🖤 Donations of all sizes power our public service journalism Give Now
College Tuition

The impact of student loan reform

Marketplace Staff Apr 2, 2010
College Tuition

The impact of student loan reform

Marketplace Staff Apr 2, 2010


Tess Vigeland: If you were a student loan reform bill, where would you bury yourself? Well, there is perhaps no better place to hide such an Easter egg than in the massive health care reform package. And that’s right where you’d find it. The biggest change in the student loan program since 1965 eliminated subsidies for private bank lending to college students.

Paul Basken of the Chronicle of Higher Education is here with details. Welcome to the show.

Paul Basken: Thank you very much.

Vigeland: What role will banks now play in the student loan industry?

Basken: Well, they won’t play as big a role as they have been playing. What the process was was that a bank would get a subsidy from the federal government to issue a loan. Now the federal government’s simply going to give the money directly to the college and to the student. But the banks will be the ones to handle the paperwork, make sure the student pays back the loan on time. So those that will remain in the system will have a fairly substantial role still.

Vigeland: So they’ll basically be servicing the loan then.

Basken: Yes, yes. They’ll be servicing the loan, which is what they’ve been doing all along under the current system. The main difference now, is that they won’t hold ownership of the loans, at the loans that are federally subsidized. There’s a limit on how much you can borrow under the federal system, and in a lot of cases, it’s not enough to cover your costs of college, especially at a private college.

Vigeland: So let’s go now to what this means for students, past and present. And I’d like to actually start with a question that we’re getting from lots of listeners who already have government-subsidized loans. Does this change anything for them?

Basken: Basically, no, it doesn’t. For a student who’s remaining in school and continuing forward, then it will change what they might pay in the future. But as far as what they’ve already taken out for loans and the way they’re doing it, no it doesn’t change anything.

Vigeland: The other question we’re getting from a lot of folks is that they’ve heard that the income-based repayment plan is going to change from you have to pay 15 percent of your income down to 10. When does that take effect and for whom?

Basken: It’ll take effect immediately, but again, it’s for students going forward. And if you’ve already taken a loan, that doesn’t apply to you, but it cuts back both the percentage of your income that you have to pay back and the length of time you have to pay it, from 25 years down to 20 years, before it gets forgiven entirely. And this is on a basis, basically, for students who take low-paying, low-income jobs after they graduate from college.

Vigeland: Let’s move onto Pell grants. Does this in any way change eligibility for those grants?

Basken: Eligibility is a very complicated thing for a Pell grant. So the answer on one level is yes, but mainly what it’s doing here is putting more money into the Pell grant system, so that the eligibility or the number of students who can get covered by it and the amount of money that they get will go up.

Vigeland: And let’s talk about that amount. How much will the Pell grant go up over the next several years?

Basken: The maximum Pell grant for the coming school year is $5,550. That same level will stay safe for two years, and then it’ll go up by the rate of inflation after that for the following five years. So the estimate is that it will get somewhere close to about $6,000 by the end of the 10-year time frame.

Vigeland: That increase really doesn’t help much in the grand scheme of things, does it? I mean, it certainly doesn’t keep up with the inflation of college costs.

Basken: Absolutely, it does not keep up. The rate of inflation in the cost of going to college has been going up beyond the rate of regular inflation. But that’s been the case for decades now, and the Pell grant program, it has barely, if at all, kept up with the rate of inflation in the general economy, to say nothing of keeping up with the real inflation of the cost of college.

Vigeland: So, can you give us kind of an overall sense of what this bill does for students who are hoping to go to college?

Basken: I think it’s probably a very classic glass half full-glass half empty thing. One big area that got cut out was community colleges were supposed to get about $10 billion; they ended up with $2 billion. That was actually a big centerpiece of the Obama administration’s plans for getting a lot more U.S. students into college was by expanding the community colleges. There was also some money for lowering interest rates on these loans — that got cut out. There was some money actually for early childhood education — that got cut out as well. So what really had hoped to be a real windfall for education — higher education in particular for this bill — has really turned out to just be a lot of money for programs that Congress has been funding all along, at roughly the same pace.

Vigeland: Paul Basken writes for the Chronicle of Higher education, and we’ve been talking about the student loan reforms that passed, along with the health bill a couple of weeks ago. Thanks so much for helping us out.

Basken: Thank you very much.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.