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I saw that in post #49, but I don't know that that is accurate. My previous understanding was that the banks provided the loans and the government subsidized and/or guaranteed the loans much as they do with VA loans.
I'm not certain of that and I am sure there are different programs so maybe I am thinking of a different plan.
Immie
Do banks offer low interest student loans? We went with the subsidized Stafford loan because no interest has to be paid until 6 months after graduation.
Well, let's look at it this way. What bank is going to loan a 18 year old kid $20,000 a year for something that 50% end up dropping out of? (College).
The whole reason that the government has to get involved in the first place I assume (keyword assume) is that banks wouldn't take the risk in lending to college students in the first place. Which is why the Government gave money to the banks to do so.
Now the government is telling the banks that they're just going to do it themselves.
That's what I get out of this anyway. See Post #49 by the way.
That was my thought as well.
A loan "guaranteed" by the federal government is as good as gold... er, it used to be anyway.
Immie
I saw that in post #49, but I don't know that that is accurate. My previous understanding was that the banks provided the loans and the government subsidized and/or guaranteed the loans much as they do with VA loans.
I'm not certain of that and I am sure there are different programs so maybe I am thinking of a different plan.
Immie
I believe it is accurate. That's the whole reason we're able to save so much money.
That could be just the VA loans. As far as I know, the banks were the ones who were the middlemen while the government was the one providing the $$$. Now it's just the government providing the $$$ and loans.
These student loans were coming from the government to begin with.
If that were the case then what part did the banks play in the first place?
I believe that the banks provided the cash for the loans... does that mean that the federal government is now going to start providing the cash with tax dollars? more borrowing? Tax credits to the institution?
Where is the cash for the loans going to come from if the banks are not involved?
And my impression from the OP is that repayment of the loan will be capped at 10% of income. Therefore if your 10% of your income is less than the monthly interest charges you are going backwards not forwards on the loan at least until such time as that changes.
I'd like to know how this is going to save the government $68 billion over the next decade.
Immie
I know that Stafford Loans are gov't backed loans. We went with the subsidized loan because no interest had to be paid until 6 months after graduation.
I was under the impression that all these loans/grants (Pell grants, Stafford Loans, etc.) were loans from the bank but backed by the gov't and if someone defaulted it was the gov't at risk? That the banks were the 'middle man' so to speak. But with the banks we could choose which bank, which terms, etc. Now the gov't has taken them, and that choice, out of the picture.
That is basically my understanding but I do not know where and how the FFEL applies in this manner. Maybe they are not touching Stafford Loans and Pell Grants, but this program will change?
Immie
A loan "guaranteed" by the federal government is as good as gold... er, it used to be anyway.
Immie
Despite how much times have changed. A loan guaranteed by the Federal Government is better than the majority if not all countries as far as I know. Maybe Toro or someone else could correct me on that one.
Federal Student Loan Programs - History
The federal government began guaranteeing student loans provided by banks and non-profit lenders in 1965, creating the program that is now called the Federal Family Education Loan (FFEL) program. The first federal student loans, however, provided under the National Defense Education Act of 1958, were direct loans capitalized with U.S. Treasury funds, following a recommendation of economist Milton Friedman. But when Congress wanted to expand on that start, vague budget rules made the guarantee approach seem more attractive.
Under then-prevailing budget rules, a direct loan would have to show up in the budget as a total loss in the year it was made, even though most of it would be paid back with interest in future years. In contrast, a guaranteed loan, which placed the full faith and credit of the United States behind a private bank loan, would appear to have no up front budget cost at all -- because the governments payments for defaults and interest subsidies would not occur until later years. This raised concerns among economists, who worried that the government was making financial commitments without accounting for the ultimate costs.
In 1990, economists got what they wanted. With President George H.W. Bushs signature on the Federal Credit Reform Act (which was included in a larger budget reconciliation bill, the Omnibus Reconciliation Act of 1990), all government loan programswhether guarantees of commercial loans, or loans made directly from a federal agencywould have to account for their full long-term expenses and income. Every loan program would have an estimated subsidy cost.
The subsidy cost is the amount of money that needs to be set aside when the loan is made in order to cover the costs to the government over the life of the loan. According to the Government Accountability Office, the old approach "distorted costs and did not recognize the economic reality of the transactions," while the new approach "provides transparency regarding the government's total estimated subsidy costs rather than recognizing these costs sporadically on a cash basis over several years as payments are made and receipts are collected." More information on student loan budget rules is provided here.
This more rational approach to budgeting changed the nature of policy discussions on Capitol Hill. Student loan programs were among the first to be affected.
Prompted by an analysis from the Bush administration indicating that direct loans would be less costly and simpler to administer than guaranteed loans, Congress created a direct lending pilot program in 1992. In 1993, newly elected President Clinton proposed replacing the guarantee program with the direct approach as part of his deficit reduction plan. Estimates from all of the government's budgeting and auditing agencies showed that direct lending would deliver the same loans to students at significantly lower cost to taxpayers.
As part of the 1993 budget agreement, Congress passed a budget reconciliation bill (the Omnibus Reconciliation Act of 1993) that would phase in direct lending, starting with colleges that volunteered to participate and giving the Secretary of Education the power, if necessary, to require colleges to switch until at least 60 percent of loans nationwide were direct. While the law called for direct lending to replace guaranteed loans, it was silent about what would happen beyond the 60-percent mark, since that was outside of the five-year window covered by the budget.
