Tucked inside the health care reform bill that congress passed on Sunday was a bill that will reform the student loan system. By reforming how student loans get administered, the student loan bill will create $ 61 billion in savings within 10 years. $ 30 billion of those savings will be put back into education, when another $ 10 billion will go to deficit alleviation. Student loans will no longer be administered by financial institutions – rather, the Department of Education will administer them.
Focusing the student loan bill on expense savings
The student loan bill makes significant changes to the process that administers student loans. Currently, Congress sets eligibility rules, interest rates, and most of the rules about how student loans are administered. Students currently apply for a low rate personal loan through the Department of Education, who then works with lenders such as Sallie Mae. The school then receives the cash after the bank has gotten it from the Department of Education. The government gives subsidies to banks or lending institutions who provide this service. These subsidies are cut out by the student loan bill. Instead, the Department of Education will act as the lending institution. Just by cutting out subsidies, the government will conserve approximately $ 6.1 billion a year.
Reinvesting in education through the student loan bill
The college education system will receive an extra $ 30 billion of funding from the student loan bill savings. The student loan bill says the $ 30 billion will be used in part to increase the low-income Pell grant. The bill may also reduce the monthly payments that some students have for making on their loans, which will help make college more affordable for more people.
Criticisms of the student loan bill
Even though this bill saves the government billions of dollars a year and reinvests in education, there are criticisms. The costs of college are rising at double-digit percentages each year, and the increase in the Pell grants will not come anywhere close to covering that increase in expense. There are also fears that by cutting out the loan industry, the government will fully be cutting jobs. However, the government will have to hire people to administer the loans for the Department of Education, which will negate some job losses. Finally, there is concern how the interest rates on each unsecured personal loan students take out through the D.O.E. will go up. However, the power to set these interest rates has always been with and will remain with Congress.
