Skip to comments.Government takeover of student loan industry appears to be moving forward using pending budget bill
Posted on 01/21/2010 5:25:00 AM PST by tunedin
(CNSNews.com) A bill currently before the Senate would empower the Obama administration to nationalize the student lending industry, eliminating the federally subsidized private loans millions of university students rely on to finance their educations.
The Student Aid and Fiscal Responsibility Act currently being considered by the Senate Health, Education, Labor, and Pensions (HELP) Committee would eliminate the Federal Family Education Loan (FFEL)program.
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Did this bill originate in the House?
This will be the biggest scam ever. The Zero gets to hand out BILLIONS in free money to all the parasites in the country under the guise of student loans. All they have to do is ask................
...”This will be the biggest scam ever. The Zero gets to hand out BILLIONS in free money to all the parasites in the country under the guise of student loans. All they have to do is ask................”
This needs to be stopped. Keep on getting the word out. They are asking to raise the debt ceiling this a.m. which is an action hurting every American. Spending needs to be cut, not increased and especially not increased in an area where money can be squandered so easily.
According to the Department of Education, 14.3 million of the 17.5 million student loans were federally subsidized for the 2009-2010 fiscal year. Under Obama?s plan, the government would consume the entirety of this industry - a total of $103 billion in 2009-2010.
Under the current system, the federal government subsidizes private financial institutions in order to entice those institutions to provide low-interest loans to students. Under this arrangement the government sets the interest rates lenders may charge students. In return, the government reimburses lenders if market interest rates rise above the interest rates on the loans - in essence, the government reimburses private lenders if they begin losing money on the loans. In return, the lenders agree to return any windfall profits made from the loans to the government. In other words, if market interest rates fall below the interest rates of the loans, the lenders pay the government the difference. The government also agrees to reimburse the lenders should a student default.
Under the system proposed by Obama, the government would cut private lenders out of the picture entirely, setting the interest rates and collecting payments directly for all student lending.
Whether or not the government saw a profit or a loss from the new, federal loans would depend on the rate at which the government borrows money. For instance, the law currently sets the interest rate for direct loans at a maximum of 6.8 percent. Under Obama?s proposal, if the government can borrow money at a rate lower than 6.8 percent, it would realize the difference as profit.(Snip)
The plan has met Republican opposition, passing the House on a party-line vote in September - 253-171 - and has stalled in the Senate, where HELP Chairman Sen. Tom Harkin (D-Iowa) has said he plans to pass the measure using budget reconciliation. "We've already been instructed by the Budget Committee to do this, so we're going to do it," Harkin told The Hill Oct. 19 when asked about using the controversial budget maneuver.
This will be the template for 2010. Make a lot of contrite sounding public statemens about how you’ve heard the message coming from Massachusetts, but keep sliding in more and more big government behind the curtain.
Quick review....Once a student’s scholarships are applied, they are left with a bill for college (unless they get a full ride). Kids who don’t receive any college scholarships have to pay the retail price of college.
These ffels are low interest federal loans (not grants) and millions of people who do not receive any need-based aid take advantage -(vs. a second mtge, credit cards etc). The poorest of students will get other financial aid packages and have zero college bills....so, this proposal isn’t about hand outs.
College students and parents apply for this federal college financing/aid either directly through federal channels or the SAME aid is applied for via private banks.
O’s suggesting eliminating the power of the banks to lend the government’s money; he wants to channel all applications directly to govt. I believe that the financial stripsearch of the FAFSA form is required before applying no matter if the application goes through the bank or the govt. So, I dont think the govt. learns anything new about the borrower - the govt. is doing business directly with their borrower (a credit-worthy person presumably).
He eliminates certain costs for sure and picks up other costs and staffing - the current net is reportedly a 47 bil govt. savings which i’ve not heard the latest GOP opinion on. Bigger govt. staffing will undoubtedly be a GOP objection, but I’ve not seen enough on what all the objections are to eliminating the private banks role.
I can’t say I trust the banks any more...they’ve already been bailed out, they have tightened lending on decent people while profiting by lending govt. aid; to make money, maybe they should lose the laydown business of financial aid and work for business and treat new borrowers with the business interest they used to have;
I need more info on what the specific pros and cons are and the impact on the banks if they lose these profits of lending govt. money.
Can someone help me out if I’ve not understood this correctly? Could this actually be a good idea for the ROI of a federally funded program?
Third rate institutions have biochemical engineering buildings, olympic athletic facilities, and an adminstrative staff that costs a large multiple of the faculty.
The WHOLE system is just another unproductive scam.
All Einstein’s college had was a blackboard..................
You cannot teach the Algorean hypothesis of global climate and social disaster unless you have full 3-d multimedia presentations capabilty. Surround sound is definitely helpful in recognizing Your Master's Voice.
All Newton and Liebnitz had were quill pens and animal skins..............
Not free money (grants); it’s a loan and has to be repaid.
The issue is WHERE the students/parents apply for the federal loan dollars. The bank is a middleman passing through govt. funds. Govt is subsidizing interest while the student is in college so private banks are getting free business...O wants to service all the govt. loans; as the originator of the cash, payor of the $14 billion in loans’ interest subsidy, I’m not sure why “we the people” shouldn’t service our federal aid we funded through taxes.
