Feds take over student loan program from banks
Tuesday, March 30, 2010
President Obama will sign a bill today that ends a 45-year-old program under which banks and other private-sector lenders such as Sallie Mae receive a federal subsidy for making government-guaranteed college loans.
Instead, the U.S. Department of Education - which already makes roughly a third of these loans through its direct-lending program - will make 100 percent of them starting July 1.
The change will have a big impact on some lenders and colleges but relatively little on borrowers. They will continue to get the same loans - including Stafford loans for students and Plus loans for parents and graduate students - on largely the same terms.
Students who previously had to choose a private-sector lender for their guaranteed loans will now have only one choice: the government.
Banks can continue to make private, non-guaranteed college loans, but these are generally more expensive than guaranteed loans.
With a single lender providing all guaranteed loans, some fear that customer service could deteriorate or that discounts once offered by private-sector lenders will disappear.
On the upside, the interest rate on Plus loans is only 7.9 percent in the direct-loan