Republicans and Democrats both want to stop interest rates on federally subsidized Stafford loans from jumping from 3.4 percent to 6.8 percent in July. They just can’t agree how to pay the $5.9 billion cost
The legislation makes substantial changes in the way students get money for college, but those provisions might not necessarily be tangible for students in the immediate future.
That’s because the biggest change is in who administers student loans. Instead of private banks issuing loans guaranteed by the government, the government will now become the originator of the loan.
When I acquired a Parent Plus Student Loan it was through a bank. But now all that has changed, “Note: Before July 1, 2010, Stafford, PLUS, and Consolidation Loans were also made by private lenders under the Federal Family Education Loan (FFELSM) Program. As a result of recent legislation, no further loans will be made under the FFEL Program beginning July 1, 2010. Instead, all new Stafford, PLUS, and Consolidation loans will come directly from the U.S. Department of Education under the Direct Loan Program”. All the above loans are now through the federal government, no more going through a bank. The change in legislation was to help reduce the cost of the loan program by cutting out the middlemen. However its obvious that more federal employees were hired to administer the loan program. So how much is the government really saving? But back to this war on the loan interest rate. The funding for these loans comes from the taxpayers and the interest paid returns to the taxpayers. I don’t understand the 5.9 billion dollar cost concern. Its a loan that has to be paid back with a current interest rate 3.4%. Sure there will be defaults and loan scams. But my point is, doesn’t the 3.4% interest cover the government administration cost of the student loan program? The federal fund interest rate charged banks is o.25%. I wonder where the savings from cutting out the middleman is re: student loan / banks went to? The legislators need to vote to keep the student loan interest rates right where they are.
True story, the Parent Plus Loan I acquired for baby Kilroy via the bank; I always paid a little extra each month and when the next month’s bill came it was adjusted downward. It came to a point the monthly statement indicated $0.00 due. That’s because I was paid ahead. So a few summers ago I said to the wife, the monthly statement indicated $0.00 due so let just take the money we normally paid and have a little extra for vacation. Well the next month’s bill came with a notice that the interest rate had gone up because I missed a payment! I called and explained the payment I missed indicated $0.00 due. I was informed that I was required to at least pay the interest. I said, the bill said $0.00 due and why didn’t it indicate how much interest was due? I was told to read the contract! So up went the interest rate!