Results tagged “student loan reform” from EdLabor Journal

With students returning to college across the nation, many of them are facing rising costs of tuition and books. The Daily Collegian of Penn State reports today on changes to federal students loans that make higher education more accessible and affordable for students.

Katrina Wehr writes:

The law, which was included in the health care reconciliation bill passed in March, simplifies the student loan process, therefore preventing students from accumulating unmanageable debt after graduation, Miller said.

"No one should have to mortgage their future to go to college," Miller said. "That's just unacceptable."

In an effort to meet President Barack Obama's goal of producing the most college graduates in the nation's history by the year 2020, SAFRA introduced an increase in funding for Pell Grants -- as the Consumer Price Index's cost of living increases, so will the monetary value of the grants.

He said the law also lowers caps on monthly loan repayments.

Beginning in 2014, borrowers who qualify for income-based repayment on their loans will be able to cap their payments at 10 percent of their monthly income, Miller said. Prior to the switch, the cap was 15 percent, Miller said.

Learn about student loan reform and what's in it for you. Also, learn to separate the myths from facts about the Student Aid and Fiscal Responsibility Act.

The Wall Street Journal writes today about the new rules for student loans. 

Some parents and students may also see lower interest rates on new loans. Now that all Parent PLUS loans are under the Direct Loan Program, the fixed rate for new Parent PLUS loans is 7.9%. Some lenders had charged 8.5%.

And the fixed rate has dropped, to 4.5% from 5.6%, for new subsidized Stafford loans for undergraduates. With subsidized loans, the federal government pays the interest on a loan while the student is in school, during the grace period after graduation or if the loan is in deferment, which is when borrowers are temporarily allowed to stop making payments.

The Department of Education also has increased the maximum Federal Pell Grant award to $5,550 for the 2010-2011 academic year, from $5,350 for the 2009-2010 school year.

As Investopedia pointed out, the reforms eliminate the middleman, enlarge Pell Grants, increase funding for minority-serving institutions, lower income-based payments, and offer more forgiveness opportunities.

Learn more about how reforms to federal student loans help students, families and taxpayers.

The USA Today highlighted some of the July 1st changes to the federal student loan program that lowered rates and made repayment easier.

But before you even think about a private loan, make sure you have maxed out on your federal student loans. Federal student loans have fixed interest rates and more flexible repayment terms than private loans. If you have trouble making payments after you graduate, the federal government offers several programs that provide relief (more on this later). Private lenders aren't required to do anything to help troubled borrowers.

All PLUS loans (Parent Loan for Undergraduate Students) are now issued through the Direct Loan program. Like Stafford loans, these loans were previously offered by private lenders, as well as through the Direct Loan program. The rate for Direct PLUS Loans is 7.9% vs. 8.5% for FFEL PLUS Loans. Parents can use PLUS loans to pay for any college costs that aren't covered through Stafford loans and financial aid. Graduate students are also eligible to borrow through the PLUS program.

Rates for subsidized Stafford loans, which are available to borrowers who demonstrate economic need, fell to 4.5% from 5.6%. This new rate will apply only to subsidized Stafford loans issued between July 1, 2010, and June 30, 2011, says Robert Murray, spokesman for USA Funds, a non-profit company that services loans. Rates on subsidized loans issued before July 1 won't change, he says. The rate for unsubsidized Stafford loans, which are available to all students, remains at 6.8%.

Origination fees for Direct Stafford loans dropped to 1% from 1.5% on July 1. Because the cost of the fee is deducted from the proceeds of the loan, the reduction will increase the amount of money available to pay your college costs, Murray says.

Additionally, the maximum Pell Grant increased to $5,500.

But current students aren't the only ones who benefit. There is help for graduates, too.

Other changes that took effect July 1 could provide relief for graduates who aren't making enough money to afford their loan payments.

