Feds Take Over Federal Student Loans

As part of health care reconciliation, major changesStudents receiving larger Pell Grants will need to
were enacted into law relating to federal student loanborrow less to pay for college.
programs. Included in this legislation is what appearsBeginning in 2014, borrowers will also get better debt
to be no less than a federal takeover of federalrepayment terms. Current borrowers can limit
student loans, along with big increases in Pell Grants.monthly federal student loan payments to 15 percent
The new law eliminates the Federal Family Educationof their discretionary income. In 2014, this cap will be
Loan Program and cuts out private lenders. Beginningreduced to 10 percent of discretionary income.
on July 1, all federal loans will originate through theThe only role left for the private sector will be loan
federal Direct Loan Program. According to theservicing, and the legislative intent appears to be to
non-partisan Congressional Budget Office, cutting outensure that these contracts will be
banks and private lenders from the student loanperformance-based and awarded to the loan
business will save taxpayers $61 billion over the nextservicing companies providing the best customer
10 years, at least $10 billion of which will reduce theservice.
federal deficit and help underwrite the cost of healthIt seems ironic that this last minute addition to the
reform.health care reform legislation indeed amounts to a
The new law also includes $36 billion for Pell Grants,federal takeover. While it's hard to take seriously the
which provide subsidies to low-income and someargument that the new health care law amounts to a
middle-income students. The maximum amount of Pelltakeover of health care, the new law absolutely
Grants this year will grow to $5,300 and to almostseems to put the federal government directly in
$6,000 in 2017. Without the new law, Pell Grantscharge of lending to our nation's students.
would have been limited to $2,150 next year.