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| Overview of the Student Loan Reform portion of the Health Care Reform Bill. |
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The legislation shifts all lending, as of July 1, 2010, from the Federal Family Education Loan program, under which the Federal government has subsidized banks and other lenders to provide student loans, to the Direct Loan Program. The Direct Loan Program, in which money goes from the Department of Education to the student, was created in 1993 and the two programs have been in competition with each other ever since. In reality, private lenders have provided most of the nation’s student loans, with a guarantee by the Federal government to cover up to 97% of any defaulted loan. By eliminating the “middlemen” (the banks that received fees for providing student loans), the government anticipates an estimated savings of $61 billion dollars over the next decade. The government will use the savings to shore up the imperiled Pell Grant program, reduce a portion of the deficit, and help pay for expanded health care. The bill also provides for caps on repayments of student loans and offers more money for community and minority colleges and universities and career training programs. It also provides for an expanded College Access Challenge Grant Program. Beginning in 2014, a graduate’s annual student loan repayments will be capped at 10 percent of their annual income. The fact that Federal loans will now be distributed directly by the government should also help to streamline the financial aid process. Although there is the possibility that many banking jobs will be lost as a result of this shift, there is a provision in the bill that allows banks to bid on contracts to service the loans. |
