This week’s special coverage of the impacts of the Obama Administration here on AllBusiness continues. I’ve been looking at personal finance changes for the middle class. (Yesterday’s post was on the Making Work Pay tax credit.)
One of the more interesting personal finance policies from this administration was put into motion yesterday, when President Obama signed a bill ending private sector lending of student loans guaranteed by the government. Now all Stafford loans and Plus loans will be originated through the Department of Education.
For most borrowers, there won’t be huge changes (although the government is offering a lower interest rate on Plus loans than the current private sector version). And banks and other institutions can still offer private student loans. They just won’t be government guaranteed — and the institutions won’t be getting subsidies.
Kathleen Pender reports on the expected savings with the government originating these loans:
The government estimates it will save $61 billion over 10 years because it has a lower cost of funds than the banks it is replacing and won’t have to pay them a subsidy. Some of that money will go toward Pell grants for needy students, community colleges and minority-serving colleges. The rest will go to other uses including deficit reduction and health care reform.
Additionally, it will be the government receiving those interest payments, rather than private businesses (who are also subsidized). The hope is that this will lower overall education costs for the middle class. Those who don’t qualify for grants would be able to borrow at lower rates. At least that’s the plan. We’ll have to wait and see whether this really does help keep costs down. The new program goes into affect July 1, 2010. All loans made before then are unaffected.