Obama Plan to Shift Financial Aid to Direct Govt Loans. Your thoughts??

[econdr]

Obama budget calls for major U.S. student loan shift
Thu Feb 26, 2009 1:02pm EST

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WASHINGTON (Reuters) - The private-sector student loan industry would be dealt a major blow under the federal 2010 budget proposed by President Barack Obama on Thursday.

Shares in Sallie Mae, the nation's largest student loan group, fell sharply on Obama's proposal to shift all federal student loans into the so-called direct-loan program administered by the U.S. Department of Education.

The budget for fiscal 2010, which begins on October 1, said it would save more than $4 billion annually by ending "entitlements" for financial institutions that lend to students.

"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," the budget document said.

The change, subject to review by Congress, could spell the end of the Federal Family Education Loan Program, a source of revenues for years for many student loan groups.

"President Obama proposes that, beginning in 2010-2011, all new student loans would be originated through the direct student loan program," said California Democratic Rep. George Miller, chairman of the House education committee, in a statement praising the president's proposal.

Shares in Sallie Mae, known formally as SLM Corp, were down $3.29 or 39 percent at $5.10 each in midday New York Stock Exchange trading after dipping as low as $4.72 earlier.

(Reporting by Kevin Drawbaugh, editing by Gerald E. McCormick)

© Thomson Reuters 2009 All rights reserved

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[econdr]

So this pretty much shuts the private lenders out of student loans...

Loans will come directly from the Department of Education, i.e. taxpayers. This is a huge change. I'm surprised at the lack of interest...

Go SDN!

 

[EUA]

Gee, let's nationalize *everything*!

I can't wait.

 

[mikecougarmd]

I believe even with private lenders the money was still coming through the government. The lender was just the middleman for the loan. This just cuts out the middleman.

 

[rgerwin]

You can also look at it like the interest on our loans was going to pay other companies to give us our loans......and I don't want to pay for that. Now, that argument is a bit stifled b/c of fixed interest rates, but I would still rather support the loan program than the companies, b/c we'll be charged interest no matter what. And, if the private loan companies want our business, then let them make it worth our while once lending stops being a four-letter word.

 

[econdr]

Yes, I believe the only difference is that the loan and interest (if subsidized) are coming directly from the government whereas before the loan came from private sources like banks, but the interest (if subsidized) came from the government. Now we cut out the middleman which means huge savings. The US treasury borrows money much cheaper than these banks lend to us, so we'd save there. But the cost to government of subsidizing loans I assume stays the same, unless they raise that $8500 limit on stafford subsidized.

It's hard to tell this early on, but this looks like good news. We'll see how it actually plays out though.

 

[TMP-SMX]

The lenders stopped giving out incentives anyway last year. The direct loans are actually a better deal for students.

 

[Habeed]

Also, you may not realize this, but actually the private lenders were getting money from the government to 'incentivize' them to make these loans. Like a Stafford loan that we pay 6.8% interest : the bank was getting another few percent from the Feds, for a total of around 12% interest. The reason is because student loans are risky, since there's no collateral backing them up.

 

[econdr]

Also, you may not realize this, but actually the private lenders were getting money from the government to 'incentivize' them to make these loans. Like a Stafford loan that we pay 6.8% interest : the bank was getting another few percent from the Feds, for a total of around 12% interest. The reason is because student loans are risky, since there's no collateral backing them up.

Nice. If the private lenders are charging us 6%, and the govt is subsidizing another 6%, why not just cut out the banks entirely. The treasury borrows money at like 2.5%. They could lend us the money at 6% and earn 3.5% rather than pay 6% to banks who aren't doing us any favors.

Or even better, Obama loves education, so why not give it to us at 1 point above their cost.
3.5% loans. sounds amazing

 

[dodobird13]

Or even better, Obama loves education, so why not give it to us at 1 point above their cost.
3.5% loans. sounds amazing

sounds rosy until you emerge gasping for air into the real world facing 35%+ in taxes on your "wealthy" income in addition to paying back astronomical payments on our grossly overpriced education

sounds like a real hot incentive to me

 

[econdr]

sounds rosy until you emerge gasping for air into the real world facing 35%+ in taxes on your "wealthy" income in addition to paying back astronomical payments on our grossly overpriced education

sounds like a real hot incentive to me

lol 35%? i've got news for you, the highest tax federal income tax bracket is already 35%, and it has been for a decade. Obama's moving it up to 39.6%, not to mention removing tons of deductions for those making over $250k.

if you're in it for a quick buck, go into dentistry...

 

[tapir]

I for one welcome our new federal overlords. Next: incentives for Direct Loan consolidation please.

 

[UserNameNeeded]

Sounds like great news! Too bad they're not puting out the private lenders out of business for the upcoming school year. I say, the sooner the better. I'd much rather any "interest" I have to pay, go back to the taxpayers/government than these corrupt, irresponsible financial institutions that have gotten us into the Second Great Depression.

