Much Needed Student Loan Reform Passed by Congress…
In a follow up to a recent post, Congress has voted to overhaul U.S. college student aid by slashing subsidies to predatory lenders, using the money instead to boost student aid assistance by $20 billion. Industry analysts saying it would dampen the profits of lenders such as Sallie Mae, Citigroup Inc, Bank of America Corp and many others. After months of scandals involving kickback schemes and conflicts of interest among lenders and college officials, the bill is expected to shake up the student loan industry – an $85 billion business.
This is one of the few positive things this Congress has done recently to help the middle class. College costs have soared in recent years in the United States, forcing students to rely increasingly on loans and driving growth for banks and specialized student lenders through unscrupulous and dishonest lending practices.
Massachusetts Democratic Sen. Edward Kennedy said it cuts, “the outrageous subsidies the government gives to lenders” and gives the money to students.
The bill calls for a 0.55 percentage point cut in the “special allowance payment” subsidy to for-profit companies that make federally guaranteed student loans. The bill also would cut interest rates on need-based loans in half, to 3.4 percent, over four years; raise the annual student Pell grant ceiling to $5,400 a year by 2012; and cap student loan repayments at 15 percent of monthly income. The bill however does include a controversial test program that will require lenders to bid for the right to make federal PLUS loans to students’ parents on a state-by-state basis. The bill also would offer forgiveness of student loan debt after 10 years for some borrowers who go into public service careers, such as being a teacher or police officer. And finally, it would cut federal student loan default insurance to 95 percent in 2012, from the current 97 percent.
Of course lending industry flunkies and/or Republicans have criticized the legislation, saying it unfairly punishes loan companies, while some Republicans were critical of the way the student loan bill has been steered through Congress by the Democrats (God forbid the Democrats push legislation through that actually helps working families).
The bill is incomplete though because it excludes some measures aimed at cracking down on the improper marketing practices behind the recent loan scandals and omits provisions that would reform confusing forms students must fill out to get financial aid.
My question is – does the bill help those currently trapped in student loan debt they cannot escape? Millions are drowning in debt incurred over the past five to seven years at the hands of criminal lenders. Are these people being helped at all? As a nation, we can ill afford to cripple the student loan system by allowing capital to hemmorage from it much like the home mortgage system. Of course the final obstacle is Bush’s signature which is never a given when the plight of the middle class is on the table.
Posted on September 8, 2007, in Education Policy, Financial Markets, George Bush, Politics and tagged Banks Loans, Can't Pay Student Loans, Financial Markets, Higher Student Loan Interest, New Student Loan Legislation, Predatory Student Loans, Student Bankruptcy, Student Loan Consolidation, Student Loan Reform, Student Loans Bankrupt Exempt, U.S. Department of Education New Student Loan Procedure. Bookmark the permalink. 3 Comments.