The income-based repayment program allows federal student loan borrowers to have their loan payments reduced, based on income and family size. For most eligible borrowers, loan payments will be less than 10% of their income. Two updates to the program could lower payments even more for some borrowers:

Married couples will no longer be penalized. Previously, when couples filed a joint tax return, the program assumed that both spouses could use 100% of their combined income to make loan payments. In cases in which both spouses had student loans, the minimum payments were much higher than the minimum for unmarried borrowers with the same debt and income, says Lauren Asher, president of the Institute for College Access and Success. The new formula will take into account married couples' combined income and their combined debt to calculate minimum payments, Asher says.

Eligibility for income-based repayment will be based on the balance when the loan went into repayment or the current loan amount, whichever is greater. This will primarily benefit borrowers who have gone into forbearance or deferment, Asher says. These programs allow borrowers to temporarily suspend payments, but if interest accrues during the period, they end up with a larger loan balance.

Learn more about the July 1, 2010 federal student loan benefits.

Now more than ever, Americans need affordable, quality education opportunities to help make our economy strong and competitive again. The Student Aid and Fiscal Responsibility Act was included in the health care reconciliation bill that was signed into law on March 30, 2010. Reforms in this law will move America toward producing the most college graduates by 2020 by making the single largest investment in federal student aid ever.



Specifically, these provisions will:

• Invest the bill’s savings to make college affordable and help more Americans graduate
• Provide reliable, affordable, high-quality Federal student loans for all families
• Meet Pay-As-You-Go fiscally responsible principles and reduce the deficit

See how SAFRA will benefit students living in each congressional district

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Chairman George Miller is featured today in Politico’s video series called the “The Politics of America’s Youth” with Mike Allen. He discusses ESEA reauthorization, higher education, and the bipartisan spirit and support for education reform.

Watch the three part video here.

On ESEA Reauthorization:

"We now have the opportunity to really take that rigid system and make a trade-in, if you will, of some additional flexibility at the local level for outcomes, for results. The Secretary [of Education] has made that clear, the President has made that clear, and I think we've made that clear in the series of hearings that we have held. We'd really like now to put more emphasis on better teachers, more emphasis on better leadership, more emphasis on the use of those resources and the flexible use of those resources, and really put teaching and learning and leadership back into the classroom, back into the local systems, and then stand back and hold them accountable for those--for those results, and we're getting a lot of encouragement as we've held our hearings."

On Higher Education:

"And what we tried to address ... was to see whether or not we could bring down the cost of college for families with an increase in the Pell Grant, by lowering the interest rates on student loans over the next couple of years, and then make it easier for the students and the families to manage that debt that they're required to take out to get the degree that they desire. And one of the ways we do that is we have--we let them have an income determinant payment system. How much you pay every month depends upon how much you're making. So, if you start a career with a low entry wage, you can still have that career and you can manage your payments.

"If you go into public service or you work for a non-profit, if you want to become a nurse, a doctor, a teacher, a prosecutor, a public defender and you're working for a public agency, in ten years, your loans go away, and you never have to pay more than 10--10 percent of your discretionary income to pay that loan back. All of a sudden, people can envision careers that otherwise they couldn't have, where they may really wanted to be a teacher, to be a health nurse, to be a physician's assistant, but they couldn't see how they could balance the pay and the education. We need those people, and so this is really in the public interest.

"We also--when we moved to the direct loan programs, it required the companies bring jobs back to America because they're now managing federal assets when they manage the repayment of these loans, and that requires people--that it be done here in America."

On Bipartisanship:

"There is--clearly, whether you're a Democrat or a Republican, you have a big interest in children. It's about our children, our neighbor's children, our constituents' children, it's about the country, and that passion is on both sides of the aisle, certainly in our Committee."

Michelle Singletary at the Washington Post has an excellent column today about how students can be trapped in private student loans with no way out.

She writes:

"This was not a decision I made lightly," [Valisha Cooks] said. "Filing for bankruptcy was expensive and, most of all, humiliating. I was raised to work hard, pay my bills and be responsible." About $10,000 in other debt was erased. But not her student loans.

"Now, even though I have a good job, I can't afford to pay all my bills in any one month," Cooks told the [House Judiciary] subcommittee. "I go to food banks to feed my son, and I will never be able to afford a house." Like child support and tax debt, student loans are nearly impossible to eliminate in bankruptcy. You have to prove "undue hardship." That's a high hurdle to jump.

