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by Dave Berry

The New Student Loan Law

News of the passage of the President’s giant health care bill this past week has overshadowed the simultaneous passage of a new student loan bill that was neatly tucked into the health care legislation. This has caused some controversy. As with most political issues, there are loud pros and cons.


Let’s take a look at one example of those pros and cons. If you’re going to be a college applicant soon, or if you’re a current college student seeking money for college, this may be of interest to you. First, a generally pro viewpoint.

Student loan overhaul to ease access, repayment

More needy college students will have access to bigger Pell Grants, and future borrowers of government loans will have an easier time repaying them, under a vast overhaul of higher education aid headed to President Barack Obama’s desk.

The measure would force private commercial banks out of the federal student loan market, cutting off billions of dollars in profits for the institutions. Students will take out their loans through their college’s financial aid office, instead of using a private bank.

The banks would no longer get fees for acting as middlemen in federal student loans. The government would use the savings to boost Pell Grants and make it easier for some workers to repay their student loans. In addition, some borrowers could see lower interest rates and higher approval rates on student loans.

Since the bank-based loan program began in 1965, commercial banks such as Sallie Mae and Nelnet have received guaranteed federal subsidies to loan money to students, with the government assuming nearly all the risk. Democrats have long denounced the program, saying it fattened the bottom line for banks at the expense of students and taxpayers.

The revamping of student loan programs was included in the final health care package passed by Congress on Thursday. The House approved the bill by a vote of 220-207, hours after the Senate passed it by a vote of 56-43. No Republicans in either chamber voted for the bill.

The legislation, an Obama domestic priority that was overshadowed by the health care issue, has widespread reach. About 8.5 million students are going to college with the help of Pell Grants.

Congressional allies of the student loan industry attacked the overhaul as an over-reaching government takeover that will kill banking jobs. The legislation substitutes an expanded direct-lending program by the government for the bank-based program, directing $36 billion over 10 years to Pell grants, for students from low-income families.

“The Democratic majority decided, well look, while we’re at it, let’s have another Washington takeover,” said Sen. Lamar Alexander (R-Tenn.), a former U.S. education secretary. “Let’s take over the federal student loan program.”

But Sen. Tom Harkin (D-Iowa) praised the bill as a victory for middle-class families. “Now they’ll have the assurance that their kids will be able to afford to go to college and again, when they get out, they won’t be burdened with a huge debt,” he said.
Less than they wanted

Still, the changes do not go as far as Obama and House Democrats wanted. That is because ending fees for private lenders would save less money than they anticipated, according to budget scorekeepers. The bill is now expected to save $61 billion over 10 years.
As a result, the Pell Grant increase is modest and still doesn’t keep up with rising tuition costs. Advocates had sought bigger increases. “The increases in the Pell Grant are better than nothing, but they are still quite anemic,” said analyst Mark Kantrowitz, publisher of the student assistance Web site

Private lenders still will make student loans that are not backed by the government, and they still will have contracts to service some federal loans. But the change represents a significant loss to what has been a $70 billion business for the industry.

Even as the Democrats’ decision to attach the student loan overhaul to the health care package virtually ensured its passage, banks fought fiercely up to the last minute, prompting some lawmakers such as Sen. Ben Nelson, a Democrat from Nebraska, where Nelnet has its headquarters, to cast their vote against the overall bill.

Under the measure, Pell Grants would rise from $5,550 for the coming school year to $5,975 by 2017. Lawmakers had initially hoped to reach a $6,900 cap.

More eligible students could get a full Pell Grant. Most grants go to students with family income below $20,000, but students with family income of up to $50,000 also may be eligible.

The legislation will make it easier to pay back student loans, by reducing the share of income that a graduate must devote to loan payments and by accelerating loan forgiveness – but not right away. Those who take out new loans after July 1, 2014, will have to devote 10% of their income to payments, down from the current 15%, and those who keep up their payments will have their loans forgiven after 20 years, reduced from the current 25.

Community colleges, the main provider of higher education for most low-income Americans, were set to receive $10 billion under the administration’s original plan but will instead get just $2 billion for job training.

Historically black and minority-serving colleges will get the $2.55 billion originally earmarked for them in the bill.
Key points

• Pell Grants would rise from the current $5,550 to $5,975 by 2017.

• More eligible students could get a full Pell Grant.

• Some college graduates will have an easier time repaying loans. The government will essentially guarantee that workers in low-paying jobs will be able to reduce their payments. Current law caps monthly payments at 15% of these workers’ incomes; the new law will lower the cap to 10%.

[Source: Associated Press]

(By the way, check out the comments following this story.)


Now, a con view:

Where’s the Outrage Over What Just Happened to Student Loans?

By Dana Perino

Competition and choice have been taken away in the student loan market. If the tables were turned, Democrats would be crying foul and demanding an ethics investigation. The American people deserve to know what happened.

So, here we are — with a majority of Americans feeling distinctly un-American as a partisan takeover of health care was engineered last weekend. But do Americans realize that Congress just took over student loans as well? Unlikely.

