Student Loan Reform

FLmomof5 · Mar 31, 2010

Actually, there may be a huge impact later.

1. Only the government will make student loans and if they choose not to.... :uhoh3:

2. The ACLU will ultimately (IMHO) challenge the legality of FED student loans going to any student of a religious private school.... ie: Holy Cross, St. Johns, Manhattan College, Notre Dame....yadda yadda. They will claim it violates the separation of church and state. :devil:

3. The government will be in a position to require certain teaching (can we say Global Warming) or be denied access to federal student loans.

Just 3 off the top of my head.... :twocents:

SerenePeach · Mar 31, 2010

It seems like a good idea, in that it would make getting a college degree more affordable. I definitely welcome the change, and I definitely intend to pay back all the money I owe, but it'd be nice if the law applied to me too (law doesn't go into effect until 2014).

I don't think the government will be the only one handing out loans, just the primary source. I think the banks will still be able make student loans (privately), but they won't receive federal subsidies to do so.

Anyhow, as the OP said, I don't think there will be much noticeable difference to students as they will still follow the same basic processes and receive similar terms.

Anoetos, BSN, RN · Mar 31, 2010

Thank you for your responses.

FLmom, your comments are very interesting.

I was under the impression that there would be no changes to the determination of eligibility at all, and that one of the purposes of the reform was to make federally guaranteed student loans more broadly available and more easily repaid.

Your second point is the most interesting to me though. The Fed is already guaranteeing loans to private, faith-based institutions and the ACLU has been unsuccessful in fighting that (I am not even aware that they have tried but then, I don't keep up with such things), I am not sure that direct provision of such loans to students wishing to attend such institutions would constitute the kind of change that would favor the ACLU in a contest over constitutional propriety, but again, I could be wrong.

I really don't think providing loans to private citizens will affect the curricula of the institutions they attend at all, and I don't see how it could.

I am generally in favor of less government involvement in the lives of the citizens, but in this economy, any help I can get is appreciated.

Serene,

I was under the impression that the law went into effect July of 2010. Have you heard differently?

SerenePeach · Mar 31, 2010

Hi Anoetoes,

In the article that you provided, the sentence directly below the paragraph you quoted states:

"But, those repayment terms are only applicable for loans signed after July 1, 2014, and will not be retroactive, nor do they apply to private loans."

elkpark · Mar 31, 2010

Actually, there may be a huge impact later.
1. Only the government will make student loans and if they choose not to....
2. The ACLU will ultimately (IMHO) challenge the legality of FED student loans going to any student of a religious private school.... ie: Holy Cross, St. Johns, Manhattan College, Notre Dame....yadda yadda. They will claim it violates the separation of church and state.
3. The government will be in a position to require certain teaching (can we say Global Warming) or be denied access to federal student loans.
Just 3 off the top of my head....

Wow -- paranoid much???

1) Private banks will still be able to make student loans -- they just won't get subsidized by taxpayer money (guaranteed profits) for doing so. Remember the "free market"???? If private banks offer terms and service that appeal to people, people will go to private banks for loans.

2) The federal government currently provides all kinds of subsidies (including students attending via federally guaranteed student loans and lots of tax breaks) to private religious schools, and nobody has made any big effort to stop that. I don't see why this particular change in student loans would make any difference in that sense.

3) The government is already able to do that -- the federal government requires schools to allow military recruiters on campus to recruit students, even if the school objects to that, or they lose their ability to receive federal student loan money -- there have been court cases and this was upheld in the courts. So, again, I don't see how this new student loan program would make that any worse than it already is.

metal_m0nk, BSN, RN · Mar 31, 2010

The program the OP is referring to requires 120 (can be non-consecutive) payments before loan balance is forgiven. That is 10 years worth of payments. It also requires that the borrower have at least one Federal Direct Loan (which most will after new legislation) and participate in Income Based Repayment (IBR). The borrower must also have been employed with a non-profit seeking employer for 10 years.

If you are on the Standard Repayment Plan and continue to be throughout the life of your loan, not only do you not qualify, but it wouldn't make any sense to try to have your loans forgiven because the term of the SRP is 10 years - after 10 years, your loans would be paid off anyway.