Before, the only loans that couldn't be canceled by filing for bankruptcy were federally backed student loans, as well as loans where nearly all the funds came from a nonprofit institution, according the National Association of Student Financial Aid Administrators. In the case of the federal loans, this made sense. The government backs the loans, and defaults are a direct hit to the federal budget, meaning we all pay for those who can't.

But in 2005, during a major overhaul of the bankruptcy code, private student loans were given an elevated status and thus couldn't be discharged. This didn't make sense. If we are going to have a fair bankruptcy system, private education loans should be treated the same as other private consumer debt. That's the risk lenders take, similar to the risk borne by providers of loans for cars, homes or other consumer purchases.

Lenders and opponents of this legislation argue that if people can erase their education debt, private loans for college will be tougher to qualify for and harder to get. There's a concern that people will get an education and immediately run to bankruptcy court to shed their loan obligations before they make big money.

I covered bankruptcy for years, and seldom did I see bankruptcy petitioners gleefully sitting in the corridors of a courthouse eagerly waiting to shirk their financial responsibility. People usually seek bankruptcy protection as a last resort. Besides, there is a test in place to prevent people from scamming the system.

Chairman Miller agrees with Ms. Singletary, which is why he's called for Congress to end special treatment for private student loan providers. "In 2008, the Democratic Congress took important steps to provide long overdue consumer protections for students when borrowing financially risky private student loans, but more needs to be done. Private student loans remain far more expensive for borrowers than federal student loans, and often carry tricky terms and conditions. Especially in this economy, private student loan borrowers deserve the same basic protections consumers receive when using their credit cards, buying a car, or paying their electric bill."

Investopedia put together what they deemed as 5 Surprise Changes to the Student Loan Program. (Frequent readers of this blog won't be surprised by the reforms helping students and taxpayers.)

Investopedia highlighted these 5 changes to federal student loans:

1. Elimination of the Middleman
2. Larger Pell Grants
3. Increased Funding for Minority-Serving Institutions
4. Lower Income-Based Payments
5. More Forgiveness Opportunities

They finished with this:

The Bottom Line
While cash-strapped college students (and their parents) will likely welcome anything that helps them manage those hefty tuition payments, many critics say these measures don't go far enough, especially considering several elements don't go into effect for several years. However, when coupled with recent changes to simply the FAFSA (the form students may complete to apply for federal aid) and the expansion of college-related tax credits, the new legislation may at least provide a little bit of a helping hand to families struggling to afford the overwhelming cost of higher education.

Learn more about how reforms to federal student loans help students, families and taxpayers.

Since 2007, the Democratic-led Congress has:

INCREASED THE MAXIMUM PELL GRANT AWARD TO $5,550 THIS YEAR: By 2017, the maximum Pell Grant is expected to be $5,975. The value of the Pell Grant had been shrinking—paying 75% of college costs in 1977, and just 33% last year.

MADE YOUR STUDENT LOAN REPAYMENTS MORE AFFORDABLE: Right now you can cap your student loan payment at 15% of your discretionary income, and any balances you have left after 25 years will be forgiven. For new borrowers starting in 2014, this goes down to 10% of your discretionary income, with balances forgiven after 20 years.

LOWERED STUDENT LOAN INTEREST RATES ON YOUR NEED-BASED LOANS: Subsidized Stafford loan rates have been dropping and will continue to decrease over the next two years, going down to 4.5% in the 2010-2011 school year and reaching 3.4% in the 2011-2012 school year.

INVESTED IN STUDENTS, NOT BANKS: By switching all schools to the more efficient Direct Loan program, the government will save $61 Billion over the next 10 years—money that will now be used to help you, rather than to give subsidies to banks.

MADE IT EASIER TO APPLY FOR FEDERAL STUDENT AID & PLAN FOR TEXTBOOKS: We streamlined the Free Application for Federal Student Aid (FAFSA) process down from 100 questions and created a two-page FAFSA-EZ form—giving families extra time to plan for college expenses. On textbooks, colleges are now required to provide you with advance information on textbook pricing to help you plan. And publishers must provide pricing information on “unbundled” versions of every “bundled” textbook they sell.

