Minnesota Student Loans

This landmark legislation by the Democratic-led House of Representatives by a vote of 253 to 171 on September 17, easily passed that would end the long Federal Family Education Loan Program (FFELP) program launched by the Law on Higher Education 1965 to provide college students federal loans secured by private lenders.

Since the measure awaiting a Senate vote scheduled for Oct. 15, representatives of the FFELP student loan industry with the Republican leaders have intensified their attacks on the key mandates of the bill, which they say, not only the cost of students and schools of competitive pricing and choice in student loans offered by the private sector but the saddle taxpayers billions of dollars in new costs.

Federal student loans: Direct Loans vs. FFELP

Under the existing FFEL program, the government pays the private lenders for FFELP subsidies for federal student loans from those lenders - in essence paying a third party to act as an intermediary in student loans government .

In 1992, the Clinton administration launched a second program federal student loans - federal direct student loans - which issues federal student loans directly to borrowers by the U.S. Department of Education, without the intervention of third from a bank or other lender FFELP.

If the bill approved by the House, known as student aid and Fiscal Responsibility Act of 2009 (SAFRA), adopted by the Senate and become law, the FFEL program will be dismantled and all federal student loans become federal direct loans, made directly through the federal government rather than by third FFELP lenders and banks.

Supporters of the legislation say that removing subsidies FFELP will generate $ 87 billion in savings for taxpayers over the next decade. The bill allocates $ 80 billion of estimated savings to expand the federal Pell Grant for low-income students and to finance several other education initiatives that supporters say without additional cost to taxpayers.

Obama has been a provider of voice of the bill, arguing that subsidies FFELP funnel government money to banks and away from students.

"Putting an end to this unjustified subsidy for large banks is obvious to people everywhere," Obama said in a recent speech at Hudson Valley Community College in New York.

Review: Talk of Student Loans "savings" ignores the obvious costs

Opponents of the measure Safra, however, are difficult this highly publicized "$ 87 billion of savings" figure. In an article for The Hill, Rep. John Kline of Minnesota, the ranking Republican on the Education and Labor Committee , argued that the projected $ 87 billion of savings does not include long-term risks, the standard, failing to take account of changes in interest rates and the risk of default on student loans.

The savings claimed, Kline holds, "are largely made in a new salary, the federal government take to borrowers of student loans to pay the government an interest rate higher than government's cost of funds "(" Faces Student Loan Government Takeover , "TheHill. com, September 14, 2009).

Since interest rates of borrowers on the parents and student loans are federal government fixed interest rates of the market from its lowest level recession, the cost of government to finance student loans will direct all Bo won.