"Loan payments will be capped at 10 percent of a student’s disposable income (it’s currently 15 percent) and any debt remaining after 20 years will be forgiven (the current threshold is 25). For public servants – including teachers, nurses, or members of the armed forces – that cap is 10 years."
Now, I have every intention of paying back every penny I am borrowing for school, but I found this interesting.
More generally, the reform cuts out the middle man banks in the student loan process, lending the money directly from the government. I don't think there is expected to be much difference noticeable to students but, in general, I approve for a couple reasons:
1. although there are no credit restrictions on student loans, those of us with significant bruising might have a better experience with the fed than with for-profit lending institutions, and
2. after TARP, I am having a harder and harder time feeling bad for banks generally.
My understanding is that FDL interest rates are significantly higher than private institution interest rates currently (like 6.8% FDL vs 4.5% private) so, I'm asking honestly not snidely, how will this promote competition? The interest rates I found through different media outlets vary but all showed roughly a 2% gap that students will be incurring additionally by utilizing this reform. I'm sure part of this has to do with the government subsidizing these private lenders for guaranteed student loans, so maybe the FDL rates will go down once they no longer have to do that?? I'm not sure how it will all work out, any ideas?
Elkpark, I meant the subsidies also part. I didn't know we did that on top of the federally guarentee.
"... What Obama put an end to was not 'student loans,' but a giant corporate welfare scam that subsidized the losses of private lenders like Citigroup, JP Morgan and Sallie Mae, who padded their profits by jacking up fees before unloading them on the federal government. Those fees could easily double the loan amounts that students eventually had to pay off.
The federal government was already subsidizing private student lenders with the guarantee that they would absorb the losses if students went into default — a classic “privatize the profits and socialize the losses” program of dubious value even when the banks were lending their own money. But in 2008, when the secondary market for student loans dried up, the government began propping up the industry with the passage of the Ensuring Continued Access to Student Loans Act (ECASLA), which provided $112 billion to buy up the loans of private lenders. The banks were no longer using their own money to make those loans. Jon Walker called it 'one of the most corrupt forms of lemon socialism ever created,' noting that 'the government stepped in to bailout a fundamentally unsound industry that has been for years wasting billions in taxpayers’ money. ...'"
"... If passed, the legislation would eliminate the Federal Family Education Loan program and move all new student loans to the existing Direct Loan program. This elimination is a smart move, as our colleagues at Higher Ed Watch have been arguing eloquently for years. While loans under both programs are the same for student borrowers, the FFEL program costs taxpayers a lot more because it pays banks subsidies to entice them to lend. ..."
And, as if the situation wasn't crummy enough to begin with:
"... The private student loan industry has also been beset by allegations of kickbacks to college officials to steer students to the loans. Investigations by Congress and New York Attorney General Andrew Cuomo found that some lenders had secret deals to give colleges or their staffs consulting fees, company shares, and other perks. ..."
The subsidized private student loan program is similar to the controversial Medicare Advantage program, which came about because a Republican majority in Congress believed, as a philosophical principle, that the private market is always better than government services, and programs like Medicare and Social Security should be privatized. As an effort to start the process of privatizing Medicare, they wanted to enable private insurance companies to be paid Medicare premiums to offer coverage/benefits to Medicare recipients. However, after they dreamed up this great plan, it turned out the private insurance companies weren't interested in participating because they didn't think they could make big enough profits covering the elderly (which is, after all, why Medicare got started in the first place ), so the Republicans in Congress passed a law that paid private-for-profit insurance companies a subsidy (a guaranteed profit) to offer Medicare Advantage plans to Medicare recipients -- taxpayer money completely above and beyond what it would cost CMS to cover those same people under traditional Medicare.
What is the point of even talking about a "free market" when the playing field is so skewed to begin with? Where is the "free market" in a system in which the government pays guarateed profits to private banks and insurance companies? Eliminating these government subsidies will just help create a more "free market" in both these areas.
My understanding is that FDL interest rates are significantly higher than private institution interest rates currently (like 6.8% FDL vs 4.5% private) so, I'm asking honestly not snidely, how will this promote competition? The interest rates I found through different media outlets vary but all showed roughly a 2% gap that students will be incurring additionally by utilizing this reform. I'm sure part of this has to do with the government subsidizing these private lenders for guaranteed student loans, so maybe the FDL rates will go down once they no longer have to do that?? I'm not sure how it will all work out, any ideas?
Stafford loans are all at 6.8%, this is what the Fed will continue. Private interest rates are all over the place. the Reform should have a levelling effect. It also seems likely that there will be more applicants for federal loans since the repayment terms are more relaxed and of course they have "guaranteed" qualification.
This should create a market opportunity that the banks will try to exploit with lower, or more easily qualified for and repaid loans as well.
