Student loans, as we know them, may never be the same. On September 17, 2009 the House of Representatives passed the Student Aid and Fiscal Responsibility Act of 2009 (H.R. 3221) aimed at amending the Higher Education Act of 1965 . The legislation has now gone to the Senate for a debate and a vote, but the bill is expected to pass and be signed into law by President Obama.
Historically, college student loans have fallen under three categories:
– Loans made by the federal government directly to students – Loans made by banks or lenders directly to the students, but guaranteed by the federal government
– Loans made privately by banks or other agencies with no government involvement
The new legislation proposes, among other things, to end the federal subsidies and guarantees to lenders, and make all federal loans happen directly with the government. The belief is that this will save the government over 90 billion dollars which will be used to increase and fund other educational scholarships, awards and programs. Basically, the government is looking to cut out the middle-man when it comes to providing educational loans to our nation’s college students. Lenders who offer a federally guaranteed student loan have done so with the benefit of subsidies from the government and without the risk of any losses if the student does not pay back the loan. Lending money to our nation’s students is a profitable business, and like any profitable business there is, and has been, room for corruption. In 2007 there were questions, allegations, and scandals as the relationships between private lenders and college financial aid offices were scrutinized. Kick-backs were suggested as financial aid officers in some schools were directing students to specific loan companies and lenders.
Government backed student loans, whether direct or indirect, have always been the best deal going for students needing help to finance their college education. Interest rates are fixed and set by Congress, and the terms have always been skewed towards not burdening students with repayment while they are in school, and lowering or deferring payments if the student becomes involved in public service or the military. But as with the debate in health care reform, some feel that the student loan reform is just another example of an invasive takeover by an administration growing larger and larger. The question of consumer choice in student loans is much the same as the questions of consumer choice in health care. Bigger government is the dream for some and the nightmare for others.