Friday, July 13, 2007

House Passes Overhaul Plan on Student Aid

Edumacation: There is a brilliant stupidity to this bill but as long as it makes people feel good what the hell right.

The House on Wednesday approved far-reaching changes in student aid programs, voting to cut $19 billion in federal subsidies to student lenders over five years, while increasing grants for needy students and halving interest rates on federally backed loans with the savings.

What could go wrong?

But a report by the Congressional Research Service found that small and medium-sized lenders would probably be hardest hit, and would face difficulties competing with industry giants like Sallie Mae. The report said Sallie Mae would likely be able to handle the cuts unscathed.

As well as cutting lender subsidies, the bill reduces the share the government would guarantee in the event of student default. It halves the interest rate on federally backed loans gradually over the next five years, to 3.4 percent from 6.8 percent, and would limit monthly payments to 15 percent of the borrower’s discretionary income.

The bill raises the maximum Pell grants by $500 over the next four years, to a total of $5,200 by 2011. It also grants $5,000 in loan forgiveness for police, firefighters, prosecutors and other public servants, and a complete release from student loans for public servants after 10 years. It would also provide for complete forgiveness of federal student loans after 20 years for economic hardship.

There is hardly any incentive for any lender to keep involved or get into student loans if the bill passes, not only that watch tuition go up to keep outpacing any help the increase in grants or loans will provide. What is going to happen is a couple of lenders will stay in the program and they will eventually dictate terms.

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