INVESTED IN COMMUNITY COLLEGES -$500 MILLION A YEAR FOR NEXT 4 YEARS: All students—including those who are returning to school after being in the workforce—will have access to high-quality, low-cost higher education. More courses will be available, at times that work for you.

INVESTED $3 BILLION IN HISTORICALLY BLACK COLLEGES AND UNIVERSITIES AND MINORITY-SERVING INSTITUTIONS: This can renew, reform, and expand programming to provide students with the support they need to stay in school and graduate.

ENCOURAGED TEACHING THROUGH TUITION ASSISTANCE AND REWARDED PUBLIC SERVICE THROUGH LOAN FORGIVENESS: You can receive up to $4,000 a year in up-front tuition assistance if you commit to teaching in a high-need school or subject area for four years after you graduate. If you work in public service or at a non-profit for 10 years, and make payments on your federal student loans during that time, any balances you have after 10 years will be forgiven.

A poll from Rasmussen Reports released today purports to show that Americans are strongly against the historic student loan reforms signed into law by President Obama this week. However, when reading the questions Rasmussen asked, it is clear that the firm is playing an April Fools’ gag.

What’s up next for Rasmussen? Gauging Americans’ job approval of the Tooth Fairy?

APRIL FOOLS: “49% think new student loan plan is a bad idea, 35% like it.”(Rasmussen headline)

When presented information on what the student loan reforms signed into law actually do, Americans strongly support it. The Student Aid and Fiscal Responsibility Act invests billions of dollars in students and families, at no costs to taxpayers. Not surprisingly, critics are using scare tactics to try to mislead the American public about this effort. They’re desperate to preserve the status quo – a system that for too long has favored banks at the expense of students and taxpayers.

APRIL FOOLS: “Under a newly approved law, students will borrow money directly from the federal government rather than through a private bank.” (Rasmussen poll question #3)

It’s ridiculous to argue this is a government takeover, when the federal student loan programs are already a federal program, established and subsidized by the federal government. The Federal Family Education Loan Program (FFELP) is broken and now depends on taxpayer dollars not just for subsidies that reimburse lenders when borrowers default on loans, but also for the capital to finance their lending activity altogether.

Taxpayers now fund 8.8 of every 10 dollars in federal student lending activity. They absorb all the risk. There is simply no reason to keep pumping taxpayer dollars into a broken system when the federal government can provide the same low-cost federal loans more reliably for students and at a lower cost for taxpayers.

APRIL FOOLS: “The government says it will save billions by cutting private banks out of the student loan process. How likely is it that the government involvement will save billions of dollars?”(Rasmussen poll question #4)

According to the nonpartisan Congressional Budget Office, but cutting out subsidies to big banks and switching to the cheaper Direct Loan program, the student loan reforms save taxpayers $61 billion over the 10 years. In addition to investing in college aid, these provisions will also reduce the deficit by at least $10 billion over 10 years.

The Economic Policy Institute took a look at the recently-passed Student Aid and Fiscal Responsibility Act in the budget reconciliation and found it would actually produce jobs in local communities.

While lenders used scare tactics about job loss to try to protect their billion dollar subsidies, EPI found that the legislation will result in more help for student and more jobs:

According to the Congressional Budget Office, the legislation will reduce bank subsidies by $61 billion between 2010 and 2019. A large share of these savings will then be used to boost financial aid for low- and middle-income borrowers.

For example, the legislation increases funding for Pell Grants by $36 billion over the next 10 years. Pell Grants are scholarships to help low- and moderate-income students pay their college costs. Sixty-two percent of dependent Pell Grant recipients come from families with incomes below $30,000 per year. Pell Grants are therefore extremely well-targeted to individuals who will rely on them to increase their spending (for textbooks, tuition, and other expenses) rather than to increase their savings.

Similar to food stamps and unemployment insurance, this spending creates demand for goods and services in local communities, and this in turn helps to create jobs. The key reason for persistently high unemployment in the United States is the lack of demand for goods and services; spending that spurs demand thus creates jobs.