 

[econdr]

As someone who left the hedge fund industry three years ago, I cant agree with you more. They paid themselves tens of millions a year in salary and created imaginary wealth where there was none, and took our economy down in the process.

And now we get to pay them to clean up the mess...

Where is the justice?

 

[Poitiers2]

I'm really torn on this. I happen to believe that universities are taking advantage of students with their exorbitant tuition and fees. How is it that the tuition of my private university went from $19,000 to $36,586 in less than 10-years? That's a freaking rip off! You can't convince me that the quality of education improved by that much or the cost. Nor can you convince me that the costs increased by that much.

All the while, the university's endowment ballooned.

I have no intention of ever giving them a donation, no matter how much I earn. I'm increasingly thinking the whole university system is a racket just as much as the financial institutions.

 

[Bleurberry]

So this pretty much shuts the private lenders out of student loans...

Loans will come directly from the Department of Education, i.e. taxpayers. This is a huge change. I'm surprised at the lack of interest...

Go SDN!

Hey you know what? I came to this sub-forum with the intention of posting about this, and was glad you beat me to it!
At the VERY LEAST, we should be saving on the origination points that all banks are charging now for Staffords, the 1%. At most? That's what I want to find out, ASAP.

Has anyone heard from their financial aid office whether or not they've been contacted by the powers that be regarding this policy shift? Could and will it affect this years disbursement?!

I'm class of 2013, and moreover, my school is closed because of the "snow" today... even though it's barely 3 inches. Hah! So if someone wants to put in a call and report back to us, that'd be really cool.

 

[econdr]

Hey you know what? I came to this sub-forum with the intention of posting about this, and was glad you beat me to it!
At the VERY LEAST, we should be saving on the origination points that all banks are charging now for Staffords, the 1%. At most? That's what I want to find out, ASAP.

Has anyone heard from their financial aid office whether or not they've been contacted by the powers that be regarding this policy shift? Could and will it affect this years disbursement?!

I'm class of 2013, and moreover, my school is closed because of the "snow" today... even though it's barely 3 inches. Hah! So if someone wants to put in a call and report back to us, that'd be really cool.

No, its for the 2010 - 2011 budget, so I think it'll take effect for the Sept 2010 school year... It could take longer though...

 

[Bleurberry]

No, its for the 2010 - 2011 budget, so I think it'll take effect for the Sept 2010 school year... It could take longer though...

And what will it look like?

 

[Grif]

I have a direct consolidation loan through the government, and they have been extremely helpful to work with. I still had federal loans at 8 bloody percent! They are set up very streamlined, so if the new loans will be anything like these then I am all for it.

It's not like when I had sallie mae calling me all the time (during in-school deferment!!!) asking for a verbal agreement to start payments early. Uncool.

 

[econdr]

And what will it look like?

i have no idea. anybody??

 

[meister]

**** the banks, taxpayers shouldn't be helping ******* corporations make profits off of poor college students. Bring on the direct loans. Private lenders have always treated me 10x worse than my DLS loans.

 

[alwaysaangel]

At the VERY LEAST, we should be saving on the origination points that all banks are charging now for Staffords, the 1%. At most? That's what I want to find out, ASAP.

Has anyone heard from their financial aid office whether or not they've been contacted by the powers that be regarding this policy shift? Could and will it affect this years disbursement?!

The direct loan program already exists and my school already exclusively uses it. I still pay a 1% originators fee for all my loans.

I get disbursement just like all my friends with other lenders at other schools so no it shouldn't change.

And what will it look like?

It won't be any different than what exists now. Direct Loans already exist and some schools use them. Your bank is just the gov't instead of a private lender. So far its worked out really well for me. Although they do send me WAY TOO MANY STATEMENTS. I really don't need to be reminded that I owe 100k every month or told my repayment plan 4 years in advance. But otherwise no complaints.

 

[econdr]

It won't be any different than what exists now.

JUst out of curiosity, I could have swore that I read recently that under bush rates on stafford loans have gone up. Is this true? If so, can we assume that they will be going back down under obama?

 

[alwaysaangel]

JUst out of curiosity, I could have swore that I read recently that under bush rates on stafford loans have gone up. Is this true? If so, can we assume that they will be going back down under obama?

No clue. I never took out loans until now so I don't know why the rates went up. I imagine increasing interest rates had more to do with the general increase in a lot of interest rates that occurred in that time because of changes in the economy. Right now I haven't heard of any plans to help graduate students with lower interest rates but who knows. But I'm already halfway through and my rate is non adjustable so I doubt it will be in time to help me much (or most people already in med school).

 

[DrYoda]

JUst out of curiosity, I could have swore that I read recently that under bush rates on stafford loans have gone up. Is this true? If so, can we assume that they will be going back down under obama?

