The Democratic-led House of Representatives in a vote of 253 to 171 on September 17, easily passed legislation that would end the long Federal Family Education Loan Program (FFELP), the program initiated by the Higher Education Act of 1965 to offer students college loans students guaranteed by the federal government through private lenders.
Since the measure awaits a Senate vote expected for October 15, representatives of industry FFELP student loans along prominent Republicans have intensified their attacks on key mandates of the bill, which they say will cost not only students and schools of competitive pricing and choice in the loans students offered by the private sector, but the saddle taxpayers with billions of dollars in new costs.
Federal Student Loans: FFELP vs. Direct Lending
Under the existing program ffel, the government pays the private lenders FFELP subsidies for federal loans students from these lenders – in essence, giving third party to act as an intermediary in the delivery of government student loans.
In 1992, the Clinton administration launched a second program Federal Student Loans – Federal Direct Student Loan Program – which grants federal college loans directly to borrowers through the U.S. Department of Education, without any participation the third from a bank or another FFELP lender.
If the House approved the bill, known as student aid and Fiscal Responsibility Act of 2009 (SAFRA), pass the Senate and become law, the program will ffel be dismantled and all student loans federal government become federal direct loans made directly by the federal government rather than through third party FFELP lenders and banks.
Supporters of the legislation say that removing subsidies FFELP will generate 87 billion dollars in savings for taxpayers over the next decade. The bill allocates $ 80 billion of the estimated savings to extend the federal Pell Grant program for students low-income college fund several initiatives to educate others that supporters say is no additional cost to taxpayers.
President Obama has been a vocal supporter of the bill, arguing that subsidies FFELP funnel government money to banks and away from students.
"Stop this unjustified subsidy for large banks is obvious to people everywhere "Obama said in a recent speech to the Hudson Valley Community College in New York.
Critics: Discuss costs of student loans "Savings" Ignores Obvious
Opponents of the measure SAFRA, however, dispute this highly publicized "$ 87 billion of savings" figure. In an article for The Hill, Representative John Kline, Minnesota, ranking Republican on the education and Labor Committee, argued that the projected $ 87 billion does not include savings in the long term, standard risk, does not allow fluctuations interest rates and the risk of default on college loans.
The savings claimed Kline holds, "are in largely indeed a new salary, the federal government take to borrowers of student loans the government to pay an interest rate higher than the cost of government funds "(" Loans Student Faces government takeover, "TheHill.com, September 14, 2009).
Because interest rates on borrowers parents and student loans are federal government fixed interest rates of the market from its current recession Depression in air, the cost of government to finance direct loans to students will increase as interest earned borrower remains the same – Which means that the projected savings (ie See Kline, "earnings") will shrink.
The expected cash flows the Government on which the savings figure is based will be much tighter, if defaults are higher than expected – and rates default in the Student Federal Direct Loan Program will surge, say critics.
FFELP lenders have traditionally secretariat a higher percentage of community college students and college career as the Direct Loan Program. These students tend to default rates higher on their college loans, regardless of whether they are or Federal FFELP borrowers Direct. As the Department of Education took over the borrowing community and vocational colleges, argumentation, Direct Program Loans will also absorb more likely these borrowers to repay their student loans, which eat into the projected $ 87 billion.
In addition, Kline notes that Bill SAFRA only covers the cost of some of his proposed education spending for five years, after which the taxpayers will face either program cuts or tax increases to continue funding of these training initiatives for new and expanded. Furthermore, Kline has revealed in his piece for The Hill, non-partisan Congressional Budget Office recently admitted that the proposed expansion of Pell grant will actually cost $ 11.4 billion more than initially planned – an amount that is not covered by the current allocation of $ 80 billion in the bill student loan.
About the Author:
Shelley Higsley is an enthusiast on the topics of college life issues. She has been writing for the past 5 years for a variety of education publications. She now offers her writing services on a freelance basis.
Article Source: ArticlesBase.com – GOP, Lobbyists Mount Criticism of Bill to Overhaul Student Loans