The job-creating effects of the education provisions of the reconciliation legislation will likely outweigh any job loss that could result from eliminating the middlemen in the student loan programs. These reforms are clearly a win-win-win for American workers, students, and taxpayers.

(emphasis and link added)

Later today, the U.S. House of Representatives will cast a final vote on the budget reconciliation bill that will make necessary reforms to the federal student loan program. CNN polled Americans on how they felt on the Student Aid and Fiscal Responsibility Act.

They found:

Nearly two-thirds of Americans say they favor a proposal to increase the amount of money available for college loans by allowing the government to provide those loans directly to students, according to a new poll.

A CNN/Opinion Research Corporation survey released Wednesday indicates that 64 percent of respondents favor the proposal and 34 percent opposed it.

...

The survey also indicates, to a degree, some rare bipartisan support, with a vast majority of Democrats, a solid majority of Independents, and a slight majority of Republicans favoring the proposal.

Read more about their poll and learn more about the Student Aid and Fiscal Responsibility Act.

Yesterday, students from all over the United States rallied on Capitol Hill in favor of the Student Aid and Fiscal Responsibility Act while lenders spent millions to derail these much needed reforms for students and taxpayers.

The Washington Post reports:

College students swarmed Capitol Hill on Tuesday to plead for more financial aid as private lenders made a last push to preserve their endangered role in making federal student loans.

The dueling messages sought to influence potential Senate action this week on a proposal to expand direct government lending by cutting funding for private firms that make federally guaranteed loans. Tens of billions of dollars in projected savings would flow to grants for needy students.

...

The measure would save an estimated $61 billion over 10 years by cutting out subsidies for private lenders, which the Obama administration describes as needless go-betweens, and by expanding direct government lending. It would provide $36 billion in Pell grants for students from low- and moderate-income families, including $13.5 billion to plug a shortfall this year because rising numbers of students are eligible for aid.

The United States Student Association rallied hundreds of members on Capitol Hill for the bill. They waved signs -- "Students NOT Banks!" and "$ Now!" -- and chanted slogans that underscored the fiscal straits universities face as they raise tuition. "They say, 'Cut back!' " students yelled. "We say, 'Fight back!' "

"I'm an independent student," said Sabrina Ford, 19, of Ypsilanti, Mich., a financial aid recipient in her first year at Eastern Michigan University. "If the Pell grants are cut, I have no idea how I would pay for education. Right now, I rely on myself and the government to assist me."

Learn more about the Student Aid and Fiscal Responsibility Act, read Chairman Miller's condemnation of Sallie Mae's scare tactics and his comments after the House passed the bill on Sunday.

The New York Times highlights the important of including the Student Aid and Fiscal Responsibility Act in the budget reconciliation package passed by the House last night to getting both health insurance reform and the federal student loan reform done.

The New York Times says:

Lots of Democrats can point to lots of different moments when they think the health care bill was brought back from the brink of collapse.

But for a number of senior House Democrats, the crucial turning point was a meeting the night of March 9 in the offices of Speaker Nancy Pelosi. It was supposed to be a strategy session with Senate Democratic leaders about the budget reconciliation procedure that Democrats were planning to use to make final changes to the health care bill and push them through the Senate on a simple majority vote.

Instead, the session focused entirely on the question of whether to include another of President Obama’s top legislative priorities — a sweeping overhaul of federal student loan programs — in the reconciliation package.

The budget resolution approved by Congress last spring provided for completing both major health care legislation and major education legislation through reconciliation, which adjusts federal policy to meet specific goals for reducing the deficit.

A trio of House leaders — Representatives James E. Clyburn, the Democratic whip; George Miller, the chairman of the Education and Labor Committee; and Xavier Becerra of California, the vice chairman of the Democratic caucus — argued strenuously in favor of including the education proposal.

...

Although overshadowed by the larger health care fight, the inclusion of the education bill may have been a decisive factor, especially at a time when House Democrats were exceedingly distrustful of their Senate colleagues and were essentially being forced against their better judgment to approve the Senate’s health care bill as the base law to which they would later make changes.