Now, not only will government increasingly be making decisions about individuals’ health care, but students will also have to deal exclusively with the government to get the financing they need for college. The government will be in charge of the delivery of $1 trillion in federal student loans over the next 10 years. That means 19 million students will have no where to call but to 1-800-DEPT-OF-ED. — I’m sure the calls will be handled in the order in which they were received. Good luck with that. Competition and choice have been taken away in the student loan market.  Let’s face it, this experiment can only end badly.

It’s frustrating that a law this sweeping was swept under the Obamacare rug. The Senate never introduced a student loan reform bill. It never held a hearing. And proposed changes to the student loan program were never even considered by lawmakers at the committee level.

“Schoolhouse Rock’s” Bill is red faced with shame. What’s worse is that The Wall Street Journal editorial page and The Washington Times reported on Thursday about certain Democratic Congressmen giving certain non-profit companies in their states non-competitive carve outs…And these are companies that already didn’t pay taxes. And there was even a special “carve out” for Democratic Sen. Kent Conrad of North Dakota. But it was taken out at the last minute because it was just too unseemly. At least we know they have standards!

If the tables were turned, Democrats would be crying foul and demanding an ethics investigation. The American people — and its students — deserve to know what really happened.


So, take your pick of positions. Is the new student loan bill a good thing or a bad thing? I’d like to know what you think. Post a comment below.


Be sure to check out all my admissions-related articles and book reviews at College Confidential.


9 Responses to “The New Student Loan Law”

  1. Jim Lein Says:

    Why shouldn’t there be a carve out for the Bank of North Dakota, which is not a private bank? It is a government bank — a state bank, the only one in the US.

  2. Student Loan Overhaul Opinions - Admit This! Says:

    [...] of information here lately related to the Government’s overhaul of student loans. There are a lot of opinions pro and con about that. Today, I thought I would share even more opinions and even some “facts” [...]

  3. College Alumni Says:

    I think it’s an interesting step forward for students and families. Hearing so many of my friends talking about the loans that they will literally be paying back from the rest of their lives, seems like enough to deter a lot of people from obtaining a higher education.

    Of course, college isn’t the right step for everybody, but it is such an important developmental institution for so many. It’s heart breaking to see so many people that have a passion for learning but turn away from any sort of higher education because of the daunting fees.

    In being one of the first moves made on higher education, I think it was a strong one and one that will open a road for more improvements in our educational system and the overall standard of living.

    It’s not just Obama either, if you look around, you can see a lot of people struggling and looking for ways to not only work and support their families, but to learn and grow mentally as well. I read this article in my schools newspaper the other day [] about a new website[] that helps students and alum in organizing and raising funds to pay back student loans. I’m an avid believer that opening up the door for more people to be educated will inherently open up the door for a lot of different cultural and social problems to be fixed or at least to enter the general discourse.

  4. soon-to-be college parent Says:

    Whether the changes to Student loans is good or bad is not the issue. It’s a matter of choice. I already had my daughter’s lender chosen…one who DIDN’T participate in the tarp bail outs! Now…we have no choice…our country is looking less and less like the free American I remember growing up in! The Federal Government already guaranteed these loans…they could have changed the guidelines to benefit the students without taking the whole program over…it’s just another step towards total control!

  5. Broke Says:

    Having put two sons through 4years (each) costing a total of $400000 and have one more to go…. Why has the COST of tuition not been the issue?


    The school I attended closed while I was in attendance back in 1974. I am still having my income tax refunds taken away by the IRS. Does the new legislation have any direct impact on my situation?

    Thank you.

  7. Lou Says:

    It sickens me to see so many Americans play puppet for banks that are targeting them and their children and communities and benefiting from their out of control interest rates. And people cry “where is the freedom to choose?” Freedom to choose what? Which pathway to destruction to take? The problem here is when you exercise your american right to choose a private sector to get your child’s college loan from, that private sector exercises their american right to balloon your interest rate at whatever time, making in impossible to repay their loans back. How is that American? HOW IS THAT NOT TOTAL CONTROL? NEWSFLASH! THE BANKS CONTROL YOU ALREADY. GET AT THAT WILL YOU. Why are people so BLIND to how these banks are playing them and their children that they so ignorantly want to blast out patriotic rhetoric that has nothing to do with the financial situations they will NEVER get out of?

    And the truth of the matter is you need a degree to do just about any job now. If you get a degree for teaching at the same university as a person who obtains a degree for accounting, your tuition is the same, but as a teacher you will not, cannot afford to pay back as much as the accountant will. It is like that for so many professions. You pay more for school than you will make in your job. So someone tell me how the hell are people supposed to pay? They HAVE jobs. They WORK all the time.

    It’s out of control and I, for one, am all for anything that brings these vultures under the eye that should have been watching them a long time ago!

  8. Lorna Says:

    I have four boys that all attended college and have the loans to prove it. They will be paying huge amounts of their salaries for 25-30 years. My husband and I both work, but couldn’t afford 4 college bills.
    I work in healthcare and see the government’s tax money at work every day. Over half of America never gets a bill for healthcare, while the rest of us pay through the nose for insurance, co-pays and deductibles. Why can’t our kids get a break? Don’t we want our country to move forward into the future with better educated, productive citizens?

  9. Sylena Williams Says:

    I would like to know some information regarding the pay back policy for student loans when you work for a non-profit organization?

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