Students seeking loans for education may have only one lender to deal with come July 1: the federal government. A house bill passed Thursday would save money, the Congressional Budget Office estimates, by eliminating subsidized loan programs and instead route all student loans through the Department of Education.
(Mark Humphrey/AP/File)Photos (1 of 1)
US House passes student loan overhaul
Private student loan providers would get the boot under the Student Aid and Fiscal Responsibility Act.
By David Grant | Contributor/ September 17, 2009 edition
The US House of Representatives passed legislation Thursday that will knock private lenders out of the student lending market while beefing up funding for Pell Grants and, the Congressional Budget Office reports, save taxpayers $13.3 billion between 2009 and 2014.
The Student Aid and Fiscal Responsibility Act, passed 253-171 largely along party lines, sets a deadline of July 1, 2010, for all American higher education institutions to switch their loan systems over to the federal direct loan plan, creating savings by eliminating the Federal Family Education Loan program, which currently allows private banks to originate loans for students at subsidized rates.
The Senate has not yet passed a bill. Republicans argue that the move amounts to a government takeover of the program, which could backfire if the Department of Education performs poorly.
The department’s direct loan system is the smaller of the two loan programs. The FFEL program serviced 4,424 schools through February 2009, according to the National Association of Student Financial Aid Administrators (NASFAA), while 1,620 schools used the direct loans program. The groups are not mutually exclusive, with some schools using both programs.
The short deadline and the significant increase in workload for the Department of Education has some worried that schools won’t be able to convert their systems in time, said Justin Draeger, vice president of public policy at NASFAA.
The University of Florida switched entirely to direct loans in 1994 after playing what director of student financial affairs Karen Fooks called “hide and seek,” trying to troubleshoot a loan system with “hundreds” of banks.
For Ms. Fooks, the change was a positive one.
“We’ve been very, very pleased with the way the direct loans worked. We’ve been kind of disappointed by some of the misinformation out there about how rates will rise and how service will decline. We haven’t seen any of that to be true,” she said.
Another plus, from the universities’ point of view, is that federal Pell Grants, offered to low-income students, will be pegged to the consumer price index plus 1 percent.
“That it’s indexed for consumer price increases ensures that we don’t have to fight the appropriations battle every year,” Mr. Draeger said.
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Comments
2. JAB | 09.17.09
Thanks to the House. Now may the Senate do the same thing. I heard on the news tonight this will save $87 billion over ten years which is now paid to lending institutions. Think how many students that amount will help educate. Even if only a part of it is available, this is a great step forward.
3. TBL | 09.19.09
FINALLY, something is being done to help teachers and other poorly paid public servants manage loan payback humanely. my paymnts were almost 600 per month on a teachers salary, and thanks to the new IBR repayment plan, i may actually be able to save for a downpayment on a home. if this is the result of “expanding Government” conservatives fear, they need to look at how the working, educated poor live. finally, somebody in washington cares about those of us who work hard for low wages to educate their children.
4. davidaugustus | 09.20.09
The government generally does a much poorer job in managing social programs than the private sector, but both are ripe for waste, fraud and abuse. Student loans are essentially a social program. A much better approach would be lowering the cost of tuition for higher education so a more diverse group of students can attend. Statistics are awful for higher education graduation rates, under 50%. Student loan payback is also quite dismal these days. So like the US medical complex, the higher education system needs an overhaul and not just a change around the fringe.
5. mike fitzgerald | 09.21.09
Excellent move House. Now let’s see the Senate do the same.
The ffelp student loan program is guaranteed by the Government. If someone defaults, the taxpayer pays. The middlemen take no risk and realize all the gains. The actual estimated savings is between $40 billion and $80 billion ($40 billion is more likely given the need to outsource some services as the govt. infrastructure shouldn’t grow that quickly to absorb).
The middlemen made so much money - Sallie Mae has three corporate jets. The Sallie Mae CEO has three mansions, one with a private 18 hole golf course. Not bad for a CEO who pulled nearly a half billion away from the education of our society.
In 2007, Student Aid officers were fired over taking kickbacks at USC, University of Texas, Columbia, Johns Hopkins and many others. The FFELP program is corrupt and only harms our education system.
OK now . . . all you in flyover states start your chant of “socialism.” True socialism is when a company makes such horrible product, the public stops buying - rather than pulling up their socks and doing a better jobs - the workers and managers whine until they get a government handout. I’m talking about the midwest auto industry - an embarrassment to our nation and an example of true failed socialism.
7. Coastie | 10.28.09
I am disheartened by the fact that so many claim to be educated,but you are no smarter now then when you entered college. I can’t believe that so many of you think that the government is on your side regarding the Education Bill that sits before the Senate. Do you not realize that the government can borrower money at 1/4 of 1 percent? They are going to loan it to you at 7 percent and call it interest when it is really a tax. This is the headline off of the website: http://www.govtrack.us/congress/bill.xpd?bill=h111-3221. The headline reads:
H.R. 3221: 2009-2010 Student Aid and Fiscal Responsibility Act of 2009 To amend the Higher Education Act of 1965, and for other purposes.
Those other purposes are to pay for programs not related to Education. This isn’t going to save money like so many of you idiots think. You should have saved your money because you are just as dumb now as you were before you entered college. I would bet that 99 percent of you who agree with the bill, haven’t read it. Let me emphasize: IDIOTS! You will believe anything that you are told because you are worthless piles of crap waiting for a hand out. You are the perfect candidate for SOCIALISM because you are IDIOTS! I have a advice for you…. MOVE! Leave this country! Go away and don’t come back here. You are worthless and you are going to bring this country down. IDIOTS!
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1. Steve Foster | 09.17.09
One size does not fit all students should have a choice. This is another government take over. Bigger government, the numbers simply do not add up.