Full Effect of New Federal Student Loan Rules is Unclear

Law reduces the role of private banks in making federally subsidized student-loans

At this point, it has not yet become clear whether the reforms to the student loan industry that were attached to the landmark health care bill and signed into law by President Obama at the end of March.

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.

Student loan reform does not affect private personal loans, business loans or the way that banks and other lenders offer business loans. If a business loan is what you need, click here to explore your options.

The student loan measure, which is supported by a significant majority of 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. A recent survey by CNN found that 64% approved of the reforms, while 34% disagreed with the changes (2% had no opinion on the subject). The changes have been praised by student activists as well as many Democratic members of the House of Representative and Senate, who characterize the reforms as "long-overdue.

Not all of the response has been positive, with reform coming under fire from many Republican lawmakers as well as from representatives of the lending industry. Student loan reform effectively ends the major federal program that allows students to get subsidized loans from banks - replacing that option with loans made directly to the student by the government.

The reforms are an attempt to reduce the role and influence that private banks and lenders have over the student loan industry, freeing up the monies formerly earned as windfall profits by the loan industry in order to make more funds available for loans to students and to make possible reductions in the maximum loan payments made by graduates, who are struggling to keep up in the current economy. More and more students have been defaulting on their federally guaranteed student loans. According to the Department of Education, default rates are at their highest rates since 1998.

The bill's critics contend that the changes will reduce students' lending options and eliminate jobs at many banks and private lenders. Conwey Casillas, a VP at Sallie Mae, the largest student-loan company in the US, said in a statement on March 30th that the new laws would "force Sallie Mae to reduce our 8,600-person workforce by 2,500."

The new law still permits private lending institutions to make private business loans.

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