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Will Financial Aid Reforms Save Students Money?


An article the other day on MSNBC asked the above question.
The answer? Hard to know. Depends on how Congress reforms the industry through oversight and legislation.
Here’s an excerpt:

Congress is also proposing significant changes in the way the $85 billion market for student loans is subsidized and guaranteed. The House and Senate have enacted separate bills with some common ground, but it remains to be seen just how the final law will impact the cost of a student loan.
Both bills would ease the burden on student by placing limits monthly payments based on income; once out of school, graduates would have to pay no more than 15 percent of their income each month. All debt would be canceled after 25 years. And more loans would be “forgiven” for graduates who take public-service jobs like teachers, nurses, police and firefighters.
The bills also both call for cutbacks in subsidies for lenders that participate in government-backed loan programs. By shaving roughly a half-percentage point from those subsidies, Congress is hoping save as much as $19 billion a year. The government would also require lenders to cover more of the losses from defaulted loans — the House and Senate bills differ on just how much more.
At issue is how and where those savings are diverted. The House bill would slash the rate on need-based loans in half — from the current 6.8 percent to 3.4 percent — and provide additional money for so-called Pell grants, a program that currently pays up to $4,010 a year in direct aid to low-income students. The Senate bill doesn’t include a rate cut, but is more generous with increases in Pell grants.

No matter what Congress does, three things will remain constant:

  • 1. The cost of a college education will continue to go up.
  • 2. More families will be taking out more loans to pay for college.
  • 3. The amount of information necessary for families to make good consumer decisions to finance a college education will continue to grow.

Mark Montgomery
Montgomery Educational Consulting

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