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Archive for Friday, April 2, 2010

Students benefit from federal loan overhaul

April 2, 2010

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— Tucked inside the health care reform law is significant financial relief for the millions of students who borrow to obtain a higher education.

No longer will private lenders play the middleman in federal student loan transactions. As of July, all new federal loans will come directly from the U.S. Department of Education.

This doesn’t mean that private-sector student loans will go away. Many students use the higher-priced loans to bridge the gap between the annual limits for federal loans and the cost of college.

But I doubt many students care who issues their loans. They’ll still be stuck in debt bondage for decades. From 2000 to 2009, the amount of outstanding federal student loans alone more than quadrupled, from about $149 billion to about $630 billion, the nonpartisan Congressional Budget Office found.

Still, there is something to trumpet about the provisions directed at higher education.

The federal Pell Grant program will get a badly needed financial boost. The Obama administration says the new law pumps more than $40 billion into this program, which provides need-based grants to low-income undergraduates and certain post-baccalaureate students.

Starting in 2013, the award will add on a cost-of-living increase, raising the maximum from $5,550 to $5,975, according to CBO estimates.

What really excites me are additional funds for community colleges, historically black colleges and other institutions that serve minorities. Community colleges are expected to get $2 billion over four years. Minority and historically black colleges and universities will get $2.55 billion.

“I have seen firsthand the power of community colleges to change lives and serve as a gateway to opportunity for students at all stages of their lives and careers,” said Jill Biden, the wife of Vice President Joe Biden and an English instructor at Northern Virginia Community College.

I’ve advocated for a while that when faced with high education costs, students and their parents should not rule out a community college. It’s an affordable way to get two years of study.

I want to note another news event that put a light on student loans. The U.S. Supreme Court recently handed down a decision that some might read as allowing them to get rid of student loan debt by filing for bankruptcy protection.

Under the Bankruptcy Code, a student loan cannot be discharged unless paying the debt would impose an undue hardship. It’s a hard hurdle to jump.

However, one borrower was able to discharge some of his student loan debt under a Chapter 13 filing without showing hardship. The creditor had failed to object after receiving notice of the proposed plan.

Did this open a window through bankruptcy for debtors struggling with student loan debt?

Not at all, bankruptcy experts say. In this case, the creditor snoozed and lost. It would be “risky” for someone to get a loan discharged without proving hardship, said Juliet M. Moringiello, resident scholar for the American Bankruptcy Institute.

At least, provisions in the health care law will lower the cap on monthly payments for some.

Beginning in 2014, student loan payments under the income-based repayment plan will be capped at no more than 10 percent of a borrower’s discretionary income, the amount of a person’s adjusted gross income that exceeds 150 percent of the poverty line for the borrower’s family size. Currently, payments are capped at 15 percent.

If people keep up their payments, any borrowed amount not paid after 20 years will be forgiven (down from the current 25 years). For public service workers — teachers, nurses and those in military service — the debt is forgiven after 10 years.

In many respects, it was quite appropriate to fold higher education provisions into the health care reform legislation. The financial health of a lot of people has been impacted by the amount of debt they use to get an education.

Comments

SettingTheRecordStraight 4 years, 10 months ago

"As of July, all new federal loans will come directly from the U.S. Department of Education."

The replacement of private industry with direct government involvement continues unabated. Sad.

"...the new law pumps more than $40 billion into this program (Pell grants)."

No surprise. The supposed savings to taxpayers evaporates when the government decides to actually increase spending by $40 billion.

"But I doubt many students care who issues their loans."

What arrogance. This can only be true if we raise up new generations of young people who believe it's right and proper for the government to so blatantly replace entire sectors of our market economy.

just_another_bozo_on_this_bus 4 years, 10 months ago

"The replacement of private industry with direct government involvement continues unabated. Sad."

The money being loaned is coming from the government, anyway. Allowing private lenders to tack on pointless markups accomplishes absolutely nothing but an income redistribution scam that sucks cash from students struggling to repay their loans, and giving it to bankers who provide absolutely nothing of value to anyone but themselves.

tomatogrower 4 years, 10 months ago

Yes, we just got rid of some welfare banks. They just handled the paperwork. No risk, but lots of profit.

tomatogrower 4 years, 10 months ago

Barry, your capitalist buddies don't want full employment. They they might have to pay a living wage, and it would cut into their obscene bonuses.

SettingTheRecordStraight 4 years, 10 months ago

No, bozo. Lenders provided the loans, and the government guaranteed the loans. Under the new formula, the government acts as both direct lender and guarantor. Private industry is left with the scraps - merely sending out monthly statements to the government's new customers.

And an unfortunate byproduct of this legislation is that it not only weakens private industry but it also makes the Department of Education larger and stronger. It will be more difficult to dismantle the DOE in the future and return education funding and education decision making to the states, where it belongs.

jhwk2008 4 years, 10 months ago

"SettingTheRecordStraight (anonymous) says… No, bozo. Lenders provided the loans,"

Wrong. That stopped in 2008 with the passage of H.R.5715: Ensuring Continued Access to Student Loans Act of 2008. http://thomas.loc.gov/cgi-bin/bdquery/z?d110:h.r.05715: The government provided the money for the loans, the banks lent the government's money while charging fees, and the government guaranteed the loans.

Furthermore, why are Republicans clamoring for the continuation of government subsidies? Privatized profits, socialized losses!!!!

SettingTheRecordStraight 4 years, 10 months ago

jhwk,

We wouldn't be having this conversation if the government weren't involved in the student lending business - including guaranteeing student loans.

tomatogrower 4 years, 10 months ago

And pender guy, if there was full employment your buddies would have to give up some of their money, so employees couldn't demand more money. It's called basic supply and demand economics. It's in the interest of big business to have unemployment, so workers will take whatever is available. Big business will make sure there is never full employment.

beatrice 4 years, 10 months ago

STRS is probably still upset that the U.S. Armed Forces have replaced our need for militias, too.

STRS, the education of our nation is in the best interest of us all. I'm not sorry that we just made it easier for more people to obtain an education and cut out the lending institution middle-men. Good for us! Great job Mr. President!

LoveThsLife 4 years, 10 months ago

I have no problem with people getting an education...

However, I hope people getting those loans are smart enough to research, calculate and compare their probable salary after graduation to the amount of debt they will accumulate. I also hope they are savvy enough to obtain work experience in their field of choice prior to graduating. Degrees aren't worth what they used to be in the work force and most employers are looking more and more at work experience in addition to education.

SettingTheRecordStraight 4 years, 10 months ago

beatrice,

As you see it, the government should simply co-op every American food grower and home builder then too, right?

After all, food and shelter are "in the best interest of us all." Maybe we can cut out additional greedy "middle-men," nationalize everything that you no longer want to see in private hands, and holler "Good for us!"

sherbert 4 years, 10 months ago

Student loans are helpful, and hopefully appreciated, and HOPEFULLY paid back! Don't make it easier for kids to borrow money and think they have loop holes to get out of paying it back. Remember, government money IS taxpayer money!

staff04 4 years, 10 months ago

Bears repeating:

"SettingTheRecordStraight (anonymous) says… No, bozo. Lenders provided the loans,"

Wrong. That stopped in 2008 with the passage of H.R.5715: Ensuring Continued Access to Student Loans Act of 2008. http://thomas.loc.gov/cgi-bin/bdquery... The government provided the money for the loans, the banks lent the government's money while charging fees, and the government guaranteed the loans.

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