Health Care and Student Loans Go Together Like …

by Ron Haynes

This is a Guest Post from Allie Gray, Online Marketing Manager for Rasmussen College.

strangecombination

How Health Insurance Reform Will Affect Student Loans

Health insurance reform has passed in America; Congress has voted, and Obama has signed the bill. Beyond aiding millions of Americans to buy affordable health insurance, the bill also surprisingly affects many American students.

What is this Bill all about?

The Bill features a provision, included in the “reconciliation,” which orders the increase of Pell Grants by over $36 million dollars. Pell Grants, money (your taxes) awarded and provided by the federal government that does not require repayment, are given based on financial need as determined from the Free Application for Federal Student Aid (FAFSA).

What does this mean for the average student?

First of all, the maximum amount awarded by Pell Grants will increase. However, this will not go into effect until the 2013-2014 academic year, meaning many current students who will have graduated by 2013 are ineligible.

Researchers estimate that, with inflation, by 2020 Pell Grants could at a maximum be as much as $5,975 per year. In all, this is only a $435 yearly increase from the current maximum grant amount. The original bill in Congress proposed an increase of nearly $1,000, but the number was pared down to ensure easier passage of health care reform.

Further, the bill stipulates that eventually government loan repayment plans will be set according to a former student’s personal income, as opposed to real-money debt. However, this part of the bill will similarly take many years to implement (starting the 2014-2015 school year), and will more than likely only benefit workers on the very low end of the income scale. The benefit will cap repayments at 10% of discretionary income, as opposed to the current 15% of discretionary income rate. After 20 years of repayment, all federal loans will be forgiven, which is a decrease from the current 25 year limit.

What can you expect to change immediately?

If you receive federal loans, from the next academic year on (officially July 1, 2010), they will be distributed directly from the United States Government—they will no longer be provided by banks or private lenders. Because of this change, the possibilities of lower interest rates are increased, especially for PLUS loan awardees, who are typically graduate students and parents of students. Additionally, approval rates on federal direct loans are historically much higher than bank or middle-man managed federal loans, so families may be more likely to qualify.

Although the bill has been met with praise, there is controversy over the switch; some worry that the bill could cause tens of thousands who work for private lenders to lose their jobs, and many colleges are concerned that they will need to crunch in order to put necessary regulations in place by the July 1, 2010 due date.

{ Ron’s Note }

It’s ironic that the main benefit to students (the increase in Pell Grant money) could have easily been added to the bill without the loss of 30,000 jobs in community banks and non-profit lenders and 2,100 jobs with Sallie Mae. Yep, that’s the estimates on how many people will be losing their jobs. I have to ask myself: Why would a government deeply, hopelessly in debt seek a monopoly on college loans? Could it really be about control rather than about college loans?

It surely isn’t about “savings.” The savings trumpeted by our elected representatives never took into account the costs of administering the program. Once those numbers are plugged in, the deficit grows even larger. But no worries! The government will borrow the money at 2.8 percent and lend it to students at 6.8 percent, spending the spread on the new health care bill and other pet programs. In other words, the government will be overcharging 19 million students! Who knew that students could be a source of NEW government taxes income? With the average student going into debt $25,000, the overcharge looks to be about $1,800.

Remember that overcharge when you realize that certain groups won’t be required to repay these loans. And that the government now controls the lion’s share of most college’s finances. And we all know how the government can interfere with admissions, it the numbers aren’t politically correct.

Remember that the road to hell is paved with good intentions.

Sources and more reading on the Health Care Bill:

About the Author: Allie Gray is an Online Marketing Manager for Rasmussen College. Rasmussen is one of the premier colleges in Illinois and one of the nation’s leading online colleges.

Photo by Bargearse

About the author

Ron Haynes has written 1001 articles on The Wisdom Journal.


The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.


If you enjoyed what you just read and would like to get FREE email updates with the freshest articles from The Wisdom Journal delivered right to your inbox, subscribe today! It's ridiculously easy and you can unsubscribe at any time. Since your email address is never sold or abused, you can subscribe with confidence, PLUS you'll get free reports/guides/eBooks, subscriber only benefits, and other perks.


{ 6 comments }

businessprofessor

The author misses the bigggest problem with nationalizing student loans: doing so makes higher education an entitlement. The government will provide the capital instead of private industry. Federal control relaxes repayment rules eventually making loans into grants.

The Democrats have made the ridiculous claim that federalizing the program saves money. Subsidies and strict repayment rules were necessary to reduce the risk to private borrowers. Competitive bidding reduces but cannot eliminate the subsidies because students are poor candidates for unsecured loans at favorable interest rates with deferred interest payments. The subsidies however revealed the true cost of the loans. Federalizing the program makes the cost difficult to ascertain and likely to substantially increase the national debt.

Ron

Welcome to the completion of the Federalization of education. Ted Kennedy’s bill, No Child Left Behind, did it for primary schools. Now we’ve done it for colleges and universities.

ray

Subsidizing student loans will raise the cost of college even further. Then, when the students can’t pay it back, they will have to go to work for the government to pay it off.

Here in my state, we adopted a state lottery in order to fund education. Each student is give $1,000 or so dollars for free just to attend college. So guess what happened as a result? The cost of education went way up and continues to do so, because the demand is now up and the schools know that no one will notice the increase because of the free money everyone is getting.

Higher education in America is not worth the price tag in most cases and I think most people could learn on their own for way less money and without the liberal brainwashing.

The Biz of Life

Did I suddenly wake up and find myself in Venezuela? The government’s appetite for spending and new sources of income is prodigious. Will loan forgiveness be used now to buy votes? The government should not be in this business.

Richard | RichardShelmerdine.com

~Things are changing quickly. Give it a few years and the system will sort itself out but for now its a bit up in the air.

Ron

We don’t have to wait. It’s really easy to look at where it’s failed elsewhere and see ourselves making the same mistakes. This wasn’t about student loans anymore than the “healthcare” bill was about healthcare. It’s all about government control.

Previous post:

Next post: