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WASHINGTON, March 22 (UPI) -- Significant changes to the U.S. student loan program are in the package of fixes to the healthcare bill passed by the House and moving to the Senate.
The student aid reform package, attached to the Democrats' final amendments to the healthcare bill, would eliminate a $60 billion program that supports private student loans with federal subsidies and would replace it with government lending to students, among other things, The Washington Post reported Monday.
They are eliminating one program while expanding another.
What they are eliminating is the easy profit with no risk that banks gained from private student lending.
The private lending practice had none of the safety measures that federal lending programs have:
--Academic achievement measures that ensure that the school in which a student is enrolled has a record of turning out qualified graduates that can get good jobs.
--Academic progress measures to ensure that a student is actually on the path to graduation rather than merely racking up massive debt with no likelihood of repayment as a 'career student'.
--Financial responsibility that debt is actually being incurred from an academic institution (rather than a for-profit diploma mill).
--Takes away the 'sure thing' from banks who have already received plenty of 'sure things' in the form of bailout money.
Both the OP and the linked article imply that the measure will reduce the amount of financial aid available to interested students, when in fact it merely shifts the source of the aid, rather than reducing it.
Both the OP and the linked article imply that the measure will reduce the amount of financial aid available to interested students, when in fact it merely shifts the source of the aid, rather than reducing it.
This is absolutely correct. In fact, the measure passed by Congress will produce a net savings in student loan expenses by keeping loan amounts steady but eliminate payments to banks. The money saved will then be used to provide more Pell Grants for students. Bottom line: less subsidies for bankers, more money for lower/middle income college students. For more on this, see this washingtonpost.com piece.
Banks can still offer student loans. So students who don't qualify because of their parent's income or their own, or because they are taking too long to get through school....can still get a private loan from a bank.
It's just that the repayment won't be guaranteed by the federal government. The bank will have to take on the risk themselves that the student will repay the loan.
Hopefully some of the banks that offer private and federal student loans, continue to offer private student loans once they stop their federal student loan program.
Lenders that offer both types, typically need to be able to offer both types to make student lending work for them. Lenders have already starting withdrawing from student lending (although credit unions are starting to offer private loans).
I know private student loans are expensive and should only be used as a last resort. However, some students do need them (or want them!) to be able to pay for school (independent undergaduate students for example, as they can not get PLUS loans).
Also, the loss of the FFELP program is causing job loss and those people will go on unemployment (I am speaking from experience!).
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