Feds Take Over Federal Student Loans

Included in health care reconciliation, major changes were enacted into law associated with federal student loan programs. Included in this legislation is what seems to be no less than a federal takeover of federal student education loans, along with big increases in Pell Grants.

The brand new law eliminates the Federal Student Loan Program as well as cuts out private lenders. Beginning on July 1, all federal loans will originate with the federal Direct Loan Program. According to the non-partisan Congressional Spending budget Office, cutting out banks and private lenders from the education loan business will save taxpayers $61 billion over the next ten years, at least $10 billion of which will reduce the federal deficit and help underwrite the price of health reform.

The new law also includes $36 million for Pell Grants, which provide subsidies to low-income plus some middle-income students. The maximum amount of Pell Grants this season will grow to $5, 300 and to almost $6, 000 within 2017. Without the new law, Pell Grants would happen to be limited to $2, 150 next year. Students receiving larger Pell Grants will have to borrow less to pay for college.

Beginning in 2014, borrowers will even get better debt repayment terms. Current borrowers can limit monthly federal student loan program payments to 15 percent of their discretionary income. Within 2014, this cap will be reduced to 10 % of discretionary income.

The only role left for the private sector is going to be loan servicing, and the legislative intent appears to be to ensure these contracts will be performance-based and awarded to the loan servicing companies providing the very best customer service.

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