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Thread: House Passes Sweeping Student Loan Market Overhaul

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    House Passes Sweeping Student Loan Market Overhaul

    House Passes Sweeping Student-Loan-Market Overhaul - WSJ.com

    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.
    The WSJ article is updated with the result, but this Wash post article has more details:

    washingtonpost.com

    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.
    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.
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    Re: House Passes Sweeping Student Loan Market Overhaul

    Quote Originally Posted by RightinNYC View Post
    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.

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    Re: House Passes Sweeping Student Loan Market Overhaul

    Quote Originally Posted by PogueMoran View Post
    That's why I consolidated them straight after college and got the low 2% interest rate.
    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

    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.
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    Re: House Passes Sweeping Student Loan Market Overhaul

    Quote Originally Posted by RightinNYC View Post
    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.
    The terms of your loans will likely not change.
    "He who does not think himself worth saving from poverty and ignorance by his own efforts, will hardly be thought worth the efforts of anybody else." -- Frederick Douglass, Self-Made Men (1872)
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    Re: House Passes Sweeping Student Loan Market Overhaul

    Quote Originally Posted by RightinNYC View Post
    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
    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.

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    Re: House Passes Sweeping Student Loan Market Overhaul

    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?

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    Re: House Passes Sweeping Student Loan Market Overhaul

    Quote Originally Posted by PogueMoran View Post
    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.
    If the government is getting their money back, why would they object?
    "He who does not think himself worth saving from poverty and ignorance by his own efforts, will hardly be thought worth the efforts of anybody else." -- Frederick Douglass, Self-Made Men (1872)
    "Fly-over" country voted, and The Donald is now POTUS.

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    Re: House Passes Sweeping Student Loan Market Overhaul

    Quote Originally Posted by American View Post
    The terms of your loans will likely not change.
    I'm not worried about my loans changing, I'm just imagining what will happen to people who come after me.

    Quote Originally Posted by PogueMoran View Post
    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.
    All I'm going by is what it says here:

    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.
    It looks like other sources say the same:

    FinAid | Loans | Private Student Loan Consolidation

    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 don't know if this is new, but that's what it looks like for me.
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    Re: House Passes Sweeping Student Loan Market Overhaul

    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.
    Last edited by Objective Voice; 09-17-09 at 06:43 PM.

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    Re: House Passes Sweeping Student Loan Market Overhaul

    Quote Originally Posted by Objective Voice View Post
    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.
    I don't think this is true. IIRC, the amount of money the federal government spends on subsidizing student loans is far greater than what they spend on grants. I don't think that will really change with this.

    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.
    We don't really need to be encouraging more kids to go to college. We need to be encouraging more kids to get the skills necessary for jobs, whether that be at college, community college, or technical school.

    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.
    It also means that private loans will become more expensive.
    People sleep peaceably in their beds at night only because rough men stand ready to do violence on their behalf.

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