More Potential Changes in Student Loan Selection
Posted 16 Jul, 2007
In the wake of the student loan scandal, Congress has begun to reconsider how it awards subsidies to lenders that offer loans to college students. They have begun to discuss a change that would reduce money used for subsidies, and instead spend those funds on student aid.
Federal government subsidies of student loans began in the 1970’s, and have not evolved much over the past 30 years. To keep lenders in the student loan program, the government has had to provide a subsidy rate that appeals to as many lenders as possible.
In the past, Congress determined yearly subsidies using a kind of guess-and-check process: The government would propose the lowest rate they thought would be reasonably acceptable to student loan companies. The lenders would then protest reduced subsidy rates. Lawmakers would compromise and then forge the final subsidy numbers at a mutually agreeable rate.
The new plan may relieve Congress of some of the guesswork. The process would be similar to an auction: lenders would offer a “bid” (the lowest subsidy rate they would accept), and the government would select lenders with the lowest bids. These lenders would be allowed to lend to students in a specified area or at a given group of schools for a preset period of time.
But what will this mean to students?
Some critics fear that it will shut small or non-profit lenders out of the student loan pool, because the bigger lenders can accept lower subsidies. Whether or not students benefit may be dependent on whether the big companies offer lower costs or use the decreased competition to raise their rates in later years. The plan would also mean that college financial aid officers will have less opportunity to help select which lenders serve students.
As the student loan industry changes, I have found that the best way to most efficiently pay for your child’s education is to stay informed. Track the current rates and rules, and keep up with new legislation. The biggest difference between paying the sticker price of college and saving thousands on college costs is simply having the information to make smart decisions.
All the best,
Deborah Fox
Deborah Fox is the founder of Fox College Funding, a nationwide company that helps families find creative ways to reduce their college costs.
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In the wake of the student loan scandal, Congress has begun to reconsider how it awards subsidies to lenders that offer loans to college students. They have begun to discuss a change that would reduce money used for subsidies, and instead spend those funds on student aid.
Federal government subsidies of student loans began in the 1970’s, and have not evolved much over the past 30 years. To keep lenders in the student loan program, the government has had to provide a subsidy rate that appeals to as many lenders as possible.
In the past, Congress determined yearly subsidies using a kind of guess-and-check process: The government would propose the lowest rate they thought would be reasonably acceptable to student loan companies. The lenders would then protest reduced subsidy rates. Lawmakers would compromise and then forge the final subsidy numbers at a mutually agreeable rate.
The new plan may relieve Congress of some of the guesswork. The process would be similar to an auction: lenders would offer a “bid” (the lowest subsidy rate they would accept), and the government would select lenders with the lowest bids. These lenders would be allowed to lend to students in a specified area or at a given group of schools for a preset period of time.
But what will this mean to students?
Some critics fear that it will shut small or non-profit lenders out of the student loan pool, because the bigger lenders can accept lower subsidies. Whether or not students benefit may be dependent on whether the big companies offer lower costs or use the decreased competition to raise their rates in later years. The plan would also mean that college financial aid officers will have less opportunity to help select which lenders serve students.
As the student loan industry changes, I have found that the best way to most efficiently pay for your child’s education is to stay informed. Track the current rates and rules, and keep up with new legislation. The biggest difference between paying the sticker price of college and saving thousands on college costs is simply having the information to make smart decisions.
All the best,
Deborah Fox
Deborah Fox is the founder of Fox College Funding, a nationwide company that helps families find creative ways to reduce their college costs.
Subscribe in a reader
Subscribe by Email
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