August 31, 2007

Congressional options for Student Loans

Posted in Student Loan News at 12:08 PM by Joe From Boston


MSNBC has an article about the various items Congress is considering about students loans. Read the entire article here.

Will student loan reforms cut borrowers’ costs?

By John W. Schoen,Senior Producer

When the fall semester starts and Congress returns to work next month, students and their families may get a break on the cost of borrowing to pay tuition. But the details of how those breaks will be apportioned are very much up for grabs. And it remains to be seen just how much money these reforms will save student borrowers and their families.

Congress has been hashing out student loan reforms for months, following revelations of conflicts of interest and other student lending abuses by New York Attorney General Andrew Cuomo. That investigation is ongoing, but settlements with several dozen schools and lenders have yielded refunds to student borrowers and stricter guidelines on business dealings between lenders and school financial aid offices.

A recent report by the Government Accountability Office criticized the Dept. of Education for not being vigilant enough with policing conflicts of interest among schools and student lenders and called for increased oversight.

Both the House and Senate have weighed in on the issue, proposing regulations barring lenders from paying financial incentives to schools and requiring fuller disclosure of joint marketing efforts.

With the Cuomo’s office continuing its investigation, proposed tighter federal oversight of student lending practices have drawn little opposition — in part because Congress wants to head off state-by-state regulation of the industry.

“The danger is that you’ll have a disparate set of rules and no centralized way to monitor them,” said John Walda, president of the National Association of College and University Business Officers.

Congress is also proposing significant changes in the way the $85 billion market for student loans is subsidized and guaranteed. The House and Senate have enacted separate bills with some common ground, but it remains to be seen just how the final law will impact the cost of a student loan.

Both bills would ease the burden on student by placing limits monthly payments based on income; once out of school, graduates would have to pay no more than 15 percent of their income each month. All debt would be canceled after 25 years. And more loans would be “forgiven” for graduates who take public-service jobs like teachers, nurses, police and firefighters.

The bills also both call for cutbacks in subsidies for lenders that participate in government-backed loan programs. By shaving roughly a half-percentage point from those subsidies, Congress is hoping save as much as $19 billion a year. The government would also require lenders to cover more of the losses from defaulted loans — the House and Senate bills differ on just how much more.

At issue is how and where those savings are diverted. The House bill would slash the rate on need-based loans in half — from the current 6.8 percent to 3.4 percent — and provide additional money for so-called Pell grants, a program that currently pays up to $4,010 a year in direct aid to low-income students. The Senate bill doesn’t include a rate cut, but is more generous with increases in Pell grants.

Read the remainder of the article here.

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2 Comments »

  1. […] Congressional options for Student LoansCongress is also proposing significant changes in the way the $85 billion market for student loans is subsidized and guaranteed. The House and Senate have enacted separate bills with some common ground, but it remains to be seen just … […]

  2. […] Original post by moniqueleonard […]


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