Student Loan Bill: Saving Students Money

Posted on July 21, 2010
Filed Under Loans | Leave a Comment

In addition to reforming health care and insurance, the health care reform bill Congress passed Sunday will also reform student loans. Saving $ 61 billion in just 10 years, the student loan bill will change how student loans are administered. $ 30 billion of those savings will be put back into education, while another $ 10 billion will go to deficit reduction. Student loans will no longer be administered by financial institutions – instead, the Department of Education will administer them.

Student loan bill changes administration

The biggest change that the student loan bill will implement is in how the student loan program operates. Student loans have always been controlled by Congress, who sets eligibility rules, interest rates, and other rules. Students get a low rate personal loan through lenders who work with the Department of Education to fund the student loans. The lending institution then distributes money to the school. The government gives subsidies to banks or lending institutions who provide this service. The student loan bill cuts these subsidies out of the budget. Instead of this three-tier system, the Department of Education will act as the lender. In just ten years, cutting out these subsidies will save $ 61 billion.

Reinvesting in education through the student loan bill

Because of the savings the student loan bill, the Department of Education will be reinvesting $ 30 billion into college education. The student loan bill says that the $ 30 billion will be used in part to increase the low-income Pell grant. For students using the income-sensitive repayment plan, the student loan bill will also decrease monthly payments. This repayment plan will help make college more affordable for more students.

Arguments against the student loan bill

Even though this bill saves the government billions of dollars a year and reinvests in education, there are criticisms. Each year, tuition and costs rise by a double-digit percentage, and the student loan bill does not increase Pell grants enough to cover this inflation. There are also fears that by cutting out the loan industry, the government will effectively be cutting 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. Lastly, some worry that the unsecured personal loan interest rates for student will begin to go up. 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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