Watch ‘Health Care’ Vote for a Dramatic Change to College Loans
by Mark Sklarow, Executive Director, Independent Educational Consultants Association
While all legislative eyes are focused on a vote on major Health Care legislation (addressed in a previous blog), there is speculation that the final reconciliation bill will have a major reform to the college loan industry attached. If this legislative path is followed—and all expectation is that it will be—this major change in how families and students will borrow funds may be passed by the House as early as Sunday and by the Senate soon after (requiring simple majorities in each House). The President has said he will sign the bill.
For more than 40 years, banks and other financial institutions have provided student loans. What most of the public is not aware of is that the federal government has assumed virtually all of the risk, allowing the tuition funds to be lent at a low rate of interest. This has also meant that these financial institutions have realized billions of dollars in profits with essentially no fear of loss. The proposed bill would put the government directly in charge of the loan process. Sallie-Mae and other financial institutions have been lobbying against the change on two fronts: that it will cost jobs and the system basically works—not needing any change. Recent scrutiny into kickbacks has raised some concerns in recent years.
The Obama administration has said that the change will essentially cut out the middleman, allowing the government to realize savings and surpluses of $61 billion over the next ten years. Thirty-six billion dollars of that would go directly into the Pell Grants, a program that is currently over-subscribed and under-funded. The change would bring the Pell Grants to solvency and raise the yearly maximum grant from $5,550 to $5,975 (a compromise figure that is less than proponents originally sought).
If the legislation passes, everyone needs to follow changes that could come about very quickly. The current Federal Family Education Loan Program—which uses private lenders—would end on July 1. After that dates all federal students loans would be issued by the federal government. There has been so much speculation that this legislation was coming that nearly half of loans this year on about half of college campuses were direct federal loans already, as schools began the shift away from private lenders.
It is worth also seeing where the rest of the savings would go, particularly in these very tough economic times. More than $2 billion each will be directed toward community colleges and historically black colleges and universities, with $10 billion going to reduce the federal budget deficit.
Changes are still possible, but with the impact of the passage (should it pass) likely to be felt so quickly, IECA will work to bring the latest information to educational consultants, counselors, and families.
Related posts:
- Health Care Debate and Educational Consultants
- Simplification of FAFSA a Long Awaited and Welcome Change
- Independent Schools and Consultants Should Watch Legislative Action for Opportunity to Attract New Students
- Change and Adaptability Starts With Getting Beyond Denial
- An IECA Member Appeals to Government Leaders on College Affordability
One of the overlooked parts of the new college loan law passed by Congress and signed by President Obama are protections to help young adults avoid such financial disaster. The new law would prevent repayments from exceeding 10% of someone’s annual income. This will be a major benefit for young people, just starting out with low salaries and significant debt. The law also establishes limits that help in total reimbursement over the ifetime of the loan. There are a number of benefits in the new law that will help students and families.