But your point is valid that as a rule private loan rates are generally lower than federal stafford rates and I am glad that you made it!
Elkpark, I meant the subsidies also part. I didn't know we did that on top of the federally guarentee.
triquee, "Take the number of people you believe might jump at the chance to borrow...impression it will all be forgiven" I think the vast majority think they will pay back every penny when they take out the loans. That wasn't my point. I don't think people are out to scam the system. I think many don't leave enough margin in their plans to allow for the unexpected and often they don't leave enough margin for the expected either.
"Unless the student decides to charitably invest the overage of their loan funds into the school's budget, it won't make any difference whether the loan was awarded through a private lender or a federal one."
It does matter because if the student can feel the cost difference s/he will be a lot more willing to go the school that s/he doesn't like as much but costs half a much. The bigger the safety net, the less the student feels the cost difference.
Exactly how many years or how many payments or what the circumstances are (non profit, etc) affect how big the safety net is but not that the size of the safety net influences the cost of school.
"you haven't considered in your doomsday scenario is the nature of free markets."
About the biggest factor in what makes a market free is how involved the government is in that market.
I mean this with absolutely no offense, so please take none. But, were you aware that you have a strange inability to follow the reasoning of your arguments and others' that makes it logistically impossible to hold a discussion with you that remains on topic? Or maybe I'm mistaking this for a difficulty in putting your thoughts into words and I'm missing some key points that make your argument make sense? I don't know which it could be. Probably the latter. For instance, my big brother often says something that doesn't make sense without a key piece of information that he left out and it makes for some confusing discussion.
I want to continue this discussion with you, but I'm not sure how to proceed. I get the feeling you're not fully understanding what's being said here.
I'm going to stray slightly off the intended topic as I don't consider myself educated with it as well as I should be to form a logical opinion. What I would like to know is how a "healthcare bill" is incorporating things such as student loans, electronic funds transfers from citizen bank accounts, tanning taxes etc?
In my (as already stated) slightly uneducated opinion on the situation agree that government take over of the student loan organizations will definitely limit any free market competition. The very definition of free market is "A free market is a market without economic intervention and regulation by government except to regulate against force or fraud." so how does this in anyway promote a free market?
And you all can berate me but I am in complete agreement with FLmom's viewpoint, more government involvement is never a good thing and can lead (happened time and again throughout history) to more regulations and less freedoms. Call me paranoid.
In answer to your first question, it is not out of the ordinary for reform bills to include policy changes for other areas of public interest if, say for example, federal savings on bank subsidies go to support funding that offers federal and/or state health insurance for a greater number of citizens. For all intents and purposes, it is a reform package. Where student loans fit into the definition of reform is by way of asset management that financially supports healthcare policy change. The money's gotta come from somewhere. It is responsible for policy makers to look at sources where they can cut back on federal expenditure outside of increasing federal debt and taxation, which is what this accomplishes.
The student loan changes only limit the market indirectly and the economic effects of the policy described here are projections based on sound reasoning and historical trends, not the actual intentions of the policy. It has been stated many times by our current administration representatives that the intention is to yield federal budget savings by cutting out bank subsidies. And that makes logical sense.
It isn't the same as economic intervention and regulation because economic intervention and regulation would be better exemplified by imposing loaning terms or restrictions on the institutions themselves. The student loans that this policy affects were already "federal property". Additionally, the new student loan policy does not address either force or fraud.
Eek! Not trying to berate and I apologize if I come across that way.
My understanding is that FDL interest rates are significantly higher than private institution interest rates currently (like 6.8% FDL vs 4.5% private) so, I'm asking honestly not snidely, how will this promote competition? The interest rates I found through different media outlets vary but all showed roughly a 2% gap that students will be incurring additionally by utilizing this reform. I'm sure part of this has to do with the government subsidizing these private lenders for guaranteed student loans, so maybe the FDL rates will go down once they no longer have to do that?? I'm not sure how it will all work out, any ideas?
The 4.5% interest rates you see advertised by private lenders are only awarded to borrowers with exemplary credit (which rules out the majority of borrowers - high school grads with no credit history). 6.8% interest is closer to what is offered to the majority of borrowers. Banks advertise their lowest risk offerings to entice borrowers to select them as their credit provider. In most cases, you don't find out what your actual interest rate is until after you've completed the loan application process - which includes a credit check. The interest rate offered by the Fed is not credit contingent and is fixed - it will not arbitrarily change over the course of your loan and if policy changes and the stated interest rate increases, any loans acquired before policy change would likely be grandfathered in with their original, fixed interest rate.
If the loans that private banks offered hadn't been backed by the Fed, I imagine the interest rates would have been closer to 8-15%.