The student loan overhaul was very popular in the House. And because it would save tens of billions of taxpayer dollars by ending subsidies to private commercial banks, it offered a purely populist message at a time when public anger at Wall Street is running high and many liberals were disappointed that the health care bill would not include a public option, or government-run insurance plan.

Mr. Clyburn, who as the whip is the party’s main vote-counter, argued forcefully that the student loan measure would help generate support for the health care package.

...

For some Democrats, the student loan plan is the hidden triumph in the health care fight, and the late-night meeting earlier this month was the crucial moment. “It was an fascinating conversation about what the Democratic Party represented,” one Democrat said.

“Members of Congress have a clear choice,” Mr. Miller said in a floor speech on Sunday night. We can side with the American people by making health insurance and college more affordable and accessible, while creating millions of jobs and reducing the deficit. Or we can side with the insurance companies and the banks. That’s it. That’s the choice. I’m siding with the American people.”

Learn more about the Student Aid and Fiscal Responsibility Act.

As the Congress prepares to vote on the budget reconciliation bill that contains the Student Aid and Fiscal Responsibility Act this week, Newsweek is reporting that surging numbers of college applicants is putting the Department of Education under strain to fill the need for Pell Grants. The Secretary of Education says that the only way to ensure all students get what they need is to pass SAFRA.

Newsweek says:

Because of the recession and continued high jobless rates, a surge of prospective students are heading to college to gain a competitive advantage in the job market, and an unexpectedly large number of them are applying and qualifying for Pell grant money to help pay for their classes. The U.S. Department of Education says 2.6 million more people have already applied and qualified for Pell grants for fall 2010, compared with academic years before the recession began. Specifically, between fiscal year 2008 and fiscal year 2011, the number of qualified applicants has risen from 6.1 million to 8.7 million.

During a conference call with reporters late Thursday, Education Secretary Arne Duncan stressed that if the direct-student-loan bill fails to pass, there will be no way to span the gap between the money already allocated for Pell grants this fall and the increased demand for financing. The result would be that many qualified applicants would not get the maximum of $5,150 but a whittled-down check averaging $2,150.

The savings from the bill, Duncan said, could help the country “educate our way to a better economy. The downside, if we do nothing, is that as many as 8 million students will see their aid cut by as much as 50 percent. This is a huge, huge opportunity.”

Learn more how the Student Aid and Fiscal Responsibility Act will affect your congressional district.

The Washington Post editorial yesterday highlighted the value of the Student Aid and Fiscal Responsibility Act, calling it better student loans than the current option.

They fact checked two myths opponents are peddling and made a strong case for passage of SAFRA:

First, it's no government takeover. Opponents would make it appear as though Democrats want bureaucrats to destroy a functioning private market for federally backed student loans. In fact, the only reason any private company is in the business of originating such loans is because of government support, and propping up that artificial market is expensive. In the end, it's a better deal for taxpayers to have the government lend money directly to students. Private lenders, who want to preserve some role for themselves in the loan origination business, counter that they provide better services to students. But the government plans to farm out loan servicing to them through a process of competitive contracting.

Second, reconciliation, which removes the filibuster as an option and allows legislation to pass with a simple majority, has been on the record as an option for student loan reform for months. Since there can be only one reconciliation bill per budget year, the Democrats' move to add the education measure to health-care reconciliation should be no surprise. If there is a proposal tailor-made for reconciliation -- a procedure originally intended to help Congress rationalize the budget -- it is this plan to end a wasteful program of subsidies for private lenders.

Learn more about the Student Aid and Fiscal Responsibility Act.

Yesterday, Chairman Miller and Senator Harkin made a strong argument to include the Student Aid and Fiscal Responsibility Act in the budget reconciliation package.

As the New York Times reports:

Democratic Congressional leaders struck a tentative agreement on Thursday that breathes new life into President Obama’s proposed overhaul of federal student loan programs.

The deal would bundle the bill into an expedited budget package along with the Democratic health care legislation, which would allow for both measures to be passed by the Senate on a simple majority vote. Without the deal, the student loan bill would have been unlikely to pass because it lacked the 60 votes needed to overcome a filibuster.

