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Wednesday, March 24, 2010

Law - More on: A double whammy for the student loan industry?

Updating this ILB entry from March 23rd, Jim Kuhnhenn writes today in USA Today in a story headed "Health care bill would save billions on student loans" that begins:

WASHINGTON — Banks and other private lenders are about to lose a $70 billion-a-year student loan business, part of a massive overhaul of college assistance programs that received an unexpected boost from President Barack Obama's health care success.

The bill would see $61 billion in savings over 10 years from the switch from private loans to direct government lending. It would pay for Pell Grants and provide more than $4 billion to community colleges and historically black colleges. It also would direct about $19 billion to reducing the deficit and offsetting expenses in the health care legislation.

In addition, beginning in 2014, college graduates would be allowed to devote no more than 10% of their monthly income to repay their student loans. The current cap is 15%.

Still, the legislation is not as generous as the bill the House passed last year.

It proposes no increases in Pell Grants over the next two years and a modest increase over the five years that follow. The maximum Pell Grant, which a House-passed bill last year would have raised to $6,900 over 10 years, will now only increase to $5,900. The current maximum grant for the coming school year is $5,500.

Industry lobbyists have watched helplessly as Democrats and the Obama administration appear to be on the verge of shifting student lending from private banks to the federal government.

Under the measure, private banks would no longer get fees from the government for acting as middlemen in loans to low- and middle-income students. With the savings, the government would increase Pell Grants to needy students and make it easier for workers burdened by student loans to pay them back.

The bill would mean the loss of billions of dollars in business to student lending giant Sallie Mae and large financial institutions such as Citigroup, JPMorgan Chase and Bank of America.

Posted by Marcia Oddi on March 24, 2010 11:49 AM
Posted to General Law Related