cleaning your credit reports before you apply for a consolidation loan makes a lot of sense. If you prepare in advance, you will avoid both a loan turndown, and unnecessary inquiries showing up on your credit reports.



The New Student Loan Law

News of the passage of the President’s giant health care bill this past week has overshadowed the simultaneous passage of a new student loan bill that was neatly tucked into the health care legislation. This has caused some controversy. As with most political issues, there are loud pros and cons.  








Student loan overhaul to ease access, repayment

More needy college students will have access to bigger Pell Grants, and future borrowers of government loans will have an easier time repaying them, under a vast overhaul of higher education aid headed to President Barack Obama’s desk.

The measure would force private commercial banks out of the federal student loan market, cutting off billions of dollars in profits for the institutions. Students will take out their loans through their college’s financial aid office, instead of using a private bank.

The banks would no longer get fees for acting as middlemen in federal student loans. The government would use the savings to boost Pell Grants and make it easier for some workers to repay their student loans. In addition, some borrowers could see lower interest rates and higher approval rates on student loans.




Since the bank-based loan program began in 1965, commercial banks such as Sallie Mae and Nelnet have received guaranteed federal subsidies to loan money to students, with the government assuming nearly all the risk. Democrats have long denounced the program, saying it fattened the bottom line for banks at the expense of students and taxpayers.

The revamping of student loan programs was included in the final health care package passed by Congress on Thursday. The House approved the bill by a vote of 220-207, hours after the Senate passed it by a vote of 56-43. No Republicans in either chamber voted for the bill.

The legislation, an Obama domestic priority that was overshadowed by the health care issue, has widespread reach. About 8.5 million students are going to college with the help of Pell Grants.

Congressional allies of the student loan industry attacked the overhaul as an over-reaching government takeover that will kill banking jobs. The legislation substitutes an expanded direct-lending program by the government for the bank-based program, directing $36 billion over 10 years to Pell grants, for students from low-income families.

“The Democratic majority decided, well look, while we’re at it, let’s have another Washington takeover,” said Sen. Lamar Alexander (R-Tenn.), a former U.S. education secretary. “Let’s take over the federal student loan program.”

But Sen. Tom Harkin (D-Iowa) praised the bill as a victory for middle-class families. “Now they’ll have the assurance that their kids will be able to afford to go to college and again, when they get out, they won’t be burdened with a huge debt,” he said. 
Less than they wanted

Still, the changes do not go as far as Obama and House Democrats wanted. That is because ending fees for private lenders would save less money than they anticipated, according to budget scorekeepers. The bill is now expected to save $61 billion over 10 years. 

As a result, the Pell Grant increase is modest and still doesn’t keep up with rising tuition costs. Advocates had sought bigger increases. “The increases in the Pell Grant are better than nothing, but they are still quite anemic,” said analyst Mark Kantrowitz, publisher of the student assistance Web site FinAid.org.

Private lenders still will make student loans that are not backed by the government, and they still will have contracts to service some federal loans. But the change represents a significant loss to what has been a $70 billion business for the industry.

Even as the Democrats’ decision to attach the student loan overhaul to the health care package virtually ensured its passage, banks fought fiercely up to the last minute, prompting some lawmakers such as Sen. Ben Nelson, a Democrat from Nebraska, where Nelnet has its headquarters, to cast their vote against the overall bill.

Under the measure, Pell Grants would rise from $5,550 for the coming school year to $5,975 by 2017. Lawmakers had initially hoped to reach a $6,900 cap.

More eligible students could get a full Pell Grant. Most grants go to students with family income below $20,000, but students with family income of up to $50,000 also may be eligible.

The legislation will make it easier to pay back student loans, by reducing the share of income that a graduate must devote to loan payments and by accelerating loan forgiveness – but not right away. Those who take out new loans after July 1, 2014, will have to devote 10% of their income to payments, down from the current 15%, and those who keep up their payments will have their loans forgiven after 20 years, reduced from the current 25.

Community colleges, the main provider of higher education for most low-income Americans, were set to receive $10 billion under the administration’s original plan but will instead get just $2 billion for job training.

Historically black and minority-serving colleges will get the $2.55 billion originally earmarked for them in the bill.