US House passes student loan overhaul
The US House of Representatives passed legislation Thursday that will knock private lenders out of the student lending market while beefing up funding for Pell Grants and, the Congressional Budget Office , save taxpayers $13.3 billion between 2009 and 2014
The Student Aid and Fiscal Responsibility Act, passed 253-171 largely along party lines, sets a deadline of July 1, 2010, for all American higher education institutions to switch their loan systems over to the federal direct loan plan, creating savings by eliminating the Federal Family Education Loan program, which currently allows private banks to originate loans for students at subsidized rates
The Senate has not yet passed a bill. Republicans argue that the move , which could backfire if the Department of Education performs poorly
The department鈥檚 direct loan system is the smaller of the two loan programs. The FFEL program serviced 4,424 schools through February 2009, (NASFAA), while 1,620 schools used the direct loans program. The groups are not mutually exclusive, with some schools using both programs
The short deadline and the significant increase in workload for the Department of Education has some worried that schools won鈥檛 be able to convert their systems in time, said Justin Draeger, vice president of public policy at NASFAA
The University of Florida switched entirely to direct loans in 1994 after playing what director of student financial affairs Karen Fooks called 鈥渉ide and seek,鈥� trying to troubleshoot a loan system with 鈥渉undreds鈥� of banks
For Ms. Fooks, the change was a positive one
鈥淲e鈥檝e been very, very pleased with the way the direct loans worked. We鈥檝e been kind of disappointed by some of the misinformation out there about how rates will rise and how service will decline. We haven鈥檛 seen any of that to be true,鈥� she said
Another plus, from the universities鈥� point of view, is that federal Pell Grants, offered to low-income students, will be pegged to the consumer price index plus 1 percent
鈥淭hat it鈥檚 indexed for consumer price increases ensures that we don鈥檛 have to fight the appropriations battle every year,鈥� Mr. Draeger said.