Close...the biggest scam ever is college ...a total racket ...bloated everything including their sense of self importance. But, if you don’t go, doors slam in your face....unfortunately corp. America has rewarded the diploma regardless of its fit for use in the industry.
“its a loan and has to be repaid.”
Student Loans: Default Rates Are Soaring :
Defaulting on a student loan is worse than bankruptcy. It marks credit history forever.
At first these were NDSL loans (National Defense Student Loans) Then they were retitled in the early 70's to National Direct Student Loans because the military need was passed (down sizing) and some were offended by the military.
If I remember, these loans were originally managed by the govt but then lobbying by the bankers in the 70/80’s changed that.
“Borrowers having trouble repaying their federally backed loans can call their lender to request that their payments be put on hold until they get back on their feet. Most types of federal loans qualify for “forbearance” — meaning the borrower can suspend payments temporarily but is still on the hook for the interest that continues to build while payments are on hold, which is then amortized over the life of the loan.”
Read the one borrower who said, I don’t want to do that because it’ll raise my payments down the road. So, she just blows off the payment. That is a risk for any lender. Students don’t understand how brutal the default is on their long term credit.
I would be willing to bet that if this passes, the default rate will go nuclear. People will be getting these loans with no intention of ever paying them (us) back. If the Zero or his minions are still in power, they won’t pursue these deadbeats..............
If this bill passes, the government will BE the LENDER....................
The government will be the lender and they will politicize the process. Some applicants will be more equal than others.
The govt. ALREADY is the lender.
The gov backs the loan, protecting the lender, but when the gov is the lender, who protects us?................
... the govt. already does originate the loan and the bank is a middleman loaning fed. dollars...applicants will be more equal how? it’s not need based lending - anyone can apply.
My understanding is that the ffel program lends all federal dollars for this program and students/parents apply through one of two channels - their option: the banks or through the .gov;
The banks and the govt. have rate agreements, payback agreements etc....not like a car loan where the bank uses its capital.
I don’t see that the gov. role any different as far as the amount of money it is putting up - it pays the entire program - not “backing” it - govt even pays the interest on the loan while the students with need are still in school (subsidized stafford)
Imagine a whole new bureaucracy, unionized, of course, whose sole mission is to make sure the loans get into the hands of those that “need them”.........
They have been picking winners and losers, car companies, banks and on and on. I don’t put it past them to deny loans to folks who are not registered dimrats. Actually, I don’t put anything past this group.
“If this bill passes, the government will BE the LENDER....................”
Not only that. but the students will become indebted to the federal government with additional community service requirements. Community service might reduce the student’s individual debt. But who will decide what qualifies as community service and what organizations the student will work for? Government again. co-opting our youth.
Now we’ll get to fund the next 9/11 with student loans to all those students with expired visas our officials can’t be bothered to kick out of the country.
My niece is staying with me while she goes to a private local college in their nursing program. She can not get a student loan and has been encouraged to get a personal loan from a local bank. So much for the student loan program. She has no money, is 21 yrs. old and already has a Associates Degree. What to do, what to do, what to do. . . .
It’s currently operating pretty smoothly...funds electronically transfer between the school and the lender.
The government will put a stop to that.............
I’ve wondered what would happen if the just deny credit-worthy people loans for ffel...that’s not the current concern because the ffel already lends to 17 million people. Why can’t she get a ffel loan? If a bank would give her a loan, I’d think she might easier qualify for a stafford. The ffel’s are unsecured loans.
Applying through the school is an option but not the only way to do it. One can apply directly online with the dept. of ed and tell them which univ. gets the funds. The borrower makes the decision, not the govt. The govt. looks at the credit of the borrower based on the FAFSA. The school receives the dispursement directly if the loan is directed that way...thank goodness or you’ll have situations like octomom all over taking the money and not paying the school.
I’m not sure who makes the credit decision if a bank takes the application...I would not think that they enough skin in the game to make the credit decision since it’s not their money.
I don’t know if there is an age requirement for the ffel, is there? I just thought they had to be a student meeting the number of academic hour requirements.
Thanks for the information. I haven’t been working with her on her finances. I have the same questions you are stating and will review her options with her when she returns from classes this evening. She is a full-time student and should qualify.
And look where that went. The enlightenment, the industrial revolution, petro-man, and now carbon disaster. Those quill waiving morons doomed us from the start.
The pen is mightier than the sword!...............
I concerned whenever the libtards think it’s a good idea....however...in this case, it makes sense that eliminating the banks could save money and if the system is already set up...
If I understand the process...the fafsa starts before many schools even accept the students...then, all the schools in the students’ final list receive the fafsa info and come up with a package for the student - what’s financed by scholarship, other by aid....the student chooses which school to attend and that starts the process rolling. Assuming a student gets no scholarships, the fafsa efc is the same info reported to all the schools - they could apply for aid to one school and students have the right to transfer the loan to another if they don’t enroll there.
I think this is a protection against your concern.
HR 3221 passed in the House Sept. 2009. It is in the senate HELP committee now I think with a new number 2669.
I could not agree more.