In 1994, the new Republicans leadership in Congress targeted direct lending for elimination. However, many college and university officials were dissatisfied with the guaranteed loan system and optimistic about the new alternative. Under the guarantee system, financial aid administrators had to deal with what the Government Accountability Office labeled a complicated, cumbersome process, disconnected from other federal aid and involving thousands of middlemen. Hundreds of institutions were already participating in the direct loan program, which operated in tandem with the other federal aid programs.
Ultimately, Congressional leaders stopped short of eliminating direct lending. Instead, they passed a law that prohibited the Department of Education from encouraging or requiring colleges to switch to the direct loan program. In theory, this maximized choice: schools could choose to participate in one program or the other. In practice, those profiting from the guarantee system could use their substantial resources to lure or retain colleges and universities, while the direct loan program was not allowed to make its own case. Not surprisingly, campus participation in the drect loan program declined.
In 2003, a team of investigative reporters at U.S. News and World Report looked into what was causing some colleges to switch back to the guarantee program. Their front-page story found that much like old-time political ward bosses, the student loan industry used money and favors, along with their friends in Congress and the Department of Education, to get what they wanted.
By 2007, new volume in the direct loan program had reached the lowest share of total federal student loan volume since it began in the 1990s. This trend, however, reversed in 2008. Widespread credit market disruptions in 2008 and 2009 threatened the ability of many private lenders to make loans under the federal guaranteed student loan program, and numerous private lenders discontinued participation in the program. In response, schools that previously participated in the guarantee program, switched to the direct loan program, and direct loan program volume, as share of total loan volume, began to increase in 2008.
Legislative responses to credit market turmoil also dramatically changed the structure and operations of the FFEL program. Congress and President George W. Bush enacted a temporary program in May 2008 to allow the U.S. Department of Education to buy guaranteed loans made by private lenders. The proceeds from the loans would be used to originate new student loans. The temporary program, the Ensuring Continued Access to Student Loans Act (ECASLA), marks a major historical change in the guaranteed loan program, as it provides federal capital to private lenders making student loans. In this regard, the guaranteed program now shares more characteristics with the direct loan program.
Finally, President Barack Obama proposed in his fiscal year 2010 budget request to Congress a full elimination of the FFEL program. He argued that subsidies paid to private lenders under the program were unnecessary and that cost savings could be achieved if all federal student loans were made through the direct loan program.
The U.S. Government has not defaulted on any loans... yet. And let's pray they never do.
Immie
Every government program is basically bankrupt. Who are the dummies wo believe they'll get this right? The government has no profit motive, therefore, no incentive to get it right... they just print more money or confiscate a bigger chunck of your ass. Then they promise you more goodies.. FOR FREE!!!!!
I saw that in post #49, but I don't know that that is accurate. My previous understanding was that the banks provided the loans and the government subsidized and/or guaranteed the loans much as they do with VA loans.
I'm not certain of that and I am sure there are different programs so maybe I am thinking of a different plan.
Immie
I believe it is accurate. That's the whole reason we're able to save so much money.
That could be just the VA loans. As far as I know, the banks were the ones who were the middlemen while the government was the one providing the $$$. Now it's just the government providing the $$$ and loans.
Okay, and that goes back to my other question. Where is that money coming from?
Increased taxes? Selling more T-Bills? More deficit? Printing more money?
Immie
From my understanding the 'extra' money is coming from cutting the bankers out of the picture. But ultimately any 'gov't loan/grant' money is coming from the taxpayer . . . as it always does.
I believe it is accurate. That's the whole reason we're able to save so much money.
That could be just the VA loans. As far as I know, the banks were the ones who were the middlemen while the government was the one providing the $$$. Now it's just the government providing the $$$ and loans.
Okay, and that goes back to my other question. Where is that money coming from?
Increased taxes? Selling more T-Bills? More deficit? Printing more money?
Immie
From my understanding the 'extra' money is coming from cutting the bankers out of the picture. But ultimately any 'gov't loan/grant' money is coming from the taxpayer . . . as it always does.
From my understanding the 'extra' money is coming from cutting the bankers out of the picture. But ultimately any 'gov't loan/grant' money is coming from the taxpayer . . . as it always does.
That's my understanding as well. And since these are loans, they are going to be paid back with interest. And in theory, it should work. However, loans default and you have the middlemen to pay in the process, which fudges the numbers.
The money to pay for the increases in the Pell Grant Programs and other similar ones however are going to come from saving money on this.
Hey, has your school hiked costs? My daughter's increased $1500 or so from her freshman to her sophomore year (this year) and is increasing about as much for the remainder of her schooling . . . and beyond. Do you live at school?
Student loan interest is 7.2% right now. At least for my Stafford loan. I owe $7.00 left on the damn thing as of this month. Took FOREVER to pay it off. Now I'm going back. My friend is getting her PHD and will owe in excess of $120K when she gets out. That's a small house...
Do banks offer low interest student loans? We went with the subsidized Stafford loan because no interest has to be paid until 6 months after graduation.
Well, let's look at it this way. What bank is going to loan a 18 year old kid $20,000 a year for something that 50% end up dropping out of? (College).
The whole reason that the government has to get involved in the first place I assume (keyword assume) is that banks wouldn't take the risk in lending to college students in the first place. Which is why the Government gave money to the banks to do so.
Now the government is telling the banks that they're just going to do it themselves.
That's what I get out of this anyway. See Post #49 by the way.
