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The House of Representatives Thursday easily passed legislation to effectively end private lender involvement in the student-loan market, establishing the federal government as the sole provider of college loans.
The bill introduces sweeping changes to the U.S. higher education system, and serves as the third central plank of President Barack Obama's domestic agenda.
Similar to the continuing efforts at overhauling health care, the changes to the federal government's higher education policies would have a serious impact on the bottom line for private sector players currently serving the marketplace.
Currently, the federal government supports college lending in two major ways. Under the Federal Family Education Loan Program, which dates to the 1960s-era Great Society, it subsidizes banks and other entities that lend students money at favorable rates, and it guarantees lenders against loss if students default. Under the William D. Ford Federal Direct Loan Program, launched in the early 1990s, the government itself is the lender.
Education Department data show that 4,463 postsecondary schools participated in the public-private program in the past academic year, accounting for about $74 billion in loans. The direct lending program had 1,742 participating schools in the same span, with $22 billion in loan volume. If the House bill becomes law, new lending under the government-guaranteed program would end. Essentially, the government would become the sole originator of federal loans.
The core of the bill would transfer about $40 billion in savings to the Pell Grant program, which aids low- and moderate-income students. The maximum yearly award would rise from $5,350 per student to $5,550 next year and eventually to $6,900 in 2019, with the grants indexed to inflation starting in 2011. That would enable Democrats to claim a breakthrough for college affordability at a time of economic worry for many Americans.
"This is a can't-miss opportunity to do the right thing," said Rep. George Miller (D-Calif.), chairman of the Education and Labor Committee and chief architect of the bill. "Let's remember whose voices really matter here. It's time to listen to our students and our families."
But Republicans say the bill could backfire. "It is another government takeover, in this case of a $100 billion loan industry," said Rep. John Kline (Minn.), ranking Republican on the committee. He drew a parallel to the health-care debate, in which an expanded federal role is also at issue. "It's Congress stepping in and choosing the public option instead of the private option, the private-public partnership," Kline said. Two Republicans on the committee support the bill; most are opposed.
...
Among the provisions Democrats inserted into the bill are $10 billion to help community colleges, $8 billion to help states improve early-learning programs for children from birth to age 5, $4 billion to modernize and renovate public schools, $3 billion to bolster college access and completion, and $2 billion for historically black colleges and universities and other institutions serving minorities.
House Passes Sweeping Student-Loan-Market Overhaul - WSJ.com
The WSJ article is updated with the result, but this Wash post article has more details:
washingtonpost.com
I'm not sure I really understand what they're talking about doing here, so I'd appreciate an explanation from anyone else who has more details. Here are the things that I know:
1) Money doesn't come from thin air. If they're "saving $80b," it's coming out of something. It looks like it's coming from the private loan companies who provide most of the loans out there and will be then be redirected to Pell grants and other PR-friendly causes. The obvious implication is that this will result in private lenders raising their rates.
2) I really, really don't like the idea of the federal government becoming the only originator.
I have an asston of private loans through citibank. They had a 0% origination fee and are accumulating interest at rates between 2.25% and 2.75%.
I also have an asston of stafford loans and PLUS loans. The stafford loans have a 0% origination fee and are accumulating interest at 6.5% interest, though some are subsidized til graduation. The PLUS loans had a 3% origination fee and are accumulating interest at 8.5%.
I know which one of those two arrangements I prefer.
That's why I consolidated them straight after college and got the low 2% interest rate.
One problem for people like Emily is that federal loans cannot be consolidated with private ones. Another is that beginning in July 2006, all federal student loans began carrying fixed interest rates. Before then, federal loans were issued with variable rates; by consolidating them, borrowers could often lock in a rate that was lower than what they were paying on each loan separately.
Now, "there is no financial benefit to consolidating federal loans, other than having a single monthly payment and access to alternative repayment plans," says Mark Kantrowitz, publisher of FinAid, a Web site that tracks the college financial aid industry.
The terms of your loans will likely not change.House Passes Sweeping Student-Loan-Market Overhaul - WSJ.com
The WSJ article is updated with the result, but this Wash post article has more details:
washingtonpost.com
I'm not sure I really understand what they're talking about doing here, so I'd appreciate an explanation from anyone else who has more details. Here are the things that I know:
1) Money doesn't come from thin air. If they're "saving $80b," it's coming out of something. It looks like it's coming from the private loan companies who provide most of the loans out there and will be then be redirected to Pell grants and other PR-friendly causes. The obvious implication is that this will result in private lenders raising their rates.
2) I really, really don't like the idea of the federal government becoming the only originator.
I have an asston of private loans through citibank. They had a 0% origination fee and are accumulating interest at rates between 2.25% and 2.75%.
I also have an asston of stafford loans and PLUS loans. The stafford loans have a 0% origination fee and are accumulating interest at 6.5% interest, though some are subsidized til graduation. The PLUS loans had a 3% origination fee and are accumulating interest at 8.5%.
I know which one of those two arrangements I prefer.
