Student Loan Overhaul Approved by Congress

[SoulSearcher]

So for decades now, banks got billions of dollars of profits, simply for disbursing and servicing entirely government-funded student loans, with the government assuming all the risks associated with it. Why would the government give handouts to the banks in the form of guaranteed subsidies for simply being an in-between?

Well, that will be no more! The overhaul bill passed:

The vote was 56 to 43 in the Senate and 220 to 207 in the House, with Republicans unanimously opposed in both chambers.

Even though, the loans have always been funded and guaranteed by the government, this is what the Republican Senator from Tennessee, Lamar Alexander had to say:

“The Democratic majority decided, well look, while we’re at it, let’s have another Washington takeover, let’s take over the federal student loan program.”

Is "government take over" the favourite mob rousing phrase that a certain party likes to use? I mean, in the same sentence, he calls it the "federal student loan program" and yet, calls it a government take over, hello Mr. Tennessee, it has always been a government program, only difference now is that we won't be giving free taxpayer money to banks to disburse it! The non-partisan Congressional Budget Office calculates that this will save us $61 billion in the next 10 years, and Obama is using this to fund the Pell Grant that otherwise would have dropped over half a million students this year who depend on it, all while tuition fees are increasing dramatically.

Even though I am thoroughly disappointed in both the health care bill and the student loans bill for not going far enough, I have some consolation that only one party would actually do anything that benefits the masses, rather than corporate interests only. Thank you Democratic Congress! Victory for middle-class Americans!

http://www.nytimes.com/2010/03/26/us/politics/26loans.html

 

[Edward Twinkletoes]

Great! I guess now they're gonna make me get a student loan (Despite the fact that I'm not a student).

 

[SoulSearcher]

Great! I guess now they're gonna make me get a student loan (Despite the fact that I'm not a student).

Drop that idea at a tea bagger session, I'm certain it'll go wonderfully!

 

[MystikWizard]

Okay.

Next .... Immigration Reform.

All Bush could do was land on Afghanistan and then land on "Go to Iraq" (Jail) without passing Go and collecting $200.

Sadly, he could never find a way to get himself a "Get out of Iraq Free" card or roll doubles.

 

[JB3]

So for decades now, banks got billions of dollars of profits, simply for disbursing and servicing entirely government-funded student loans, with the government assuming all the risks associated with it. Why would the government give handouts to the banks in the form of guaranteed subsidies for simply being an in-between?

Well, that will be no more! The overhaul bill passed:


Even though, the loans have always been funded and guaranteed by the government, this is what the Republican Senator from Tennessee, Lamar Alexander had to say:



Is "government take over" the favourite mob rousing phrase that a certain party likes to use? I mean, in the same sentence, he calls it the "federal student loan program" and yet, calls it a government take over, hello Mr. Tennessee, it has always been a government program, only difference now is that we won't be giving free taxpayer money to banks to disburse it! The non-partisan Congressional Budget Office calculates that this will save us $61 billion in the next 10 years, and Obama is using this to fund the Pell Grant that otherwise would have dropped over half a million students this year who depend on it, all while tuition fees are increasing dramatically.

Even though I am thoroughly disappointed in both the health care bill and the student loans bill for not going far enough, I have some consolation that only one party would actually do anything that benefits the masses, rather than corporate interests only. Thank you Democratic Congress! Victory for middle-class Americans!

http://www.nytimes.com/2010/03/26/us/politics/26loans.html

Here's what I'm confused about (probably because my school didn't accept any federal loans, so I never had to deal with it): was the money the banks lending FROM the government, or was it the bank's money that was partly subsidized by the government?

Regardless, Alexander is still correct. Previously, the government farmed out administration of the loans to the private banks. With this bill, the government IS taking over the loan program.

 

[JB3]

Okay.

Next .... Immigration Reform.

All Bush could do was land on Afghanistan and then land on "Go to Iraq" (Jail).

Sadly, he could never find a way to get himself a "Get out of Iraq Free" card or roll doubles.

Obama won't touch it with a ten foot pole, especially during an election year.

 

[Kulindahr]

Here's what I'm confused about (probably because my school didn't accept any federal loans, so I never had to deal with it): was the money the banks lending FROM the government, or was it the bank's money that was partly subsidized by the government?

Regardless, Alexander is still correct. Previously, the government farmed out administration of the loans to the private banks. With this bill, the government IS taking over the loan program.

When I was at OSU (graduated '93), there were direct loans and guaranteed loans. Direct loans were money handed to the banks to handle according to the FedGov rules. Guaranteed loans were money from the banks, guaranteed by the FedGov. So long as the student still qualified as learning, all interest was paid by the Fedgov, and when paying it back started, the student paid a low interest rate while the government picked up the rest.

I have no idea what they're up to now.

 

[MystikWizard]

Obama won't touch it with a ten foot pole, especially during an election year.

I would concur actually .... I am sure he'll let the Health Care circus die down all the way through November and then if there is still a majority in the House after this year, that will likely be on next year's agenda.

However, I can see the Republicans filibustering anything and everything in the Senate just out of spite for the rest of Obama's term in office, though.

