Student Loans Now Direct from Government

With more and more people enrolling in college each year, federal lending programs had begun to feel a strain on the system. However, a student loan reform plan tucked into the budget reconciliation bill, which was passed by the United States Senate on March 25, now allows more students to receive more financial assistance by taking out loans directly from the federal government. 

"It will help more students graduate with less debt," said Representative Carolyn Maloney of New York City's 14th District. "It's a major investment in education. I'm proud to have supported it." 

According to the Congressional Budget Office, students who qualify will be able to take out loans directly from the U.S. Treasury starting July 1, 2010, and will bypass private lenders entirely. 

These new loans will be identical to Federal Family Education Loans (FFEL), the loans taken out by students from private lenders before the reform bill was signed. 

Eileen Doyle, assistant vice president for student financial services at The New School, wrote in an e-mail to the *Free Press* that students can obtain these new direct federal loans through their school's financial services department.

”Students receive the same interest rates (except Grad PLUS, which has a lower interest rate than FFEL) and have similar repayment options,” Doyle added. 

According to the Congressional Budget Office, replacing the current private loans with direct federal loans will net the federal government $62 billion over the next 11 years. This policy will deprive private banks, such as Citigroup and JP Morgan Chase, the consistent income of accrued interest on student loans, federal subsidies, and fees involved in serving as an intermediary between students and the federal government.

"The student loan reforms passed by congress have done two things at once," said Malloney. "[They've] cut the cost of student loans to government and increased the funds available for Pell grants to students--without increasing the deficit."

Rising college enrollment has strained pell grants to a point where, without additional funds, many students would receive decreased scholarships or none at all. With the ongoing rise in tuition this could be financially disastrous for many students.