Two months ago the House of Representatives passed H.R. 3221, an important student loan bill that, among many other things, would convert all future federal student loans to Direct Loans. In Direct Loans, the government is the lender and borrowers pay them back directly. The alternative--the thing this bill eliminates--entails the government subsidizing banks to make loans to college students and guaranteeing the vast bulk of the student loan. Technically this is called the Federal Family Education Loan Program. So, in my case, the government paid my lender, Bank of America, to give me a virtually risk-less loan (since the government will back it up should I default on it).
As you can imagine, switching to an entirely Direct Loan based system of federal student loans is more efficient and saves money (up to $87 billion over the next decade). It also saves borrowers like me the pain in the ass I went through today of trying to figure out who's currently holding my Stafford loans. It turns out Bank of America sold my loan--correction: part of my loan--to another lender and keeping up on that kind of paperwork isn't my forte.
So, shoutout to H.R. 3221, the Student Aid and Fiscal Responsibility Act of 2009. May you survive the Senate.
Stanek how would this impact me?
ReplyDeleteI accept that banks should be able to make some profit off of everyday-life loans, it's their money and when the person taking out the loan is using it for something that's more or less a luxury item (such as a car, I suppose) then it seems pretty fair to charge interest. But I really can not accept banks trying to make a predatory profit (and often completely ruining people financially) off of people who are simply trying to complete their education, especially when they play games like trading peoples' debt as if they're pokemon cards. College education shouldn't be, and in a lot of countries isn't, a profit-driven field and I'm happy to see legislation that curbs that mentality in any way.
ReplyDeleteHow would interest be affected by this? Would rates stay more or less the same, or would they go down?
I doubt this would impact any of us; it's mostly about what happens to people borrowing from here forward (assuming this actually becomes law).
ReplyDeleteI don't think the interest would be affected; for my subsidized Staffords, the interest is 6% (it's actually lower for people borrowing now) and for my unsubsidized Staffords it's 6.8%. This isn't different between Direct Loans from the government and FFELP. I don't mean to give the impression from the title of this post that the banks are charging higher interest than the government--they can't. Not on federal student loans, anyway. The interest on my private loan is pretty much the same as that for my Federal Staffords, actually.
I just don't like 1) money being wasted to subsidize banks to do something the government can do; and 2) the hassle of finding a private lender (which actually got much more difficult right before my 4th year when banks were collapsing left and right and credit was tight) and keeping track of who they're selling my loan to.
I suppose the real villain here is actually the university. And those fucking textbook companies.
I forgot that your loans were from the government. There were a few people at my school, and even more grad students, who took out private loans at supposedly pretty ridiculous rates to help pay rent or just for some extra money for food (especially during our 4th year, as you already mentioned). I guess I'm just hoping things like this might be baby steps toward reducing the search for profit among colleges. Even if it isn't though, it's always good to reduce waste.
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