How will the Student Loan provisions affect me? Part II

For some odd reason, the student loan provisions have not been debated at all over these past weeks, and when they have been discussed, they are viewed in a positive light. Those who disagree with the government takeover of yet another private sector have stayed silent. This has been shocking to me! None of our government officials have made a peep. I was thrilled, however, when the following statement was released by our very own Governor Bob McDonnell. Perhaps now some of this will be refuted.

Statement of Governor Bob McDonnell on Federal Student Loan Legislation

RICHMOND- Governor Bob McDonnell issued the following statement today regarding the federal takeover of the student loan industry.

"When the President signed the Health Care Reconciliation Bill into law this week he also simultaneously expanded the reach of the federal government deeper into yet another major industry: student loans. Included in the health care bill is an unrelated policy measure that places all of Virginia's colleges and universities and students into a federally-administered student loan delivery system. This provision was never debated. Virginia parents, students and college administrators never received an opportunity to appropriately comment on a sweeping new policy that will have an immediate impact on the citizens of Virginia and our economy.

Student loan provider Sallie Mae, a private originator of student loans, is based in Reston, Virginia. The Wall Street Journal reports that the signing of this onerous legislation will force the prompt layoffs of 2,500 of their 8,600 employees. This will mean significant job losses in Virginia where we already have a 7.2% unemployment rate. The effect of the job losses will not just be felt by those who suffer them, but will ripple throughout our economy.

The federal takeover of the student loan delivery system will take away yet more choices from American parents and students. Now the federal government will have monopoly control of the entire industry. Virginia colleges and universities must now move to the mandated federally-administered system, taking choice away from our institutions of higher learning as to which system of student loan delivery works best for their purposes. Virginia colleges and universities will have just four months to move from the current system to the federally-administered one. This will all occur while incoming college freshman are in the middle of applying for loans to pay for their higher education. It will greatly complicate matters for students and parents across the Commonwealth during an already stressful and difficult period.

The expansion of the federal government into the private sector is now occurring at an alarming pace. From the auto industry to healthcare to student loans, Washington continues to grow bigger, while the choices available to American citizens in the free market grow fewer. The legislation signed this week places the student-loan delivery system entirely in the hands of the federal government, providing fewer funding options for students and parents, forcing colleges and universities to adhere to a one-size fits all federal system in a matter of months, and again increasing the power of the federal government. It will cost a number of Virginians their jobs. And it all occurred with little to no public conversation or input by burying the provisions in a health care bill. I urge Virginia's federal representatives to seek all possible means by which this policy can be reformed."

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How will the Student Loan provisions affect me?

Legislators stuck several new Student Loan provisions into the recently passed-and-signed-into-law Healthcare Bill, but haven't had time to gloat because of trying to quell the uprising that has ensued the signing.

Because of the "brush off" method used to get new student loan provisions through, there has been immense confusion as to what really is changing and how. After a little research, I hope this can quell some of that confusion.

Q: What does the overhaul of student lending do?

A: Basically, it cuts banks out of the government-backed student loan business. Money for the loans has come either directly from the government or through private financial institutions, which have collected billions of dollars in federal subsidies to protect against default.

Under the changes, banks will no longer act as middlemen, and all colleges and universities must switch to the direct lending program by July 1. Many already have made the switch in anticipation of the new law.

Private lenders can still make student loans that are not backed by the government, and they will continue to have contracts to service some federal loans. But the new law represents a significant change in what has been a multibillion-dollar business for the banking industry.

Q: What will Obama do with the money? How will this affect students and their parents?

A: A chunk of the savings will go toward Pell Grants for college students — to award more grants and to provide larger amounts. Community colleges and institutions with predominantly minority populations also will receive funding.

Q: OK, what exactly is happening to Pell Grants?

A: More than $40 billion will go toward the grants, which are targeted toward students from low- and moderate-income families. Between 2013 and 2017, the maximum award will increase to $5,975 from $5,550. The administration also expects more than 820,000 additional awards to be made by the 2020-2021 academic year because of the changes.

Some of the money will address shortfalls in the Pell Grant program that developed because students were qualifying for more and larger grants. More than 6 million students received such grants in the 2008-09 academic year, an increase of about 50% from a decade earlier, according to the College Board.

Q: How else will students benefit?

A: Students who have low incomes or meet certain other eligibility requirements and who take out loans after July 1, 2014, will see their payments limited to 10% of their discretionary income after graduation. Current law caps payments at 15% of income.

For students who make their loan payments on time, the government will forgive the balance after 20 years, instead of 25. Public service workers — teachers, nurses, police officers and those in the military — will see any remaining debt forgiven after just 10 years of repayment.

Q: What's in the new law for community colleges?

Community colleges, which enroll more than 6 million students and are growing fast, will receive $2 billion over the next four years for a competitive grant program to provide training and education programs. The grant program was created in the economic stimulus bill enacted last year, but never funded.

Q: What about funding for institutions that serve mostly minority student bodies?

These colleges and universities will share $2.55 billion in additional funding over the next decade.

Q: Does anybody lose as a result of the changes?

A: Banks and other financial institutions. Sallie Mae, the biggest student lender, has about 8,500 employees in the student loan program and has said close to one-third of them may lose their jobs as a result of the overhaul. Sallie Mae still will have contracts to service federal loans.