I don't know about bush, but Obama was claiming he would lower them(but what hasn't he claimed he will do?). But it could be one of these moments:

Direct to student loans could theroretically make it easier to lower rates, or the gov could just rake in the profits. So we'll have to wait and see what comes of it

 

[alwaysaangel]

Another issue is that congress JUST lowered student interest rates. Just not for grad students. Just for undergrads. Not sure they'll lower it further right away and even if they do it may not help med students. Right now the big issue is the fact that a higher education is so unaffordable and out of the hands of many people. Once you get into grad school you are more likely to make a good enough wage to pay your loans back so its not as much of a concern.

 

[nogolfinsnow]

Now that all the incentives from private lenders have evaporated, I have no problem with just going with direct loans. It's better for the tax payers anyways. The gov't already backed the loans, so if someone defaulted then taxpayer money went to the banks. Now taxpayers still eat it if someone defaults but also get the interest on the majority of people who pay back their loans. Now just lower the rate and cut tuition by 50-75% and we'll all be happy.

 

[Lanvin]

Although I like the idea that this will likely save taxpayers a few billion each year, I wonder what kind of underlying impact it will have on us.

I personally do not like the feeling of owing the government anything, especially money.

 

[dozitgetchahi]

Another issue is that congress JUST lowered student interest rates. Just not for grad students. Just for undergrads. Not sure they'll lower it further right away and even if they do it may not help med students. Right now the big issue is the fact that a higher education is so unaffordable and out of the hands of many people. Once you get into grad school you are more likely to make a good enough wage to pay your loans back so its not as much of a concern.

Yes, but the problem is often getting those loans in the first place. I'm struggling to find a co-signer right now for next year's loans, and if I cannot for some reason my medical education could be in jeopardy. Nobody inside or outside of government seems to be overly concerned by the plight of people like myself.

 

[TMP-SMX]

Yes, but the problem is often getting those loans in the first place. I'm struggling to find a co-signer right now for next year's loans, and if I cannot for some reason my medical education could be in jeopardy. Nobody inside or outside of government seems to be overly concerned by the plight of people like myself.

Are you an undergrad or grad?

Grad plus is designed for people who have to borrow over the stafford limits. Unless your credit is atrocious you can get as much grad plus as you want without any limit besides the cost of attendance. If it is bad, then you need a co-signer.

 

[Bleurberry]

Yes, but the problem is often getting those loans in the first place. I'm struggling to find a co-signer right now for next year's loans, and if I cannot for some reason my medical education could be in jeopardy. Nobody inside or outside of government seems to be overly concerned by the plight of people like myself.

Friend, UMDNJ is one of the cheapest school's out there! PCOM is 38k to START, approx. 20k more in tuition than UMDNJCOM. They've got crazy amounts of grant aid, too. This means a lot of your housing/food needs can be covered by federal loans than don't need a credit check. Whats your situation?

 

[heyjack70]

Are you an undergrad or grad?

Grad plus is designed for people who have to borrow over the stafford limits. Unless your credit is atrocious you can get as much grad plus as you want without any limit besides the cost of attendance. If it is bad, then you need a co-signer.

Actually, I was denied a Gradplus because of an old cell phone bill I didn't know about. After I moved between states, Verizon generated a final bill and never mailed it to my new address. 5 years later they sent it to collections and it was written off. I had to have a cosigner to start school on time. I was eventually able to get Verizon to admit fault and remove the write off from my credit report. But this was a $40 bill not paid. Hardly what I would call atrocious credit. If someone were in my situation without a cosigner they would be in dire straits indeed.

 

[Grif]

Actually, I was denied a Gradplus because of an old cell phone bill I didn't know about. After I moved between states, Verizon generated a final bill and never mailed it to my new address. 5 years later they sent it to collections and it was written off. I had to have a cosigner to start school on time. I was eventually able to get Verizon to admit fault and remove the write off from my credit report. But this was a $40 bill not paid. Hardly what I would call atrocious credit. If someone were in my situation without a cosigner they would be in dire straits indeed.

Yeah, the "atrocious credit" commonly cited equates to "an unpaid collection." It doesn't matter if it's for $5 and occurred 6 years and 11 months ago, it's still on your credit report. You can have a 750 FICO score and zero debt, but one unpaid collection or bankruptcy can get you.

[FONT=ARIAL, HELVETICA]Eligibility. Eligibility for private education loans typically depends on your debt-to-income ratio and FICO score. Eligibility for the PLUS Loan does not depend on these factors. You can get a PLUS loan even if you have a bad credit score, so long as you don't have an adverse credit history (i.e., no more than 90 days late on any debt and no defaults, bankruptcies or other adverse action on any Title IV debt)..

Your best bet would be to look into private loans. Writing "GoodWill" letters or "Pay For Delete" letters can pay off pretty heavily in this are as well, and those are free.

 

[TMP-SMX]

I was exaggerating. You knew what I meant and why it is important to check your credit report and monitor all open accounts you have online whether it is a credit card or bill. (Paying online is a good thing too).