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The Congressional Research Service (CRS) is calling attention to the fact that the Federal government has officially become the banker for college students. Among the many line items in the two bills that make up Obamacare was the termination of the Federal Family Education Loan (FFEL) program, moving student loans from the private sector to the U.S. Treasury.
“The DL [Federal Direct Student Loan] program uses a different administrative structure and draws on a different source of capital than was used in the FFEL program,” said a CRS report published on March 4. “Under the DL program, the federal government essentially serves as the banker — it provides the loans to students and their families using federal capital (i.e., funds from the U.S. Treasury), and it owns the loans.”
Though he used carefully crafted wording that avoided the term, there is no doubt that President Obama sees this as a much needed redistribution wealth from banks to college students. When he signed the bill at Northern Virginia Community College, the President said:
For almost two decades, we’ve been trying to fix a sweetheart deal in federal law that essentially gave billions of dollars to banks to act as unnecessary middlemen in administering student loans. These are billions of dollars that could have been spent helping more of our students attend and complete college, that could have been spent advancing the dreams of our children, that could have been spent easing the burden of tuition on middle-class families. Instead, that money was spent padding student lenders’ profits.
Senator Marco Rubio (Rep – FL), who just finished paying off more than $100,000 in student loans, warned attendees at the Conservative Political Action Conference, “You should be very concerned about student loan debt,” he said. “It is the next big bubble in America.”
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Rubio’s warning is backed up by hard numbers, In January 2000, the balance of the Federal Direct Student Loan program was $51.643 billion. Over the next eight years, that nearly doubled, rising to $101.682 billion in January 2008.
In January 2009, the first month Obama’s first term, the balance of the Federal Direct Student Loan program was $119.803 billion. In June 2010, the last month that private-sector lenders could make federally guaranteed student loans, the balance was $178.806 billion. In February 2013, the latest month reported, it was $588.048 billion. That amounts to a fivefold increase in less than five years,
“In FY 2013, ED (the Department of Education) estimates that 22.5 million new DL program Stafford Loans and PLUS Loans, averaging $5,366 each and totaling $120.8 billion, will be made to undergraduate and graduate students and the parents of undergraduate dependent students,” said the CRS in its March 4 report.
It is also apparent that the government expects many students to never pay those loans back. There are numerous ways students can get out of paying back all they owe in a timely manner to the taxpayers.
The Income-Based Repayment Plan (IBR), for example, is designed to give borrowers the chance to make monthly payment amounts based on the relationship between their student loan debt and their income. As the CRS says, “It affords borrowers who experience prolonged periods of low income the prospect of debt forgiveness.”
Some graduates who can afford to pay their debt to the taxpayers, CRS reports, can have “DL program loans forgiven, cancelled or repaid as an incentive for entering certain occupations or professions, or for performing certain types of public service.”
The end result of these changes in student loans is that a growing number of Americans are borrowing money directly from the government to finance college. And, as the debt relationship grows between college students and Washington, the repayment of those loans will become a political bargaining chip to curry favor among those who owe.