President Barack Obama has signed legislation that changes the structure of student loans. Loans will now be directly from student to the U.S. government bypassing the middleman – the private banks.
U.S. Government is now in Charge of Student Loans
Many think the government is moving in to citizens' private lives like a dark fog moving in off the water. Somehow, student loans were attached to the final piece of health care legislation passed in March 2010. How are student loans connected to health care? Unknown.
The new law will eliminate the fees students paid to banks for processing. However, someone will still need to process the loans. Those jobs will likely be transferred from the private sector to the federal government. Since taxpayers will pay for the government employees who will process the loans, it seems to indicate that dollars will merely be shifted. Students will pay for processing costs initially or pay more in taxes to pay for individuals to process the loans by the government.
The government states that $68 billion will be saved over the next 11 years from eliminating the private sector. That money would be applied toward the expansion of PELL grants and simplify repayment of student loans. The maximum PELL grant will increase from $5,550 to $5,975 by 2017. PELL grants will also increase by 820,000 within the next ten years. In the past when PELL grants were increased, the funding came from cuts to the opportunities for the middle class. [1]
Repayment Plans are More Generous and More Forgiving
Presently, student loans are set at 15% of basic living allowances. Beginning in July of 2014, the payments will be capped at 10% of basic living allowances. And, if students make their regular payments, the balances will be forgiven within 20 years instead of the current 25 years. If the students are in the public service fields like nursing, military or teaching, they will be forgiven after 10 years. [1]
But, how can this be possible? How will the federal government be able to afford to forgive all these loans? Will the students that receive these benefits be taxed higher? The devil is often in the details. Presently, the details are not known.
How Can the Government Afford these Subsidies?
While these loans are being forgiven and the private sector is being shut out, how does this translate to jobs? Sallie Mae estimates the elimination of 8,500 positions nation wide. But, Lamar Alexander, R-Tennessee, estimates the job losses to the private sector to be closer to 31,000. Alexander is concerned that students will be overcharged for their loans to pay for the new health care law costs. "The Obama administration’s motto is turning out to be: ‘If we can find it in the Yellow Pages, the government ought to try to do it.’" [1]
Unfortunately, it is difficult, if not impossible; to find a government program that operates more efficiently than programs in the private sector. Will the student loan program be the first?
Related article: High School Counselors Lacking Knowledge About College Admissions.
[1] Baker, Peter and Herszenhorn, David. "Obama Signs Overhaul of Student Loan Program," The New York Times, March 30, 2010.
Barbara Pytel - Email me Experience Although I was never particularly fond of going to school as an ELL student, I ironically became a teacher, ...
