Archive for November, 2009

STUDENT COLLEGE LOAN REFORM—A Step in the Right Direction

Monday, November 2nd, 2009

The US House of Representatives passed [on September 17, 2009] the Student Aid and Fiscal Responsibility Act. This new bill will allow students to borrow directly from the government through their colleges and universities. Senate passage is hoped for in the near future. The bill will replace the existing plan whereby the government provides capital to private lending institutions,  subsidizes to those institutions to lend to students and in addition guarantees the loans so that the private institutions have no risk. The new plan, by ending these federal subsidies to private lenders, may save up to $ 80 billion over the next 10 years. $40 billion of these savings can be applied to increase the maximum annual Pell grant scholarships. An additional $ 10 billion is cited for work training programs as well as construction for the nation’s community colleges. The legislation also provides about $8 billion for early-childhood programs and $2.55 billion for historically black colleges and universities. There is also a predicted additional savings in this legislation of $10 billion to return to the US Treasury. [1] Included is provision to minimize the number of questions on the loan application form that families must fill out when applying for aid. This new plan should provide more reliability for students in need as loan availability would not depend on the variations in the credit markets. There would also be more transparency and stability in the terms of the loans.
 This is good news as this new plan facilitates the extremely important goal of regaining United States dominance in the number of adults obtaining college degrees. However, there is the remaining vexing problem of college tuition running ahead of inflation. The assumption that students can just pay the bill with borrowed money has to be one of the reasons schools are not feeling more pressure to control costs.[2] Since perhaps two-thirds of students now borrow to help pay for college this problem has yet to be addressed.
 What do you think about what needs to be done to control escalating college costs?

[1] Tamar Lewis, New York Times, September 18, 2009
[2] Gail Collins, oped column New York Times, September 17, 2009