Important Update: Budget: Student Loans…
From a savvy commenter and we thank them!!!! It is NOT the total private lending being affected, that apparently continues with its insane lack of caps on interest rates unabated, it is only FFEL a federally guaranteed partially subsidized through fees program being hurt, that seems counterproductive ? But then again the entire Obama Budget plan sounds counterproductive to me!
The excessively high interest rates you refer to are not part of the FFEL program. Those private loans would not be impacted by the budget proposal, and are free-market products. The FFEL loans have capped interests rates that fluctuate from one budget year to the other, as set by Congress, but have been in the single digits for several years.
The savings by eliminating FFEL are direct subsidies to lenders who risk financial loss by defaulted loans due to the narrow profit margins mandated by the interest rates capped by Congress.
There are those who argue that FFEL is actually cheaper for the taxpayer than direct lending because of the borrower-education and default aversion programs that that FFEL participants provide that is practically non-existent in direct lending, resulting in fewer loans going bad. Depends on whose numbers you are looking at.
HUGE GINORMOUS CHANGES TO STUDENT LOANS IN THE BUDGET!!
The $3.55 trillion budget request, which was summarized in a 134-page overview released yesterday, would also phase out the Federal Family Education Loan program and require all new student loans to be originated by the Department of Education and financed with Treasury borrowing. That action would effectively kill the market for federally guaranteed student loans, municipal market participants said.
In proposing direct lending for student loans, the budget overview stated: “Right now, the subsidies in the government-guaranteed student loan program are set by the Congress through the political process. That program has not only needlessly cost taxpayers billions of dollars, but has also subjected students to uncertainty because of turmoil in the financial markets.” (MiM here, yeah people like TOM AND LINDA DASCHLE DID THAT LOBBYING AND COST US THAT MONEY!)…
Disclaimer-MiM is paying off our Direct Federal Student Loans and we thank Gawd monthly we didn’t get private loans which have NO CAP on the interest rates and NO LIMITS on when they can raise them..this issue was a HUGE focus of Hillary’s campaign, at every event she asked the crowd their interest rates on their student loans all across the country, without fail there were families paying over 20%, some as high as 24%. That is just frakkin usury man.
So we are very biased about this issue. On the other hand, we think it is a bad idea to totally KILL the private student loan business which is the effect of this budget by most analysis, Sallie Mae shares fell of a frakkin cliff….
…In a conference call with reporters yesterday, Department of Education officials repeatedly said that the FFEL program is “on life support” and that it’s logical for the government to originate all federally guaranteed loans because taxpayers are on the hook for them in the event of default. “We’re changing how we pay loan processors … instead of paying them with the entitlements that Congress sets, we’re paying them through competitive contracts for the servicing and collection on the loans, so it can be serviced-based,” said Bob Shireman, a consultant at the DOE.
But Peter Warren, president of the Education Finance Council, said FFEL has “reliably and consistently served as the prime supplier of loan capital for America’s students for more than four decades.” The temporary programs that the DOE implemented over the last year to ensure that new FFEL loans were originated “were necessitated chiefly by the current capital markets disruption, which has affected the entire financial services system,” he said.
Warren also stressed that taxpayers are only on the hook for the loans in the event of default and that financing all student loans through Treasury debt issuance would increase the federal debt levels by “hundreds of billions of dollars.”
Why can’t we simply implement ROOLZ for how high the rates can go and how often they can reset?
How about the Congress Critters don’t take campaign funds from private lobbying groups like the one TOM DASCHLE worked for?
These budget changes squeeze out ALL private capital and IMO will make people totally dependent upon the government to get funding for higher education. So if Team Obama decides to mandate some form of national service, people would have no option but to agree..
And will EVERYONE be eligible for the direct loans now? There are income limits now…is the middle class going to be left out again or squeezed again? I hate that our media is useless, we have no idea what the answers to any of these questions are because the media won’t do its damn job….