Thanks for your input. I do appreciate your opinion. I am not a fan of the law or how it originated. I wouldn't consider myself right or left winged, I'm only interested in the effects that such a law will have on the American people as a whole. From the limited knowledge that I do have in regards to this issue I am not a supporter. We did need reform for healthcare, agreed. I do not feel that this was the appropriate approach nor the appropriate means to that end. I can only hope that I'm wrong and that the people I consider leaders are wrong about the catastrophic results this legislation will have. With that said, free market means just that...no government involvement EXCEPT to address force or fraud. The government mandating that I will purchase something from an organization does not promote free market, and, IMHO neither does enforcing the utilization of the FDL program as the only "guaranteed" student loan option. As I've said, I'm not as educated about all the ins and outs as I would like to be, but its hard to be educated about 2500 pages of crap. As far as "the moneys gotta come from somewhere", the last I heard was Aetna announcing to expect a 15-40% increase in premiums, yet the subsidies arent scheduled to begin until 2014...and then only if appropriate funding comes through. I guess thats why I'm confused, if insurance companies have already announced a premium increase to holders, why then does the government need to take over other organizations (student loans) to make up for costs that will already be absorbed by us average consumers? I'm just not a fan of big government and it seems like ours has BALLOONED over the last year, from banking to automotives, student loans to health insurance. I'm sorry to bring up all these other issues into the "student loan reform" thread, but I think theres a correlation amongst all of it.
Thanks for your input. I do appreciate your opinion. I am not a fan of the law or how it originated. I wouldn't consider myself right or left winged, I'm only interested in the effects that such a law will have on the American people as a whole. From the limited knowledge that I do have in regards to this issue I am not a supporter. We did need reform for healthcare, agreed. I do not feel that this was the appropriate approach nor the appropriate means to that end. I can only hope that I'm wrong and that the people I consider leaders are wrong about the catastrophic results this legislation will have. With that said, free market means just that...no government involvement EXCEPT to address force or fraud. The government mandating that I will purchase something from an organization does not promote free market, and, IMHO neither does enforcing the utilization of the FDL program as the only "guaranteed" student loan option. As I've said, I'm not as educated about all the ins and outs as I would like to be, but its hard to be educated about 2500 pages of crap. As far as "the moneys gotta come from somewhere", the last I heard was Aetna announcing to expect a 15-40% increase in premiums, yet the subsidies arent scheduled to begin until 2014...and then only if appropriate funding comes through. I guess thats why I'm confused, if insurance companies have already announced a premium increase to holders, why then does the government need to take over other organizations (student loans) to make up for costs that will already be absorbed by us average consumers? I'm just not a fan of big government and it seems like ours has BALLOONED over the last year, from banking to automotives, student loans to health insurance. I'm sorry to bring up all these other issues into the "student loan reform" thread, but I think theres a correlation amongst all of it.
And the true colors come flying out...
You misunderstand the concept. The student loan changes *are not* an example of government regulation of banks. They're not even in the same category. Seeing as how you termed it "government involvement", it might help to understand that the government was already involved. The banks were essentially getting paid to gamble with government money. They aren't "taking over" anything. They're taking BACK their own property and assuming the responsibility for paperwork that they once delegated to private lenders.
As far as Aetna increasing their premiums, how can you not see that as a last ditch effort to extort their existing policy holders before the nature of the market changes and forces them to compete? Don't blame the Fed. Blame Aetna for not having the integrity to find other ways of absorbing costs besides sending their valued participants a big fat bill (equivalent to taxation by the government). If you honestly think that Aetna is going to take those premium dollars and invest them in our federal reserves to cover the costs of federal and state healthcare, you're unfortunately very mistaken. Wouldn't it be nice if they did? Honestly, it's C.Y.A. - not yours as in yours, but yours as in theirs.
As to catastrophic results...Many Americans were certain the enacting civil rights would yield catastrophic results. People fear change. Initial responses are understandably heated. There is a process ahead that will refine these changes in ways that suit the greater good. This is only a first step in the same way that the abolition of slavery was a step in the direction of the Civil Rights Movement. Expect many changes to come.
I'm sorry you misunderstood my Aetna points, no, unfortunately I don't see it as a "last ditch effort", but once again my lack of abundant knowledge on the situation may be limiting my ability to see that. My point with Aetna was to say why are they raising their rates due to bill that was supposed to be for the "greater good" but is ending up costing working Americans more money...when the purpose of the student loan reform is to help fund the healthcare reform as to SAVE the American people unnecessary additional expenses. Does that make any more sense?