I was under the impression that you can't consolidate federal loans with private loans, and that there is thus no benefit to consolidating federal loans.
Tips On Consolidating Student Loans - Forbes.com
If the government is getting their money back, why would they object?I think someone lied to you. I had stafford, pell, and various other private loans and consolidated when I exited school. Unless they changed the law I know I could when I exited school.
The terms of your loans will likely not change.
I think someone lied to you. I had stafford, pell, and various other private loans and consolidated when I exited school. Unless they changed the law I know I could when I exited school.
One problem for people like Emily is that federal loans cannot be consolidated with private ones. Another is that beginning in July 2006, all federal student loans began carrying fixed interest rates. Before then, federal loans were issued with variable rates; by consolidating them, borrowers could often lock in a rate that was lower than what they were paying on each loan separately.
Now, "there is no financial benefit to consolidating federal loans, other than having a single monthly payment and access to alternative repayment plans," says Mark Kantrowitz, publisher of FinAid, a Web site that tracks the college financial aid industry.
Private student loans cannot, in general, be consolidated with federal student loans. The low interest rates on federal consolidation loans are not available to private education loans.
I think I understand what's happening here.
Essentially, the fed shifted funds from private sector subsidies to strictly government loans and grants. In this way, they've directed all of their lending resources directly towards the students. Granted, the higher interest rates would mean a net profit for the government, but considering that most of the money issued toward higher education has been in the form of grants instead of student loans, it in essence means the fed can give greater access to college funds at higher grant levels.
Strickly speaking, the more "free money" there is available, the more college students will take advantage of it. The more students we have in college, the better our nation's chances of moving the college grad curve upward.
Now, this does beat out the private sector (banks) from issuing college loans at more affordable rates because their money is no longer backed by the government (or in most cases the financial responsibility is "shared" since most banks that issue college loans were subsidized), but that just means banks and other leanding institutions will just have to use their own money and be smarter about doing so. Sure, it's one less revenue stream for them, but it's also one less hastle.
I also have an asston of stafford loans and PLUS loans. The stafford loans have a 0% origination fee and are accumulating interest at 6.5% interest, though some are subsidized til graduation. The PLUS loans had a 3% origination fee and are accumulating interest at 8.5%.
I know which one of those two arrangements I prefer.
I am not sure why this is being done. Does any one know the why of this? Was there some problem with the old system, or does this improve it somehow?
To win the college vote for the next election.
OK, let me rephrase. Does any one have a realistic idea why this is being done?
House Passes Sweeping Student-Loan-Market Overhaul - WSJ.com
The WSJ article is updated with the result, but this Wash post article has more details:
washingtonpost.com
I'm not sure I really understand what they're talking about doing here, so I'd appreciate an explanation from anyone else who has more details. Here are the things that I know:
1) Money doesn't come from thin air. If they're "saving $80b," it's coming out of something. It looks like it's coming from the private loan companies who provide most of the loans out there and will be then be redirected to Pell grants and other PR-friendly causes. The obvious implication is that this will result in private lenders raising their rates.
2) I really, really don't like the idea of the federal government becoming the only originator.
I have an asston of private loans through citibank. They had a 0% origination fee and are accumulating interest at rates between 2.25% and 2.75%.
I also have an asston of stafford loans and PLUS loans. The stafford loans have a 0% origination fee and are accumulating interest at 6.5% interest, though some are subsidized til graduation. The PLUS loans had a 3% origination fee and are accumulating interest at 8.5%.
I know which one of those two arrangements I prefer.
How the hell did you get screwed like that on your stafford? Mine had a 2.2% interest rate.
Timing. When I was in UG, the fixed rate for staffords were 6.8% (i said 6.5 in the OP by mistake.) Now that I'm out of UG, they're dropping for UG students in each of the next few years. However, graduate ones are stuck at the same level.
Undergraduate Stafford Loan Information
Sucks, especially when you consider that Citibank cut me off from the good **** after I passed their lifetime limit. They tried to get me hooked on that stepped-on PLUS loan bull****, but I told them to back the **** off. :lol:
edit: Though after going back and looking, for some reason my staffords from my freshman year are now at 1.88%. I have absolutely no idea on earth why this is.
You got student loans for 2.2%? Hell mine were 6%, and that was over 20 years ago.Wow...that really does suck. I'm sorry you got shafted with that kind of rate, man. As I said, my two were at 2.2%.
Did you get the standard 6 months after college to start paying them back? I paid on my all through college but I think they gave 6 months after your last enrollment before you were actually obligated. I may not be remembering that correctly though.
I probably ought to check josh's loans and see what he got shafted with now. LOL
To win the college vote for the next election.
I dont think the college vote was ever his problem
Wow...that really does suck. I'm sorry you got shafted with that kind of rate, man. As I said, my two were at 2.2%.
Did you get the standard 6 months after college to start paying them back? I paid on my all through college but I think they gave 6 months after your last enrollment before you were actually obligated. I may not be remembering that correctly though.
I probably ought to check josh's loans and see what he got shafted with now. LOL
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