Congress to Help with Student Loans
- Greg Mischio - MortgageLoan.com
The shaky nature of the economy has cast doubt over the entire lending world. Much attention has been focused on the housing market, but student loans have also become under question. Recently, Congress has taken steps to ensure liquidity in the market, providing a dose of confidence for the future.
The financial turmoil in the United States has been dizzying, confusing, and downright scary. From stockbrokers to homeowners, uncertainty has swirled in reaction to the government bailout plan for the economy.
The future is in doubt for student loans, as well as home mortgages. If private institutions are forced to tighten their lending restrictions, it imperils private student loans. Considering the importance of education to our economy, this could be one of the most devastating blows of an overly constricted credit market.
To alleviate the problem, Congress has taken action on some short-term and long-term solutions.
Short term: Keeping access strong
This past spring, Congress overwhelmingly passed a measure that allows the Secretary of Education to buy loans from lenders in the Federal Family Education Loans program. This Draconian measure can only be enacted if a lender can't meet the demand for capital because of the constricting markets. The recent action by the Congress extends the Education Secretary's authority until July 2010.
In addition, Congress approved a measure that would extend the amount of federally-subsidized student loans available to borrowers. The previous cap had been raised to help students deal with higher-priced private equity loans.
Long term: Erase student loans with public service
The government has also approved a series of measures that forgive student loans in exchange for public service work. Provisions of the College Cost Reeducation and Access Act of 2007, and the reauthorization of the Higher Education Act, both include short-term and long-term provisions for graduates who enter the public sector.
The long-term program will forgive any remaining federal student-loan debt for qualified individuals who have 10 years of full-time employment in a public service position, such as a public defender. The legislation only applies to those with federal loans, such as Stafford, Grad PLUS, and debt consolidation. Students with loans from private lenders will have to switch to a federal loan to qualify.
One of the criteria for qualifying for the program is that a borrower must make 120 monthly payments toward her debt. These payments do not need to be made consecutively.
The short-term program is meant to entice people to work in the public sector. It provides forgiveness for a portion of a student loan after as little as three years of public service.
Much has been written about the parallels between the current economic crisis and the Great Depression. The government's recent flurry of activity appears to be a stark contrast to the inactivity of elected officials in the 1920s. Time will tell whether the government measures will ensure that there'll be a healthy economy waiting for students when they graduate.
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