College Loans Consolidation Blog

Archive for November, 2009

It has been the hot topic in the news for the past couple months and on my blog, so we all should know by now that the 110th Congress is controlled by the Democrats. Why is that big news? Because 2007 is the first year the Democrats have controlled the Congress since 1995.

Surprisingly, the hot-button issue in this new Congress has been that of postsecondary education. In an attempt not to be outshone when it comes to middle-class issues, the Republicans also have rallied behind higher education initiatives. The end result has become something of a power struggle.

According to a Feb. 13, 2007 article written by Arthur M. Hauptman titled “Missed Opportunities on Financial Aid” that appeared in Inside Higher Ed:

“With support for postsecondary education now a hot political topic, federal politicians from both parties are engaged in a tug of war to see who can outbid the other in providing more financial aid to students and their families. House Democrats, as part of their ‘first 100 hours’ agenda, pushed through a bill to cut interest rates in half for some new borrowers. Democrats in both the House and Senate followed up by proposing the first increase in the Pell Grant maximum award in several years. The White House, not to be outdone, has now proposed more than a 10 percent increase in Pell Grants as part of its fiscal 2008 budget package and more increases down the line, all to be paid for by reduced lender profits and cuts in other federal student aid programs.”

Who Wins, Who Loses?

Hauptman, a public policy consultant who specializes in higher education finance issues, reported:

“More importantly, the Democrats’ plan helps the wrong borrowers. The interest rate cuts are limited to new borrowers in the subsidized student loan program, who, by definition, already qualify for federal interest payments while they are in school. As a result, they are precisely the students who least need the assistance in the near term, because the federal government is already paying the interest on their loans (which also means there is no net cost to the government while these borrowers remain in college, since it is already responsible during that time for making all interest payments to lenders). In this scenario, the students’ benefit from lower interest rates and the new cost to the government will occur only when repayment begins at least several years from now.

“By contrast, the House-passed legislation provides no help for the millions of borrowers who are currently having trouble repaying their loans because of high debt levels and/or low incomes. It would have been much better if the House had sought to help these borrowers, for example, by allowing them to consolidate all their federal student loans into a single loan repayment schedule when they leave school and begin repayment. This expansion of existing consolidation provisions would greatly simplify the student loan system by allowing borrowers to refinance their student loans once they leave school.

“Or the House could have sought to expand the largely underutilized income contingent provisions that give borrowers the option to repay their loans on the basis of their income once they complete their educational program. Rather than provide postponed help for new borrowers, these two changes would provide immediate relief for millions of borrowers who need the help now. And these two changes could actually save the government money rather than add to costs if they were financed directly by the federal government rather than having the loans continue to be held by the private sector which demands federal payments over the life of the loan.

“Senator Edward M. Kennedy of Massachusetts, the newly restored chairman of the Senate Health, Education, Labor and Pensions Committee, seems to understand this problem. He has emphasized the need to expand income contingency for borrowers who need help with their repayments and in moving toward greater reliance on direct loans as a way to cut government costs. Hopefully, he can persuade his colleagues in the Senate to provide some real repayment relief to borrowers rather than the cosmetics offered by the House. Otherwise borrowers with repayment problems will be out of luck for another several years until the politicians turn their attention back to this issue.”