Student Loan Bill: Cutting out the middleman

Tucked inside the health care reform bill that congress passed on Sunday was a bill that will reform the student loan system. By reforming how student loans are administered, the student loan bill will create $ 61 billion in savings within 10 years. $ 30 billion of the] savings could be put back into education, while an additional $ 10 billion will go to deficit alleviation. The student loan bill cuts out banks and financial institutions, and instead requires the Department of Education to administer student loans.

Student loan bill concentrates on administration

The biggest change that the student loan bill will enact is in how the student loan program operates. Student loans have always been governed 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 school then receives the money after the bank has gotten it from the Department of Education. The government gives subsidies to banks or lending institutions who provide this service. The student loan bill cancels these subsidies out of the spending budget. The department of education will take over the job of administering loans. By cutting these bank subsidies out of the spending budget, the federal government will save about $ 6.1 billion each year.

Reinvesting in education through the student loan bill

The college education system will receive an extra $ 30 billion of funding from the student loan bill savings. 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 in advance will help make college more affordable for more students.

Opposing viewpoints to the student loan bill

Even though this bill saves the government billions of dollars a year and reinvests in education, there are criticisms. The suggested increase in Pell grant funding doesn’t begin to cover the double-digit percentage rise in tuition costs each year. The loan industry also maintains that by cutting out their part, the government will be cutting jobs. However, most estimates say that comparatively few, if any jobs could be lost, as the government will have to hire personnel to administer the loans. Finally, there is concern that the interest rates on each unsecured personal loan students take out through the D.O.E. will go up. However, the student loan bill does not change the fact Congress sets the rules, eligibility, and interest rates for student loans.