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U.S. House Passes Student Loan Reform Bill

The House of Representatives approved today by a 235-171 vote the Student Aid and Fiscal Responsibility Act (H.R. 3221), which plans to change the way many students pay for their college educations. The most dramatic change is to end the banks’ role in making student loans.

Columnist Gail Collins in today’s New York Times sums up the reforms this way:

Let us stop here and recall how the current loan system works:
1) Federal government provides private banks with capital.
2) Federal government pays private banks a subsidy to lend that capital to students.
3) Federal government guarantees said loans so the banks don’t have any risk.

And now, the proposed reform:
1) The federal government makes the loans.

In wonkier terms, students now can borrow money from private lenders through the Federal Family Education Loan Program, which provides subsidies and guarantees to banks and other lenders. Students or their families can also borrow directly from the U.S. government’s Federal Direct Loan Program. The bill would fold all lending into the Direct Loan program, leaving the private sector with a much-reduced servicing role.

Rep. George Miller (D, CA), the chief sponsor of the bill, says that ending the subsidies and guarantees will save some $87 billion over the next decade. The bill allocates about $40 billion of that amount for increasing Pell Grant scholarships annually from $5,350 today to $6,900 in 2019.

The bill also expands the Perkins Loan program to more campuses — in the Perkins Loan program, students borrow from the institution, not from the government — and simplifies the Free Application for Federal Student Aid (FAFSA) form. The current FAFSA form is so complex that companies have sprung up to help individuals and families complete it.

The bill has other provisions: It keeps interest rates low on need-based student loans. Those rates were expected to double from 3.4% today to 6.8% in 2012. The bill forgives loans to reservists or National Guard members called up to active duty in the middle of their academic years. And it funds programs that broaden access to post-secondary institutions and encourage students to complete their degrees.

Rep. John Kline (R-MN), the ranking member of the House Education and Labor Committee, called the bill a government takeover of the current private system of student lending that most institutions favor.

The bill, which has the backing of the Obama Administration, now goes to the Senate. Sen. Tom Harkin (D, IA), who chairs the Senate Health, Education, Labor, and Pensions Committee, said in a statement that the committee plans to soon write similar legislation.

4 comments on “U.S. House Passes Student Loan Reform Bill”

  1. this blog really convey the message of the heart of all the students.the information on this blog is really interesting. the students have an opportunity to get the loan at low interest rate so visit the site for more detail.

  2. By passing the US Reform Bill, at least the students are a bit relieved keeping in view of the exorbitant amount of interest rate charged by the banks. With the passing of this bill, more and more students would opt for the students loans now. I am just wondering what the banks have to say about the passing of this reform bill. They are undoubtedly at loss and now it is to see what their reaction will be.

  3. Its agreed that the US Government has passed the Reform Bill to help the students with the education loans, I think that government should pass another such bill to reduce the interest rate charged by the private loan lending institutions. If such a thing is done by the government then I think that more and more students would be able to afford student loans

  4. Bob says:

    So let me get this right, The Federal Government gives the banks our tax dollars so they can loan it back to us with interest? In addition, the Federal Government will give the banks our money (a subsidy) so they loan us our own money with interest? And finally, if we don’t pay the loans, the student loans will still be paid back with our tax dollars? This sounds like it helps the banks more than it does the students. Why not just use all that money to open some free public institutions like our current public school system? Screw college, how do I start a bank so I can get in on this deal?

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