Educational Lending Bill Promises Sweeping Changes
Paying for a private education is more difficult than ever. For many parents, loans are the only realistic option.
Online, May 17, 2010 (Newswire.com) - It is unclear whether the educational lending reforms passed by Congress and signed into law by President Obama a the end of March will have the positive effect that the President is looking for.
The measure, which enjoys a high degree of support from the public, aims to reduce the role of private banks from the federally subsidized student-loan market, and also would lessen the burden for some graduates as they pay back their loans. It also attempts to greatly simplify the student loan process and offers more financial help to lower-income students. The bill expands the Pell Grant program, which assists lower-income students. The new law provides $13.5 billion for help to pay for projected shortfalls in the program for the next two fiscal years, and increases the maximum award to $5,550 next year and nearly $6,000 by 2017.
Until now, there have been two federal loan programs. Under one, the government makes loans directly to students, a program that now will be expanded. The other is the Federal Family Education Loan Program. Under it, banks and lenders make loans that the federal government guarantees or insures. It will end July 1st. Under the new law, students will still have the option to finance their education privately, through personal loans and other traditional forms of credit.
The new law still will permit private lending institutions to make private personal loans, but the federal government won't subsidize them.
Currently, certain students with low incomes and large loan balances don't have to pay more than 15 percent of their incomes each month on the loans. The new law will lower that to 10 percent.
While a significant majority of Americans support the reforms - a CNN /Opinion Research Corporation telephone survey of 1,030 adult Americans found 64 percent of respondents approved it, while 34 percent opposed it - and student groups and Democratic lawmakers praise the changes as long-overdue, many lenders as well as Sallie Mae have opposed the bill. Opponents contend that the changes will reduce students' lending options and eliminate the jobs of thousands of private lenders, hurting the recovery of the economy. Most Republican lawmakers opposed it, fearing that the legislation amounted to a takeover of the student loan industry.
The effect that the new law will have on borrowers' in the long run is still subject to debate. It is clear however, that personal loans and other forms of credit remain unaffected by the bill.
"The banking industry has had a free ride from taxpayers for too long. They have had their bailouts. They have had their subsidies, and they've paid themselves very well while working families and students are struggling to make ends meet."
He did not say how struggling families and students would pay college expenses in the absence of the federally guaranteed loans, credit cards and credit lines, personal loans will be one of the few remaining options.
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