This filibuster rule needs to be re-examined as that is one of the key reasons why things don't get done in this country. I understand the controversy between just having a simply majority, given how the tide turns every 2 years, however 55 is much more reasonable than 60.

 

[JB3]

I would concur actually .... I am sure he'll let the Health Care circus die down all the way through November and then if there is still a majority in the House after this year, that will likely be on next year's agenda.

However, I can see the Republicans filibustering anything and everything in the Senate just out of spite for the rest of Obama's term in office, though.

This filibuster rule needs to be re-examined as that is one of the key reasons why things don't get done in this country. I understand the controversy between just having a simply majority, given how the tide turns every 2 years, however 55 is much more reasonable than 60.

He'll encounter resistance on both sides. Just look at immigration reform attempts under Bush for an example.

 

[SoulSearcher]

Here's what I'm confused about (probably because my school didn't accept any federal loans, so I never had to deal with it): was the money the banks lending FROM the government, or was it the bank's money that was partly subsidized by the government?

Regardless, Alexander is still correct. Previously, the government farmed out administration of the loans to the private banks. With this bill, the government IS taking over the loan program.

Yes, the money that the banks lent were directly from the government. And it is not a government take over (not that I'd have a problem with that), a federally funded and guaranteed student loan program that the government decides to disburse itself, rather than paying big banks to do it, is not a take-over, it was a federal program all along! You don't "take over" what is already yours!

 

[JB3]

When I was at OSU (graduated '93), there were direct loans and guaranteed loans. Direct loans were money handed to the banks to handle according to the FedGov rules. Guaranteed loans were money from the banks, guaranteed by the FedGov. So long as the student still qualified as learning, all interest was paid by the Fedgov, and when paying it back started, the student paid a low interest rate while the government picked up the rest.

I have no idea what they're up to now.

That's why I'm confused. Does this push the banks OUT of the guaranteed loans?

 

[JB3]

Yes, the money that the banks lent were directly from the government. And it is not a government take over (not that I'd have a problem with that), a federally funded and guaranteed student loan program that the government decides to disburse itself, rather than paying big banks to do it, is not a take-over, it was a federal program all along! You don't "take over" what is already yours!

No. That's not correct. The government purposely farmed out the administration to the banks. All they were supposed to do was provide the money. So yes, they ARE taking it over because it wasn't already theirs. The only thing they contributed was the cash and left everything else to the banks.

 

[SoulSearcher]

No. That's not correct. The government purposely farmed out the administration to the banks. All they were supposed to do was provide the money. So yes, they ARE taking it over because it wasn't already theirs. The only thing they contributed was the cash and left everything else to the banks.

The government will "take over" the administration of the loans, but the loans have always been federal government's, when Lamar Alexander says its a "take over", the tea bagger mobs would get riled up, assuming that now the government is gonna be giving away loans, instead of the banks. I think its wonderful that we will save over $60 billion, and they will be directed towards helping needy students!

 

[Kulindahr]

The government will "take over" the administration of the loans, but the loans have always been federal government's, when Lamar Alexander says its a "take over", the tea bagger mobs would get riled up, assuming that now the government is gonna be giving away loans, instead of the banks. I think its wonderful that we will save over $60 billion, and they will be directed towards helping needy students!

The loans have not "always been the federal government's". I had a pile of "guaranteed student loans", and the only federal involvement was to pay the interest on the loan while I was in school, and pay part afterward so my rate was low. The money was from the bank. The only time the government actually paid out money besides the interest was if the borrower defaulted -- then the government paid the lender and (theoretically) went after the borrower.

The idea now is apparently to cut out the banks, many of which haven't been thrilled with the program for a while anyway, and now with the recent bank uncertainty many really don't want to participate at all.

 

[SoulSearcher]

The loans have not "always been the federal government's". I had a pile of "guaranteed student loans", and the only federal involvement was to pay the interest on the loan while I was in school, and pay part afterward so my rate was low. The money was from the bank. The only time the government actually paid out money besides the interest was if the borrower defaulted -- then the government paid the lender and (theoretically) went after the borrower.

Banks were disbursing both federally originated student loans, and privately funded student loans, and both were guaranteed by the government. Now, banks will still be able to lend student loans that they will originate themselves, but they will not be federally guaranteed. So their middle men status has been abolished.

The idea now is apparently to cut out the banks, many of which haven't been thrilled with the program for a while anyway, and now with the recent bank uncertainty many really don't want to participate at all.

I couldn't think why, it was one of the easiest way to profit for the bank, at hardly any loss as the government took 100% risk associating with it. Contrary to what you state about many banks not wanting to participate, this article says that the legislation ended one of the fiercest lobbying efforts in Washington by banks to defeat this bill.

Even as the Democrats’ decision to attach the student-loan overhaul to the health care package virtually ensured its passage, banks fought fiercely up to the last minute, prompting some lawmakers, like Senator Ben Nelson, Democrat of Nebraska, where Nelnet has its headquarters, to cast their vote against the overall bill.

