Feds to provide student loans directly

President Obama today put the finishing touches on his health care reform package.
Among the amendments signed into law, is a measure that stops private lenders from playing the middle-man between the federal government and students applying for college loans and grants.

By Aaron Moselle

President Obama today put the finishing touches on his health care reform package.

Among the amendments signed into law, is a measure that stops private lenders from playing the middle-man between the federal government and students applying for college loans and grants.

Effective July 1, the law will stop paying commercial lenders to issue federal student loans.

The Congressional Budget Office estimates the move will save the federal government over $60 billion dollars over the next decade.

The majority of those savings will be re-invested to stabilize and boost the federal Pell Grant program, which awards need-based scholarships to students from low and moderate income-level families.

Jerry Sullivan heads the American Association of Collegiate Registrars and Admissions Officers. He says, paying banks to hand out a federally guaranteed loan, was a win-win deal for the banks.

Sullivan: The banks had a very sweet deal. They couldn’t lose. If there was a default, they got repaid by  the government. And if there was no default, they had a nice asset that paid earnings over time or they could sell that asset and take the money up front and turn that into another loan, which they could then turn around and do the same thing again.

Sullivan says the measure will only apply to newly requested federal loans and grants.