This legislation is for people who are, have been, or will be struggling with unforeseen economic hardship and who have had to adjust their loan repayment plan to Income Based or Income Contingent to lower their payment amounts and thereby extending the life of the loan. Even those who qualify and have their balances forgiven after 10 years will still have paid a substantial amount of their loan back.

As for cutting out the middle man in terms of student loan offerings, it's a good thing. I have Federal Direct loans from my bachelor's degree and they offer low, fixed interest rates, low origination fees, incredibly flexible repayment plans/conditions, and a myriad of deferment/forbearance options for tough economic times that can be applied for online. I've never had a problem with Direct Loan Servicing.

Also, the only teaching required for access to Federal Direct Loans is online entrance counseling (borrower's education) - which was required for most private loans too.

metal_m0nk, BSN, RN · Apr 1, 2010

Whoops! Misread the bit from FLmom about teaching requirements. But, I echo what others have said about curricula changes based on new policy. Highly unlikely.

Saysfaa · Apr 1, 2010

Cutting out the banks, means you will have only two sources of loans (fed or state goverments). Anytime there is limited or no competition, the responsiveness to the customer goes way down. Bureau of motor vehicles? (okay, this state is easier than the other two I've lived in, but it is still a royal pain) taxes?

Also, when you are spending other people's money, more money gets spent. Why not go to the school with the brand new buildings, extensive landscaping, climbing walls in the rec room, etc. That is one of the reasons the costs of college have gone up so fast. I'm not saying any of you are choosing your schools because these things, but enough people are that schools are doing these things to "stay competitive" is how they usually put it. Making it easier to borrow money (by absorbing risks) will just fuel that trend.

As for FLmom's,there are only two (maybe three) colleges in the United States that aren't already totally dependent on what the federal government dictates due to the federal money they take. I don't really see how taking more will make that worse.

metal_m0nk, BSN, RN · Apr 1, 2010

Cutting out the banks, means you will have only two sources of loans (fed or state goverments). Anytime there is limited or no competition, the responsiveness to the customer goes way down. Bureau of motor vehicles? (okay, this state is easier than the other two I've lived in, but it is still a royal pain) taxes?

I've always received my federal and state tax returns in a reasonable amount of time, so long as I submitted the appropriate paperwork on time. Vehicle tabs too. Also, I've never had to wait in line for a student loan (pertaining to your DMV reference) and I don't expect that I'll have to with the advent of recent legislation.

In terms of college spending, I really don't see any difference between spending tuition earnings that come from private lenders through the hands of students and spending tuition earnings that come the Fed through the hands of students, so I'm not following your line of reasoning there. Maybe I misunderstood the reference.

Additionally, it wasn't any harder to acquire federally backed student loans from private lenders when they were middle men. Federal Perkins and Stafford loans have always been federally backed and subject to federal eligibility requirements not the borrowing requirements of the lenders themselves. The differences (which are what are being addressed with recent policy) were that banks received subsidies for participating in the federal student loan program and that banks had some leeway on what they could charge a borrower in terms of interest and origination.

What separates private lenders from the Fed for the purposes of providing money for college is that (theoretically) the federal policy decisions are weighed against the greater good of our nation's citizens, while private lenders are chiefly concerned with profit margins.

elkpark · Apr 1, 2010

Cutting out the banks, means you will have only two sources of loans (fed or state goverments). Anytime there is limited or no competition, the responsiveness to the customer goes way down.

Again, no one is "cutting out the banks" -- just stopping the practice of paying them subsidies (guaranteed profits) of taxpayer dollars, in addition to the federal government assuming all the risk for the loans (which it will still be doing). If private lenders offer attractive rates and services, people will continue to borrow from private lenders.

As for concerns about "limited competition,", when I went to grad school long ago, I got student loans both directly from the federal government and from my state -- both were v. easy and pleasant to deal with (besides giving me a great deal on the loans). In both cases, the emphasis was on providing the necessary services to the student borrowers, not how much money could be made off them.

Saysfaa · Apr 1, 2010

"I really don't see any difference between spending tuition earnings that come from private lenders through the hands of students and spending tuition earnings that come the Fed through the hands of students"

If you knew that the only way to get rid of a loan was to pay it off would you be more likely to borrow more or more likely to borrow less than if you knew the loan would go away in five years even if only half of it was paid off? (the bill is different, but the same concept).