The bill would end government payments to private, commercial student lenders, leaving the government to lend directly to students. It would also redirect billions of dollars to expand the Pell grant program for low-income students, and to pay for other education initiatives.

Politico is reporting that the loan bill could give Obama twin win. And it is a win for students, families, and taxpayers too. Chairman Miller said, "Supporting students and their families rather than banks is a win-win for our country, is a much better use of taxpayer dollars, and is helpful to passing the overall health reform bill. Sen. Harkin and I and many of our colleagues have been making the case that joining these two bills presents a remarkable opportunity for our country.”

The bill isn't finalized and faces some possible roadblocks as the LA Times and Chronicle of Higher Education report, but Chairman Miller and House Democrats are a lot more confident that the budget reconciliation will include student loan and health bills.

Former Secretary of Education and current Senator of Tennessee, Lamar Alexander, published an op-ed in Sunday's Washington Post about the Student Aid and Fiscal Responsibility Act. Unfortunately, in his effort to explain why he is against something where "students are helped," Sen. Alexander gets his facts wrong.

The Wonk Room notes:

The op-ed has plenty of scaremongering about Washington takeovers and long lines for student loans, but it doesn’t acknowledge the simple fact that the government already makes millions of loans every year, in a process that does not look anything like waiting in line at the DMV. In fact, under SAFRA, student loan companies will still service and administer the loans, they just won’t take federal money and originate them. That money, instead of going to the compensation, advertising, and overhead of private companies, will be reinvested in Pell Grants and other education initiatives.

And Kevin Carey at the Quick and the Ed goes so far as to say Senator Lamar Alexander is Making Things Up regarding this bill.

In reality, getting a student loan through the Federal Direct Loan Program isn’t going be any different than it is for the millions of students who are already getting loans through the Federal Direct Loan Program, which involves filling out the same forms you use to get loans under the “give-banks-billions-of-free-taxpayer-dollars” program that Alexander is defending.

Alexander also alleges that the administration has been less than forthcoming about what’s really going on here:

Here is what they haven’t told us: The Education Department will borrow money at 2.8 percent from the Treasury, lend it to you at 6.8 percent and spend the difference on new programs. So you’ll work longer to pay off your student loan to help pay for someone else’s education — and to help your U.S. representative’s reelection.

It’s not a secret that the government will be lending money for more than that money costs. All lending programs work this way. The difference is that currently the money left over after paying people to administer the program is used to line the pockets of bank shareholders and executives whereas under Obama’s plan it will be used for Pell grants that benefit low-income students. Alexander’s contention that “you’ll work longer to pay off your student loan to help pay for someone else’s education” ignores the fact that many borrowers also receive Pell grants. Or attend the colleges that will receive grants to improve graduation rates, or have small children who will benefit from new investments in early childhood education. Alexander concedes that most people think such programs are a good idea. Otherwise, they wouldn’t help U.S. representatives get re-elected! He suggests that instead of subsidizing Pell grants, the federal government should use its unique ability to borrow cheaply to lend at extremely low rates, thus undercutting the private market for loans from companies that can’t raise money by issuing Treasury bonds. This, of course, would immediately be denounced as “socialism.”

Learn more about the Student Aid and Fiscal Responsibility Act and as well as some of the facts surrounding other myths about this bill.

An op-ed by Gail Collins in today's New York Times discusses the need to reform student loans. After looking at the private loan sector, she then turns to the federally-guaranteed loans:

This is a system that goes something like this:

• We the taxpayers pay the banks to make loans to students.
• We the taxpayers then guarantee the loans so the banks won’t lose money if the students don’t pay.
• We the taxpayers then buy back the loans from the banks so they can make more loans to students, for which we will then pay them more rewards.

Are you with me so far? Wait, I see a hand waving back there. What’s that, sir? You want to know why the government doesn’t just lend the money out itself? Excellent question!

The White House estimates that it could save about $94 billion over 10 years if it cut out all the middlemen. And it has the basis of a system in place, since the Department of Education already makes a lot of direct loans to students.

We encourage you to learn more about the President's proposal, read the entire editorial and review the highlights from our recent hearing on this subject.