes all the profits. Now, all federal loans will be direct (the majority, 88% already are). The interest on those loans goes back to the federal government, and not to banks. All that extra money taking the remaining 12% of loans into the direct program will and not subsidizing the middle man banks goes into making college more affordable. Extra money to the tune of $61 billion over the next ten years. Hmmm.... sounds like smart fiscal policy, huh?
Here's more of what it will do, courtesy Rep. George Miller's Ed & Labor Committee [pdf]
If you're already paying student loans, probably not a lot. But if you're either soon needing to get loans, or to send your kids to college, it's good news. The government takeover of the federal student loan program is brilliant in it's simplicity. Thus far loan programs have been both direct loans, and federally-guaranteed loans from private lenders. The federally-guaranteed program means that the feds (us, the taxpayers) guaranteed loans made by private lenders, so the taxpayer has all the risk, and the bank makes all the profits. Now, all federal loans will be direct (the majority, 88% already are). The interest on those loans goes back to the federal government, and not to banks. All that extra money taking the remaining 12% of loans into the direct program will and not subsidizing the middle man banks goes into making college more affordable. Extra money to the tune of $61 billion over the next ten years. Hmmm.... sounds like smart fiscal policy, huh?
Here's more of what it will do, courtesy Rep. George Miller's Ed & Labor Committee [pdf]
Invest the bill’s savings to make college affordable and help more Americans graduateWhat does the student loan reform not do? Katie Andriulli at Campus Progress details the myths:
Provide reliable, affordable, high-quality Federal student loans for all families
- Invests $36 billion over 10 years to increase the maximum annual Pell Grant scholarship to $5,550 in 2010 and to $5,975 by 2017. Starting in 2013, the scholarship will be linked to match rising costs-of-living by indexing it to the Consumer Price Index. This includes an investment of $13.5 billion to fund a shortfall in the Pell Grant scholarship program due to increased demand for the scholarship.
- Invests $750 million to bolster college access and completion support for students. It will increase funding for the College Access Challenge Grant program, and will also fund innovative programs at states and institutions that focus on increasing financial literacy and helping retain and graduate students.
- Makes federal loans more affordable for borrowers to repay by investing $1.5 billion to strengthen an Income-Based Repayment program that currently allows borrowers to cap their monthly federal student loan payments at 15 percent of their discretionary income. These new provisions would lower this monthly cap to just 10 percent for new borrowers after 2014.
- Invests $2.55 billion in Historically Black Colleges and Universities and Minority-Serving Institutions to provide students with the support they need to stay in school and graduate.
- Invests $2 billion in a competitive grant program for community colleges to develop and improve educational or career training programs.
- Converts all new federal student lending to the stable, effective and cost-efficient Direct Loan program. Beginning July 1, 2010, all new federal student loans will be originated through the Direct Loan program, instead of through the federally-guaranteed student loan program. The Direct Loan program is a more reliable lender for students and more cost-effective for taxpayers.
- Keeps jobs in America. Under the bill, 100 percent of Direct Loans will be serviced by private lenders. Lenders will compete for contracts to service all federal student loans, which will guarantee borrowers high- quality customer service and preserve jobs. Unlike loans made by banks, Direct Loans can only be serviced by workers in the U.S. Last year, Sallie Mae was forced to bring 2,000 jobs back to U.S. soil to win a direct loan servicing contract. Sallie Mae is now one of four private banks servicing 4.4 million direct loans.
Myth 1: The reconciliation bill taxes students to pay for health care....I guess that last point can't be made too often, huh? Which makes one begin to think that it's gonna take more than just making college more affordable for some of these people to really get how government works.
Fact: The bill will indeed take $9.1 billion of the $61 billion in savings from ending wasteful government subsidies to banks and use it to pay for health care reform. But for decades the banks have simply been putting these subsidies in their pockets, so it is bizarre and hypocritical for them and their allies to suddenly act like protectors of students. In addition, the funds saved by reforming student loans that is used by health care is more than offset by $13.18 billion in education investments paid for by the health insurance reform section of the reconciliation bill.Myth 2: Passage of student loan reform legislation will result in the loss of thousands of loan industry jobs....
Fact: There will be no shortage of work for loan companies under the new reforms; all current loans under the old Federal Family Education Loan Program (FFELP) will still need to be serviced, as will all new loans made under the Direct Loan Program (DLP), and the same big lenders have already lined up for contracts to service new loans. In fact, student loan giant Sallie Mae has announced it is in the process of bringing back 3,400 jobs from overseas. These jobs are returning to the U.S., at least in part, so that the company can be eligible for Department of Education contracts to service Direct Loans....Myth 3: Student loan reform changes mean that students will be charged higher interest rates....
Fact: Interest rates on federal student loans are set by Congress, and the reconciliation bill will not change the interest rates that students are charged. This bill will reduce monthly payments in the Income Based Repayment program, however....Myth 4: Student loan reform will eliminate student choice....
Fact: In the current system, students don’t have a true choice; they have the choices their schools provide for them, which, as investigations by the New York Attorney General’s office and others have shown, have sometimes in the past been secured through kickbacks, improper inducements, and other nefarious tactics....Myth 5: Student loan reform is just another government takeover....
Fact: Both the DLP and the FFELP are already government programs, administered by the Department of Education....
College tuition increases will continue as the economy continues to falter. Most people believe that a good college education will be the answer to their prayers and many institutions capitalize on this. Cost do rise as we all know, but the cost of an education seems to rise more quickly than other expenses. Every parent wants to see their child graduate college and certainly does not want to be responsible for their failure to get a degree because of money. That being said, there are other alternatives to finance college tuition in scholarships, grants and awards that should be reviewed to see what you may qualify for. One source that I found helpful is located here. http://www.freecollegetuition.financebusinessadvice.com/
