You don't hear the protesters yelling about this public option...

[liberal N proud]

Big changes ahead for student loans
Proposed legislation would provide more federal loans to students and largely cut the private sector out of the lucrative market.


By Kiplinger's Personal Finance Magazine
Private lenders are losing the battle over student loans. By this time next summer, they probably will be cut out of the lucrative student lending market, with a handful of them relegated to the role of simply servicing loans made by Uncle Sam.

On July 21, the House Committee on Education and Labor began marking up a bill, introduced by Rep. George Miller, D-Calif., that seeks to eliminate government-subsidized private student lending and replace it with direct loans to students through the Department of Education.

"This is the biggest change in federal loans for higher education since 1965, when the original program was created," says Terry Hartle, senior vice president at the American Council on Education.

Sallie Mae, NelNet, American Education Services/PHEAA and Great Lakes Education Loan Services have been awarded loan servicing contracts by the Department of Education. But even with such a contract, the bill means "we would be about half of our size," says Martha Holler, a spokeswoman for Sallie Mae.

Look for Congress to pass the direct lending plan sometime this fall. The Congressional Budget Office estimates it would save about $87 billion over the next 10 years.

"Among other things, the savings will be used to significantly boost Pell Grant scholarships (need-based grants given to low-income students), to keep interest rates low on need-based federal student loans for years to come, to simplify the FAFSA (Free Application for Federal Student Aid) form, to invest in strengthening community colleges," Rachel Racusen, the deputy communications director of the House Education and Labor Committee, said in an e-mail.

Lenders argue students will suffer
Lenders worry that the savings will be used to plug other budget gaps rather than to fund additional higher education financing. Already, Congress' plan dramatically would cut the level of Pell Grant entitlements envisioned in the Obama administration's proposal to address the issue of who should be in the student lending market. Under that plan, less than half the savings would have gone toward that grant measure, with the other money going toward other purposes.

Meanwhile, many lenders argue that with only direct lending, students would get less in the way of services. "We offer the ability to maintain the diversity needed to keep competition up and pressure on other lenders," says Christopher Chapman, CEO of Access Group, nonprofit student lender in Wilmington, Del. "We also provide the value-added services," such as financial education.

Banks have their own turf to protect. The legislation means not only lost profits for banks now, but also a tougher time courting young borrowers in the future. In the past, college loans provided lenders easy entrée to establish a relationship with a future customer.


http://articles.moneycentral.msn.com/CollegeAndFamily/SavingForCollege/big-changes-ahead-for-student-loans.aspx


After 4 years of the private student loan process for our daughter, I am trying to figure out what advantages the private institutions offer.

[ejpoeta]

1. good!! i am glad. i think this is going under the radar, though, mostly

because of the whole healthcare thing. I believe i remember hearing bitching about this awhile ago.... i think obama talked about doing this during the debates or something. there was some bitching then. but i hadn't heard anything about it since then. i'm glad if they get the private banks out of it. what is the middleman needed for. if it works like this... the bank loans the money and the government buys it from the banks... doesn't it make sense for the government to just do the loan themselves??? makes sense to me.

[Eric J in MN]

2. We should move further in this direction.

More types of direct loans from the federal government.

Then the next time some say banks should be bailed out because we need them to make loans, the answer will be that the federal government can make its own loans; no more bank bailouts.