Student Loan Bill: Changing How Student Loans Work
Built into the health care reform bill that was passed Sunday was a radical reform of how student loans will work. By changing how student loans get administered, the student loan bill will create $ 61 billion in savings within 10 years. $ 30 billion of those estimated savings will be going back into education, while one-third of that will be used to reduce the national debt. Student loans will no longer be administered by financial institutions - instead, the Department of Education will administer them.
Student loan bill changes administration
The student loan bill makes big changes to the process that administers student loans. Congress has always set the rules and interest rates for how banks administer student loans. Students currently apply for a low rate personal loan through the Department of Education, who then works with lenders like Sallie Mae. The bank or financial group then distributes the money to the student's school. The lending institution receives subsidies from the government for providing this service. The student loan bill will simply cut out government subsidies for lending institutions. The department of education will take over the job of administering loans. By cutting these bank subsidies out of the budget, the federal government will save about $ 6.1 billion each year.
The student loan bill increases education funding
The college education system will receive an extra $ 30 billion of funding from the student loan bill savings. According to the student loan bill, this money will be used to increase the maximum Pell Grant, which is used to help low-income students pay for college. The bill will also reduce the monthly payments that some students have to make on their loans, which will help make college more affordable for more people.
Arguments against the student loan bill
Even with the reinvestment in education, there are criticisms of the student loan bill. The proposed increase in Pell grant funding does not begin to cover the double-digit percentage rise in tuition costs each year. Some argue that cutting out the middlemen of the loan industry will also cut out jobs. Many of those job losses will be negated by the government's need to hire loan administrators to work for the Department of Education. Finally, some worry that interest rates on these unsecured personal loans will begin to rise. However, Congress will maintain their power to set rules, eligibility, and interest rates for these loans.
Sources:
Columbia Spectator
Campus Progress
The New York Times
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