Student Loan Reform Ends Windfall For Lenders

Online, September 30, 2010 (Newswire.com) - The Congressional Budget Office estimates that eliminating the Federal Family Education Loan Program (FFELP), one of the student loan reforms signed into law at the end of March, will save up to $87 Billion over the next decade.

Under the FFELP, banks and other lenders make loans that the federal government guarantees. The program is slated to end on July 1st, 2010. Education Secretary Arne Duncan has said that banks have benefited long enough from a system that was designed more to benefit the loan industry rather than students and working families. "The banking industry has had a free ride from taxpayers for too long," he said in a conference call with reporters. "They have had their bailouts. They have had their subsidies, and they've paid themselves very well while working families and students are struggling to make ends meet." Duncan said taxpayers paid up to $8 billion a year to subsidize student personal loans. "Essentially, we give the banks our money, and they lend it back out to students with interest, and if the students can't pay, we pick up the tab," he said.

The reforms are an attempt to reduce the role of private banks from the federally subsidized student-loan market, and also would lessen the burden for some graduates as they pay back their loans. It also attempts to greatly simplify the student loan process and offers more financial help to lower-income students. The bill expands the Pell Grant program, which assists lower-income students. The new law provides $13.5 billion for help to pay for projected shortfalls in the program for the next two fiscal years, and increases the maximum award to $5,550 next year and nearly $6,000 by 2017.

Currently, certain students with low incomes and large loan balances don't have to pay more than 15 percent of their incomes each month on the loans. The new law will reduce that to 10 percent.

A significant majority of Americans support the reforms, according to a recent CNN/Opinion Research Corporation poll.

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