Although private banks will no longer be allowed to make student loans with federal money, many will continue to earn income by servicing those loans.

http://www.nytimes.com/2010/03/26/us/politics/26loans.html

 

[Kulindahr]

Banks were disbursing both federally originated student loans, and privately funded student loans, and both were guaranteed by the government. Now, banks will still be able to lend student loans that they will originate themselves, but they will not be federally guaranteed. So their middle men status has been abolished.



I couldn't think why, it was one of the easiest way to profit for the bank, at hardly any loss as the government took 100% risk associating with it. Contrary to what you state about many banks not wanting to participate, this article says that the legislation ended one of the fiercest lobbying efforts in Washington by banks to defeat this bill.


http://www.nytimes.com/2010/03/26/us/politics/26loans.html

I don't remember the problems some banks had with the program; what I recall is that it was smaller banks.

I'm not sure wiping out the existing loan structure was a good idea. There are Perkins Loans and Stafford Loans; they could have just made a new kind, and found someone to name it after, maybe someone with a Nobel Prize who did a lot to emphasize the need for higher education.

 

[SoulSearcher]

I'm not sure wiping out the existing loan structure was a good idea. There are Perkins Loans and Stafford Loans; they could have just made a new kind, and found someone to name it after, maybe someone with a Nobel Prize who did a lot to emphasize the need for higher education.

I'm happy that banks are not given subsidies of any kind. Perkins and Stafford loans would retain those names. And I would have no problem with your naming proposition, especially if that someone got into Yale or Harvard by his/her own accords, rather than because of daddy and despite a below mediocre high school GPA.

 

[Kulindahr]

I'm happy that banks are not given subsidies of any kind. Perkins and Stafford loans would retain those names. And I would have no problem with your naming proposition, especially if that someone got into Yale or Harvard by his/her own accords, rather than because of daddy and despite a below mediocre high school GPA.

I don't know of anyone who's ever won a Nobel who got into college due to daddy.

I had in mind someone like Pauling or Feynman, both of whom not only were pioneers in science but inspired thousands more to enter the field, and made efforts to get higher education open to anyone with ability.

 

[opinterph]

the loans have always been funded and guaranteed by the government,

was the money the banks lending FROM the government, or was it the bank's money that was partly subsidized by the government?

the money that the banks lent were directly from the government.

the loans have always been federal government's

The money was from the bank.

Banks were disbursing both federally originated student loans, and privately funded student loans, and both were guaranteed by the government.

Wow. Confusing, ain’t it? The correct answer is:

Federal education loans are available either through the William D. Ford Federal Direct Loan Program ("Direct Loans") or the Federal Family Education Loan Program ("FFEL Program" or "FFELP"). The FFEL Program is sometimes referred to as the federally-guaranteed student loan program.

In the FFEL program the funds for the loans come from banks and other financial institutions. In the Direct Loan program the funds for the loans come directly from the US Department of Education, which in turn gets the funds from the US Treasury.

http://www.finaid.org/loans/dl-vs-ffel.phtml

As of June 30, funding for the FFEL loan program is discontinued in accordance with provisions of the Health Care and Education Affordability Reconciliation Act of 2010. (PART II—STUDENT LOAN REFORM: SEC. 2201-2214. TERMINATION OF FEDERAL FAMILY EDUCATION LOAN APPROPRIATIONS. [Link])


Quiz:

1) How does ending the FFEL program save the federal government billions of dollars?

2) When did Barack Obama first propose elimination of the FFEL program?​

Extra Credit:

How did banks exploit the FFEL program during the Bush Administration to scam the federal government out of hundreds of millions of dollars?​

 

[Kulindahr]

Wow. Confusing, ain’t it? The correct answer is:


As of June 30, funding for the FFEL loan program is discontinued in accordance with provisions of the Health Care and Education Affordability Reconciliation Act of 2010. (PART II—STUDENT LOAN REFORM: SEC. 2201-2214. TERMINATION OF FEDERAL FAMILY EDUCATION LOAN APPROPRIATIONS. [Link])


Quiz:

1) How does ending the FFEL program save the federal government billions of dollars?

2) When did Barack Obama first propose elimination of the FFEL program?​

Extra Credit:

How did banks exploit the FFEL program during the Bush Administration to scam the federal government out of hundreds of millions of dollars?​

It's even more confusing because I only know these by their public names, Stafford loans and Perkins loans. The kind of Stafford loan I had came from a bank, and the FedGov paid the interest while I was in school or had it deferred. With that ended, the government wouldn't be paying interest to banks,and that ought to save a bit. The Perkins loan, which I got once (maybe twice) was need-based. The money came from the federal government but was administered by the school. The FedGov paid interest on the loan to the school, even though it was the FedGov's money, so the Perkins effectively also subsidized schools for taking needy students. Since interest was paid to the schools until graduation or during deferment, ending that would also save some funds.

I don't know if it was Obama, but I do know that back in '07 someone wanted to end Stafford loans; it was supposed to save something like six cents on the dollar per loan per year....

Banks scamming the government? Hmmm.... I'm gonna have to research that one!