As for the true colors statement, I don't think I attempted to hide my discontentment with this issue in any of my previous posts. Granted, people don't like change. However; I am on the boat that realizes there are major issues with our healthcare system and I certainly agree there needs to be changes within that network. Again, Im not a partisan person, I dont care whether republicans/democrats/liberals/green partiers wrote, loved, hated the law. Makes no difference to me so long as it REALLY does "suit the greater good". As of right now, I don't see how it could. That is JMO though and thank God we live in America and are allowed to express an opinion that is different than someone elses, right? :)
I'm sorry you misunderstood my Aetna points, no, unfortunately I don't see it as a "last ditch effort", but once again my lack of abundant knowledge on the situation may be limiting my ability to see that. My point with Aetna was to say why are they raising their rates due to bill that was supposed to be for the "greater good" but is ending up costing working Americans more money...when the purpose of the student loan reform is to help fund the healthcare reform as to SAVE the American people unnecessary additional expenses. Does that make any more sense?
As for the true colors statement, I don't think I attempted to hide my discontentment with this issue in any of my previous posts. Granted, people don't like change. However; I am on the boat that realizes there are major issues with our healthcare system and I certainly agree there needs to be changes within that network. Again, Im not a partisan person, I dont care whether republicans/democrats/liberals/green partiers wrote, loved, hated the law. Makes no difference to me so long as it REALLY does "suit the greater good". As of right now, I don't see how it could. That is JMO though and thank God we live in America and are allowed to express an opinion that is different than someone elses, right? :)
I fully understand your point about Aetna. What I am trying to convey is that the government is not responsible for their actions. Correlation does not equal causation. Aetna is responsible for Aetna's actions. The issue that Aetna is facing is how to address the fact that their objectives are not the same as the government's objectives. Aetna's objective is profit and profit alone. That is what this bill is seeking to reform - it is attempting to soften the financial blow for hard working Americans.
Granted for an enterprise like Aetna that was built and sustained for the sole purpose of generating profit, adjustment to a climate that is centered around the consumer's best interests is not easy, and they may very well have limited options in terms of how to absorb the change. But had the company had the infrastructure to serve the consumer's best interests in the first place, the transition wouldn't be so financially devastating for them. Aetna wrongly assumed that the status quo would never change, that their profit margins would continue to rise uncontrolled and probably fully intended to go on sucking dollars out of their policy holders for as long as they could. They didn't bother to plan for a policy change. That was their own irresponsibility and their policy holders are paying the price for it.
But do you see the dilemma in a bill generated to help soften the blow to the American publics wallet but it is already having the reverse effect?
Or for instance in my particular situation, I carry health insurance on my children but not on myself, so...now I HAVE to get some or be fined? How is that in my best interest?? Is it because I didnt bother to plan for the policy change of losing my job to an overseas outfit that I should be forced to pay for something thats not in my current budget or have to be "subsidized" by the government? I'm not looking for any handouts.
I clearly agree that healthcare reform is necessary but what I find detrimental is the economic situation that must first be fixed unless we want the entire unemployed population looking for those handouts...thats alotta people our already tapped government is going to have to help "subsidize". My children and their children will pay the price, just like with Social Security.
As for Aetna, corporations are all greedy. Corporations revolve around the bottom line and its what capitalism is founded on. I find it very disturbing that our congress and President elected themselves out of this law but yet, we the people, are supposed to smile and applaud and pay the resulting inflated price. Our country is a capitalist society and the continual socialistic trends are bound to devastate some of those companies, what happens in a year if Aetna and United and BCBS (or on the flip side Sallie Mae and Nelnet) turn around and say they are facing bankruptcy because of this (this is very hypothetical, but addresses some of my concern) is the government then going to have to give out another 800 billion dollar bailout because the economy couldn't stand that kind of blow, like with the banks and auto industry?
I dont know how true this is as I haven't taken the time to look it up myself but I've heard that doctors wages will be cut (I've even heard essentially salaried despite specialty, but dont know if I believe that) so are we then going to be shipping our best and brightest overseas so that they can earn that almighty dollar that our supposed capitalist society will no longer allow them to earn? Again I dont know this to be fact so if you have any knowledge about that particular area, please share!
I'm not attempting to be rude or snide about any of this, I have what I feel are legitimate concerns and because this bill was rushed through the channels and alot of the negotiating done behind closed doors I feel like I'm validated in having them. You seem to be very educated and articulate about the matter so I'm genuinely just asking.
), so the Republicans in Congress passed a law that paid private-for-profit insurance companies a subsidy (a guaranteed profit) to offer Medicare Advantage plans to Medicare recipients -- taxpayer money completely above and beyond what it would cost CMS to cover those same people under traditional Medicare.
Mommaof3
175 Posts
My understanding is that FDL interest rates are significantly higher than private institution interest rates currently (like 6.8% FDL vs 4.5% private) so, I'm asking honestly not snidely, how will this promote competition? The interest rates I found through different media outlets vary but all showed roughly a 2% gap that students will be incurring additionally by utilizing this reform. I'm sure part of this has to do with the government subsidizing these private lenders for guaranteed student loans, so maybe the FDL rates will go down once they no longer have to do that?? I'm not sure how it will all work out, any ideas?